Roku Inc. delivered a massive earnings beat as it swung to profit in the fourth quarter 2020 and continued to benefit from pandemic impacts that could boost its standing into the upper echelons of the so-called streaming wars.
The company grew its platform significantly in 2020 as the pandemic left consumers with only at-home options for entertainment. While Roku operates under a different business model than pure-play streaming subscription services like Netflix Inc. or even ad-supported services like ViacomCBS Inc.'s Pluto TV, its growth at the outset of 2021 and its profitability figures are making it a solid contender to compete in a second-tier streaming marketplace.
The company reported 51.2 million active accounts on its cross-channel platform. That figure includes, but is not limited to, users that engage with its ad-based Roku Channel, which is an ad-supported streaming platform that spans partner networks; as well as accounts activated on Roku devices to purchase third-party apps and content. While not all those accounts are spending considerable time on The Roku Channel, executives during a Feb. 18 earnings webcast said its Roku Channel engagement is one of the fastest growing segments of the company.
 The Roku Channel Source: Roku |
"Reach and streaming hours of The Roku Channel are growing twice the platform rate," CEO Anthony Wood said on the webcast. "The Roku Channel now reach households with approximately 63 million viewers."
The company in 2020 added about 100 million linear channels to The Roku Channel network, he said, and growing The Roku Channel was behind the purchasing of the content assets of failed mobile streaming platform Quibi Holdings LLC.
"The growing scale of The Roku Channel allows us to do deals like this where perhaps we couldn't have done them a couple of years ago. We expect that to continue. As the scale grows, we'll continue to look more broadly at all the different types of content that we can acquire," Wood said. "The Quibi deal fits into that in the sense that it's premium content."
The company will roll out the 75 TV series acquired from Quibi throughout 2021, executives added.
It is hard to compare Roku's streaming success directly with others vying for position in the marketplace. Its platform segment model, which entails its streaming business, comprises direct sales of ads, a cut of ad dollars collected by partner networks in The Roku Channel and charges on sales of third-party apps and video-on-demand sales. However, its platform active accounts and viewer reach compare well against subscription services like AT&T Inc.'s HBO Max, which reported 41.5 million at the end of 2020; The Walt Disney Co.'s Hulu, which includes ad-supported tiers and reported 39.4 million subscribers; as well as pure-play ad-based platforms like Pluto TV and Fox Corp.'s Tubi, which most recently reported monthly active users of 35.9 million and 33.0 million, respectively, according to Kagan, a media research group within S&P Global Market Intelligence.
When questioned on the competition and the potential cannibalization of ad-based consumption with the rise of new subscription services, CFO Steve Louden argued that the result is the opposite, and Roku's vertical model allows it to benefit either way.
"These services launching are drawing more consumers into streaming. They're creating an even better case for consumers to cut their cord and move more of their viewership to Roku, to streaming. And that then accrues to deeper engagement across the board, inclusive of ad-supported viewing," Louden said.
Along with the growth in users, the company reported continued growth in streaming engagement. Executives on the webcast said hours spent on its streaming offerings swelled 55% year-over-year in the fourth quarter, consistent with full-year growth figures, and hours per active account popped 10% year-over-year.
These results shot the company's corporate-level revenues and platform segment revenues to new heights in 2020. Roku's full-year revenue jumped 58% to $1.78 billion. Its platform segment accounts for the majority of Roku's overall revenue and includes the company's ad-based streaming platform, The Roku Channel and other over-the-top partnerships, like charges on sales of third-party apps and video-on-demand sales of third-party films. That segment saw revenue soar 71% to $1.27 billion.
In fourth quarter 2020, revenue totaled $649.9 million, up from $411.2 million in the year-ago period. Roku also reported net income of $67.3 million, or 49 cents per share, compared to a net loss of $15.7 million, or 13 cents per share, reported in the 2019 fourth quarter.
The S&P Global Market Intelligence consensus EPS estimate for the fourth quarter 2020 was a loss of 4 cents per share.
While the company still reported a loss for the full year 2020, its outperformance through the year, and particularly in the fourth quarter, led to a dramatically narrower loss than had been expected. For the 12-month period, Roku reported a net loss of $17.5 million, or 14 cents per share, improved from a loss of $59.9 million, or 52 cents per share, reported for the prior year.
The Wall Street consensus EPS estimate for the full year was a loss of 72 cents, according to S&P Global Market Intelligence.