Shares of Roku (ROKU) tumbled more than 20% after hours on Wednesday after the streaming hardware and platform provider beat fourth-quarter revenue and earnings estimates, but offered disappointing sales guidance for the first quarter.
Roku, which went public in late September, reported GAAP earnings of 6 cents a share vs. an expected loss of 10 cents a share. Revenue rose to $188.3 million, topping a consensus analyst analyst estimate of $182.5 million.
When asked about Wall Street's harsh reaction, Chief Financial Officer Steve Louden told TheStreet's Executive Editor Brian Sozzi (watch Periscope below) that he thinks Roku is still a high growth company. Louden was bullish on Roku's prospects this year, quickly pointing to accelerating growth in average revenue per user and new accounts.
Here are six key takeaways from Roku's earnings report.
Why the Stock Is Selling Off
With the stock having more than doubled since Roku delivered a strong third quarter report, light first quarter sales guidance is weighing on shares following a solid fourth quarter beat. Roku expects first quarter revenue of $120 million to $130 million, which falls short of a $130.8 million consensus. Net loss guidance of $15 million to $21 million is in-line with a $19.2 million consensus.
Was Roku's Growth Priced In?
2018 revenue guidance is stronger: It's at $660 million to $690 million, largely above a $661.5 million consensus and representing 32% growth at the midpoint. But this might have already been priced in. Meanwhile, net loss guidance of $40 million to $55 million is above a consensus of $35.9 million.
Roku's revenue mix continues shifting rapidly towards higher-margin software and services streams. "Platform" revenue rose 129% annually to $85.4 million, while "Player" revenue fell 7% to $102.8 million in spite of a major fall hardware refresh. Action Alerts Plus holding Amazon's (AMZN) aggressive holiday season promotions for its Fire TV line may have hurt.
Encouraging Trends in New Users
User metrics were fairly strong. Active accounts grew by 2.6 million sequentially to 19.3 million, and streaming hours by 500 million to 4.3 billion. User engagement (as measured by the ratio of streaming hours to active accounts) grew on an annual basis, though not on a sequential basis.
Roku Is Spending, a Lot
Though gross margin rose to 39% from a year-ago level of 30% due to the mix shift towards Platform revenue, heavy spending continues weighing on Roku's bottom line. GAAP operating expenses rose 55% annually to $64 million, thanks in part to a 61% increase in R&D spend to $31.3 million.
Free Cash Flow Still Looks Good
However, with licensing deals lifting Roku's deferred revenue balance, free cash flow (FCF) is stronger than net income. Roku produced about $28 million in FCF in 2017, after posting FCF of negative $41 million in 2016.
-Brian Sozzi and Nelson Wang contributed to this story.