Roku Pulls 2020 Revenue Outlook Due to Ecosystem Uncertainties of COVID-19

For the full year, Roku gave guidance in February of $1.6 billion, expecting 42% year-on-year growth. “While we believe that our offerings to consumers, content providers and advertisers will enable our Company to deliver value in these uncertain times, the wider business and consumer impacts, as well as the duration of the pandemic, are unclear and thus we are withdrawing our prior 2020 outlook,” said Chief Financial Officer Steve Louden Monday.

Roku now expects Q1 revenue of $307 million-$317 million vs. a midpoint outlook of $305 million given in the February Q4 shareholder letter. The March quarter is typically softest for Roku, management said then. It estimates a Q1 loss of $60 million-$55 million.

The streaming media provider estimated it had 39.8 million active accounts on March 31, a net increase of nearly 3 million since Dec. 31. Streaming hours will be 13.2 billion, a 49% year-to-year bump, it said. In early Q1, Roku completed the rollout of its “Are you still watching” feature, which exits video playback after long periods of user inactivity, a feature that will moderate streaming hour growth, the company noted.

CEO Anthony Wood said Roku has been working with advertisers to help update their plans to reflect new viewing patterns and adjust their overall marketing mix, “which has been affected by social distancing.” Wood expects some marketers to pause or reduce ad spends near term, but he believes the “targeted and measurable TV ads and unique sponsorship capabilities that Roku offers are highly beneficial to brands today.”

Pivotal Research Group raised its 2020 net new active accounts forecast for Roku to 11.5 million from 10 million and sliced platform monthly revenue per average active account from 21% growth to a 2% decline “to attempt to account for what appears to [be] 40-50% declines in on-line video CPM’s,” analyst Jeffrey Wlodarczak wrote investors. The combination drove a reduction in Pivotal's 2020 revenue growth forecast from 40% to 23%.

Pivotal views COVID-19 as an “overhang on results for all of 2020 before improving in 2021 when we estimate the U.S. economy will begin to normalize.” Roku is likely to have higher than forecast active accounts and hours streamed, but “much lower” than forecast revenue and higher EBITDA losses, said Wlodarczak.

All areas of the streaming ecosystem are beginning to squeeze Roku, said Wlodarczak, citing Comcast and Cox “aggressively attacking” consumers with free equipment and programming, including NBC’s Peacock service launching Wednesday with “$5 off or a $60-per-year savings off of Roku” for Comcast and Cox subscribers. The analyst expects all non-vMVPD players to follow Netflix’ lead and sign deals with traditional distributors to be bundled into pay-TV offerings, which “also obviates the need for Roku.”

TV manufacturers generate “little to no profit" from their relationship with Roku, said Wlodarczak. He expects vendors to “push back” by leveraging alternatives in the “historically one-sided relationship.”

The path to profitability is "unclear," as it looks to navigate "a likely recession while expanding its workforce to support its next leg of growth," Wedbush analyst Michael Pachter wrote investors Tuesday. It will take time for Roku to achieve profitability in international markets, said the analyst, "while declining advertising demand puts the current year at risk."

Roku is to report Q1 earnings on May 7. Shares closed 10.3% higher Tuesday at $106.53.