Streaming TV platform Roku (NASDAQ: ROKU) announced better-than-expected revenue in Q4 CY2024, with sales up 22% year on year to $1.20 billion. The company expects next quarter’s revenue to be around $1.01 billion, close to analysts’ estimates. Its GAAP loss of $0.24 per share was 41.7% above analysts’ consensus estimates.
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Roku (ROKU) Q4 CY2024 Highlights:
- Revenue: $1.20 billion vs analyst estimates of $1.15 billion (22% year-on-year growth, 4.4% beat)
- EPS (GAAP): -$0.24 vs analyst estimates of -$0.41 (41.7% beat)
- Adjusted EBITDA: $77.5 million vs analyst estimates of $34.85 million (6.5% margin, significant beat)
- Management’s revenue guidance for the upcoming financial year 2025 is $4.61 billion at the midpoint, in line with analyst expectations and implying 12.1% growth (vs 17.9% in FY2024)
- EBITDA guidance for the upcoming financial year 2025 is $350 million at the midpoint, above analyst estimates of $287.5 million
- Operating Margin: -3.3%, up from -10.6% in the same quarter last year
- Free Cash Flow Margin: 6.4%, similar to the previous quarter
- Active Accounts: 89.8 million, up 9.8 million year on year
- Market Capitalization: $12.31 billion
Company Overview
Spun out from Netflix, Roku (NASDAQ: ROKU) makes hardware players that offer access to various online streaming TV services.
Consumer Subscription
Consumers today expect goods and services to be hyper-personalized and on demand. Whether it be what music they listen to, what movie they watch, or even finding a date, online consumer businesses are expected to delight their customers with simple user interfaces that magically fulfill demand. Subscription models have further increased usage and stickiness of many online consumer services.
Sales Growth
A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last three years, Roku grew its sales at a solid 14.2% compounded annual growth rate. Its growth beat the average consumer internet company and shows its offerings resonate with customers.
This quarter, Roku reported robust year-on-year revenue growth of 22%, and its $1.20 billion of revenue topped Wall Street estimates by 4.4%. Company management is currently guiding for a 14% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 12.2% over the next 12 months, a slight deceleration versus the last three years. Still, this projection is above average for the sector and suggests the market sees some success for its newer products and services.
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Active Accounts
User Growth
As a subscription-based app, Roku generates revenue growth by expanding both its subscriber base and the amount each subscriber spends over time.
Over the last two years, Roku’s active accounts, a key performance metric for the company, increased by 14.5% annually to 89.8 million in the latest quarter. This growth rate is among the fastest of any consumer internet business and indicates its offerings have significant traction. 
In Q4, Roku added 9.8 million active accounts, leading to 12.3% year-on-year growth. The quarterly print was lower than its two-year result, suggesting its new initiatives aren’t accelerating user growth just yet.
Revenue Per User
Average revenue per user (ARPU) is a critical metric to track for consumer subscription businesses like Roku because it measures how much the average user spends. ARPU is also a key indicator of how valuable its users are (and can be over time).
Roku’s ARPU fell over the last two years, averaging 2.4% annual declines. This isn’t great, but the increase in active accounts is more relevant for assessing long-term business potential. We’ll monitor the situation closely; if Roku tries boosting ARPU by taking a more aggressive approach to monetization, it’s unclear whether users can continue growing at the current pace. 
This quarter, Roku’s ARPU clocked in at $41.49. It grew by 3.9% year on year, slower than its user growth.
Key Takeaways from Roku’s Q4 Results
We were impressed by how significantly Roku blew past analysts’ EBITDA expectations this quarter. We were also glad its full-year EBITDA guidance came in much higher than Wall Street’s estimates. On the other hand, its revenue guidance for next quarter and the full year were both just in line with Wall Street’s estimates. Still, we think this was still a solid quarter with some key areas of upside. The stock traded up 12.5% to $97.75 immediately after reporting.
Roku put up rock-solid earnings, but one quarter doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
