Earnings season is here, and Roku (ROKU -3.87%) shareholders have every right to be tense. The stock has been a big winner in 2023 -- up 77% year to date through Monday's close -- so it will need to justify that surge by delivering a blowout second-quarter performance. It reports its results for the period shortly after Thursday's market close.
Roku has delivered on the earnings stage so far this year. It posted better-than-expected results last time, even if the stock rose a mere 1% on the news. The shares surged by 11% following its well-received fourth-quarter report in mid-February. Other positive developments that could juice the shares include a potential rebound in ad revenue and some more color on its new partnership with Shopify (SHOP -5.62%), which allows the e-commerce platform's third-party merchants to place interactive ads on the streaming hub.
Stay close, and keep watching. Roku has a lot to prove this week.
Watch this space
Roku itself set the bar low heading into this week's update. Management predicted more red ink for the quarter, targeting a net loss of $175 million. The $770 million that it was modeling for revenue would translate into less than 1% year-over-year growth. Roku also forecast that its gross profit and adjusted earnings before interest, taxes, depreciation, and amortization would deteriorate sequentially, despite its recent commitment to prioritizing projects with the potential to deliver the highest returns on investment.
The silver lining to the glum outlook here is that Roku has trounced its guidance in back-to-back reports. Momentum is on its side to keep that streak going. Ad revenue has been the source of Roku's decelerating revenue growth since the second half of 2021. Fears that a recession was looming have cooled the once red-hot market for connected TV advertising, but the climate is more optimistic on the economic front than it was when Roku offered up its projections three months ago.
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Consumers continue flocking to Roku as their streaming operating system of choice. As of the end of March, active accounts and the hours spent streaming were up 17% and 20%, respectively, year over year. There's no reason to think that folks have cooled on streaming in recent months. If advertisers want to follow the eyeballs, they will have to spend money to reach them when they're streaming TV in their air-conditioned homes during this hot summer.
With some of the leading premium services introducing ad-supported plans -- and likely brokering ad-sharing deals with Roku to make these new tiers available on its operating system -- the soil is ripe for a recovery in ad revenue. The company's partnership with Shopify is too new to factor into its second-quarter results. However, the new ads being created via the deal allow viewers to purchase products from Shopify merchants directly from their TVs, and it's a safe bet that Roku will talk up how promising those ads are.
What will it take to keep the strong 2023 rally in Roku stock going? More than simply beating management's conservative Q2 guidance. Roku will have to put out robust guidance for the first time in more than a year. It will have to give the market reasons to feel confident that the streaming service bellwether is truly back, and that's going to require more optimism out of the Roku camp than we've seen in recent fiscal updates.
