Roku Q4 Earnings Recap: Analysts are divided on the company’s future outlook

Roku’s February 15 earnings report was amazing. The company added 4.6 million monthly active users to reach 70 million in the fiscal fourth quarter of 2022 and beat Wall Street revenue expectations, sending its shares up 18 percent on Thursday and prompting analysts to raise their outlook.

What this really means is that the same analysts are torn: either Roku is on the verge of profitability, or – it could be a brief moment of happiness before big-picture trends hold Roku back.

Let’s start with the rosier side of things. Analysts at Wedbush like what Roku is selling, maintaining an “Outperform” rating and raising their price target to $80 (up from $75). Why? When it comes to the transition from linear to digital TV, Roku is gaining huge market share.

“As macroeconomic trends improve, Roku is poised to return to meaningful profitability as a platform and FAST channel leader,” Wedbush analysts wrote Thursday. “Roku spends heavily on initiatives and content that will either pay off and drive revenue growth much higher than we’ve modeled, or Roku can reduce spending if it doesn’t sell. We expect the first.”

Wedbush also liked Roku’s confirmation of recent deals with Lionsgate and Warner Bros.’s Discovery FAST channel, not to mention the company’s partnership with Walmart, which could “significantly increase the ability to monetize ads on its platform.” And they believe that Roku-made TVs will not cannibalize cheaper, licensed Roku TVs and allow the company to expand rapidly internationally.

Moffett Nathanson takes a decidedly dimmer view: all studios are cutting content and marketing spending, more third-party FAST channels mean more revenue sharing, and gross margins on Vizio’s TVs are “running close to zero.” He believes Roku’s profits are “definitely going to get worse from here.”

“We are not Luddites, yes, we see the future as streaming,” wrote analysts at Moffett Nathanson. “Yes, we see the continued (scary) push against the linear model. However, the current reality is that Roku’s biggest customers are now coping with economic pressures and starting to stop the rapid growth of streaming spending… it seems unrealistic that the revenue growth prospects (due to revenue share and Roku-branded TVs) will be divorced from spending growth .”

Quinta Brunson and Daniel Radcliffe in Weird: The Al Yankovic Story

Aaron Epstein

Roku also introduced Charlie Collier, former Fox executive and new president of Roku’s media division, on its first earnings call. He doubled down on investing more in original content, such as “Weird: The Al Yankovic Story” and the Reese Witherspoon and Zoe Saldana-produced reality series “Meet Me in Paris,” saying both have attracted large numbers of unique viewers.

“Roku is not just another player in the streaming wars, but the streaming wars are being fought on the Roku platform,” he said on Wednesday’s call. “It’s a huge advantage for all of us.”

Under Collier’s leadership, the company appears very willing to embrace external partners, according to analysts at Evercore ISI. But he downgraded Roku’s stock last July, noting that without big sports or political ad spending, it’s hard to get too excited. “Although we are gradually constructive,” they wrote, “we remain on the sidelines.”

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