Roku Shares Soar on 2019 Forecast Upgrade; Outlook Doesn’t Account for List 4 Tariffs
Strong first-half results and “momentum” to begin the second half persuaded Roku to upgrade its full-year outlook, said Chief Financial Officer Steve Louden on a Q2 earnings call Wednesday. Roku now expects 2019 revenue to reach $1.09 billion, which would be up 46 percent from 2018, compared with 40 percent year-over-year growth predicted in its May forecast, he said.
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Roku also raised its “total gross profit outlook to $485 million at the midpoint, up from $470 million previously,” said Louden. Shares soared 20.9 percent higher Thursday to close at $122.03.
The company reached two "significant milestones" in Q2 when it surpassed 30 million "active accounts" and recorded average revenue per user above $20 "on a trailing 12-month basis," said CEO Anthony Wood. ARPU has "expanded" 88 percent in the two years since Roku went public, he said.
The outlook doesn't include the impact of any new List 4 Section 301 tariffs that might be imposed on Chinese-sourced goods, “as there are still too many uncertainties related to the timing, scope and level of potential near-term changes in this area,” said Louden. “We along with our partners are taking steps to mitigate potential adverse impacts.” Roku is "not sharing comment beyond what you heard on the earnings call," emailed spokesperson Tricia Mifsud Thursday in reply to our questions about what tariff-mitigation strategies Louden was referring to.
TCL, Roku’s largest TV-maker customer, sources finished sets from China under the Harmonized Tariff Schedule’s 8528.72.64 subheading. Roku itself imports the Roku Player from China under the HTS 8525.50.10 subheading for set-top boxes and sells them direct to retailers. Both subheadings would have 10 percent tariff exposure if the Office of the U.S. Trade Representative doesn't remove them from the finalized List 4 due any day.
It would take “a long time to move the ecosystem of supply chain to another country,” testified Mustafa Ozgen, Roku senior vice president-account acquisition, when asked at the June 17 List 4 hearing about the practicality of moving Roku Player production out of China to escape the tariffs. “I think bringing it to the U.S. is definitely very, very difficult because of the complete lack of supply chain in the U.S.”
Shifting production to another country “is possible, but it will take a long time, plus it will impact our costs and then we have to pass some of those cost increases to consumers,” said Ozgen. Roku is “definitely thinking about the possibility” of shifting production, “but it's too early for us to make a comment on that,” he said. Ozgen wrongly answered “yes” when asked if Roku Players are sourced from China under the same subheading as finished TVs.
The U.S. sourced 16.39 million set-tops of all types from China under HTS 8525.50.10 in 2019's first half, up 13.7 percent from a year earlier, according to Census Bureau import statistics accessed Thursday through the International Trade Commission's DataWeb tool. Dollar imports increased only 2.7 percent to $768.08 million, said DataWeb. In addition to set-tops, Roku urged removing from List 4 more than a dozen subheadings of components, remote controls, wires and cables and other articles.