Roku Shares Plunge by Over 20% Despite Beating Q4 Estimates

Roku shares dropped 18% on Friday after a disappointing forecast of its first-quarter financial results. Roku forecast a loss of 90 cents per share during the first quarter, which is larger than the 60 cents per share loss anticipated by investors.

Roku's financial woes come as the company struggles to compete against leading giants in the entertainment industry such as Netflix and Amazon. The two streaming giants have been dominating advertisements in the industry, which is affecting the financial expectations of other companies.

Streaming Giants Take Over The Entertainment Industry

Streaming giants are weighing on the business of traditional entertainment firms. Users are now shifting their attention from smart devices to smart televisions, which is affecting the demand for Roku's services.

After the recent loss, Roku shares are trading at $76. The shares might continue to drop as investors grow wary of the financial strength of the company. Its performance is in stark contrast to the better-than-expected financial results posted by Netflix.

If these losses continue, Roku's shares could be on a downward spiral. Last year was among the best years for the company as its shares more than doubled. However, the recent plunge could see the company losing over $2 billion in market value.

Walmart-Vizio Deal Might Intensify Losses

Besides the anticipated loss, the other factor that might be causing a dip in investor confidence is an anticipated deal between retail giant Walmart and Roku's competitor, Vizio.

Walmart has expressed interest in acquiring Vizio, and if this deal materializes, it might create another major competitor for Roku. It might also affect the retail penetration of the Roku brand, with dwindling sales expected to affect revenues and consecutively, earnings.

Roku is currently witnessing a decline in spending for media and entertainment promotions. The drop is coming from limited releases following the Hollywood strike that happened last year. According to the management, the drop in production activities might continue to pose a challenge this year.

The company's finances are also not a stark contrast to what has been witnessed in the past by entertainment firms. Traditional firms are turning towards innovative deals to remain afloat and continue building a presence in the entertainment industry.

Roku Beats Expectations in Q4 2023 Results

The recent drop in Roku shares comes after the company posted solid results for the fourth quarter of 2023. The company's revenues during the quarter exceeded Wall Street estimates.

Roku also hit new milestones during the quarter including reaching over 80 million active accounts globally as of the end of 2023. During the year, Roku also saw over 100 billion hours streamed.

$ROKU | Roku Q4 Earnings Highlights: Revenue Beat, EPS Beat, Q1 Guidance, 80 Million Active Accounts

Streaming platform and hardware company Roku Inc reported fourth-quarter financial results after the market close Thursday.

Here are the key highlights.

What Happened: Roku... pic.twitter.com/7wdouBgaFM

- Benzinga (@Benzinga) February 15, 2024

The company's Q4 revenues increased by 14% to $984.4 million, the net loss during the period also hit $78.3 million, equivalent to 55 cents per share. The net loss was a decline from the $237.1 million posted a year earlier.

Roku beat Wall Street estimates with the Q4 results. Wall Street anticipated revenues to reach $968.2 million and the net loss to hit 54 cents per share.

In the letter to shareholders, Roku said it was working on increasing revenue and freeing cash flow for investors to achieve profitability over time. Nevertheless, the company said concerns about the short-term challenges in the macro environment continued. Roku also expects the ad market to recover.

While we will face difficult [year over year] growth rate comparisons in streaming services distribution and a challenging M&E environment for the rest of the year, we expect to maintain our Q4 2023 YoY Platform growth rates in Q1," Roku said.

Roku's Media President, Charlie Collier, also noted that among the factors affecting the company's profitability was promotions, which reached unsustainable levels.

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