Shares of Roku (ROKU 0.31%) had another rough month in April, as challenges in the streaming sector and an underwhelming outlook weighed on the streaming stock. Broader macro headwinds around fears that the Federal Reserve wouldn't lower interest rates as expected pushed stocks lower overall in April.
According to data from S&P Global Market Intelligence, the stock finished the month down 12%.
Image source: Getty Images.
Investors lose faith in Roku
The major news out on the stock was its first-quarter earnings report, which came out on April 25. While the headline numbers topped estimates, the company spooked investors with a warning on increased competition from ad-supported platforms.
Overall numbers were solid. Revenue rose 19% to $881.5 million, well ahead of estimates at $848.6 million.
Solid user growth supported revenue growth. The number of streaming households increased 14% to 81.6 million, while the number of streaming hours jumped 23% to 30.8 billion. Annual average revenue per user was flat at $40.65, as lower prices for ad-based streaming tiers seemed to present a headwind to monetization.
Profitability also improved. Gross profit rose 15% to $388.3 million, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) came in at $40.9 million, reversing a loss of $69.1 million from a year ago.
On the basis of generally accepted accounting principles (GAAP), Roku continued to lose money, posting a per-share loss of $0.35. But that was better than estimates at a loss of $0.61, and a solid improvement from a loss of $1.38 in the quarter a year ago.
While those results would normally drive a stock higher, investors were disappointed with the company's admission that its streaming services distribution growth rate, which is based on lower streaming subscription prices from new ad-based tiers, was slowing.
Can Roku recover?
Based in part on weaker streaming services distribution revenue, the company forecast revenue of $935 million in the second quarter, which was below estimates at $937.3 million, and implies a growth rate of 21%.
It also forecast adjusted EBITDA of $30 million, which represented a sequential slowdown, and said that trend would continue into the second half of the year.
Overall, Roku seems oversold after last week's decline, but the company still needs to convince investors that it can achieve GAAP profitability and grow sustainably. The comments about slowing growth in streaming services are undercutting that argument, though Roku should eventually turn profitable without adjustments.
