Roku easily beat Wall Street forecasts for second-quarter 2021 earnings — posting record 81% revenue growth — but the net number of new active user accounts fell shy of analyst expectations. What’s more, the total number of hours streamed fell by 1 billion hours from the prior quarter.
Total net revenue grew 81% year-over-year to $645 million, and Roku reported net income of $73.5 million, or 52 cents per diluted share. On average, Wall Street analysts expected Roku to post Q2 revenue of $618.5 million and EPS of 12 cents.
Besides the slowing account growth and drop in streaming hours from Q1, Roku reported a negative gross margin for its hardware business of -5.9%. The company blamed higher component and shipping costs and Roku’s decision to eat those escalating expenses by “insulat[ing] consumers from increased costs for Roku players.”
Roku shares were down 8.5% in after-hours trading.
For Q3, Roku estimated net revenue of $675 million-$685 million, which at the midpoint would represent 51% year-over-year growth. Roku said it “anticipate[s] quarterly sequential increases in operating expenses in the second half of 2021 from our investments in headcount, product development, and sales & marketing.” As a result, it expects profits to take a hit in Q3: Roku forecast adjusted EBITDA of $60 million-$70 million, compared with $56.2 million in Q3 2019 and $122.4 million in Q2 2021.
In Q2, Roku’s active accounts reached 55.1 million, an increase of 1.5 million active accounts from Q1. Morgan Stanley analysts expected Roku to end the quarter with 56.2 million accounts. Meanwhile, streaming hours on the Roku platform for Q2 were 17.4 billion hours, a decrease of 1 billion hours from Q1 2021 (or about 5% sequentially).
Q2 net adds “were higher than pre-COVID levels in Q2 2019, but as expected, lower than the pandemic-related surge of Q2 2020,” Roku said in its letter to shareholders.
The company blamed the sequential decline in streaming hours on consumers seeking “increased out-of-home entertainment activities (such as dining and travel) in Q2 as a result of pent-up demand and the loosening of COVID-19 restrictions.”
Citing Nielsen measurements, Roku claimed it still “significantly outperformed” the TV industry in the most recent quarter. Roku’s streaming hours increasing nearly 19% globally in Q2 year over year compared with a nearly 19% decline in traditional TV consumption, per Nielsen estimates.
For Q2, Roku’s Platform segment — which includes advertising and share of subscription revenue from partners — revenue topped $532 million, up 117% year-over-year. Average revenue per user for the quarter (on a trailing 12-month basis) climbed 46% year-over-year to $36.46.
On the Roku Channel front, Roku has been opportunistically snapping up exclusive and original content that it can monetize with ads.
Earlier this year, for example, Roku paid substantially less than $100 million for the assets of Quibi, which had landed $1.75 billion in funding, and bowed a batch of 30 Quibi shows (rebranded as Roku Originals) in May. It plans to roll out another 45 shows from Quibi’s library later this year. The Quibi shows collectively earned eight 2021 Emmy Awards nominations in short-form categories.
With the initial Quibi shows, the Roku Channel saw “record-breaking reach” from May 20-June 3, according to the company, with more unique accounts streaming the Roku Channel than any other two-week period. According to Roku, more active accounts streamed a Roku Original in the first two weeks on the Roku Channel than the number of Quibi accounts did on Quibi over the brief nine months of the app’s lifetime. But Roku didn’t release actual viewership numbers.
CEO Anthony Wood, who also called out the company’s acquisition of This Old House, said on the earnings call that the company would continue to look for content assets to acquire but he didn’t go into detail.
In late April, Roku removed the YouTube TV app from the Roku channel store over a dispute on distribution terms for the core YouTube app. In response, YouTube launched a new feature to let users access to YouTube TV from within the YouTube app, starting with Roku devices.
“We’re working to resolve this in a way that’s good for Roku and consumers, but we don’t have a resolution,” Scott Rosenberg, Roku’s SVP of platform business, said on the Q2 call. He reiterated Roku’s position that “this is not a carriage dispute.” He said the company is not asking for better economic terms for YouTube TV distribution but rather that Roku doesn’t want Google to dictate terms for search on its platform.
Also on the call, Wood said he doesn’t think of Roku as a “gatekeeper” vis-à-vis deals with content partners. “We are in a very competitive market,” he said, citing rivals like Samsung, Google and Amazon.