Thursday, August 6, 2020

Roku Stock Wavers Despite Q2 Beat

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What’s happening: Shares of Roku Inc. declined in extended trading on Wednesday despite the video streaming company reporting upbeat results for the second quarter.

What happened: Like other video streaming platforms, Roku too benefitted strongly from a surge in online content viewing amid the pandemic-induced lockdowns.

The company saw users streaming 14.6 billon hours of content during the quarter. Investors were concerned, however, about management comments around streaming levels starting to moderate, after hitting a peak at the beginning of the second quarter.

How were the results: The San Jose, California-based company reported a wider net loss for the second quarter, despite revenue growth.

  • Revenues climbed to $356.1 million, from $250 million in the same quarter last year, beating expectations of $316 million.
  • Net loss widened to $43.1 million, or 35 cents per share, versus $9 million, or 8 cents per share, in the year-ago quarter. Despite the higher losses, the figure was better than the consensus view of a loss of 52 cents per share.

Why it matters: The number of active Roku accounts climbed 41%, or by 3.2 million, during the quarter to reach 43 million accounts.

Average revenue per user surged 18% to $24.92, with users streaming 14.6 billion hours of content, versus 9.4 billion hours in the same quarter last year.

Revenues from Roku’s platform business grew 46% to $244.8 million, while its player business generated 35% growth in revenues to $111.3 million.

Roku’s earnings were hit, however, by the contracting TV advertising market, as various companies, especially in the travel and tourism segment, drastically cut back their ad spend.

“The ad industry outlook remains uncertain for Q3 and Q4, and we believe that total TV ad spend will not recover to pre-COVID-19 levels until well into 2021,” the company said in a letter to investors.

Roku, which is now operating in over 20 countries, also announced plans to invest heavily to expand its presence in other markets globally. Management is also discussing plans to offer the recently launched HBO Max and Peacock streaming services on its platform.

While witnessing a moderation in streaming levels per active account since the beginning of the second quarter, Roku said that the overall levels remained above what they were before the arrival of the pandemic.

Management refrained from issuing financial projections, saying that the short-term outlook remains “variable and uncertain.”

How shares responded: Shares of Roku initially jumped as much as 8% in after-hours trading but later erased all gains to settle lower by 5% at $157.20. The had stock tumbled to a 52-week low of $58.22 amid the coronavirus-driven market crash in March, but has recovered strongly since then, climbing to an eleven-month high of $169.14 during intra-day trading on Wednesday.

What to watch: Investors expect the company’s overall business to grow, with some rebound in television ad spending. However, concerns remain as Roku invests in other international markets while streaming levels at home moderate.

The Markets Today

     

UK stocks will be in focus today, ahead of the interest rate decision from the Bank of England.

Context: British stocks closed higher on Wednesday, as several companies released their earnings reports. Investors were also encouraged by positive signs of an economic recovery.

Details: Rising covid-19 cases and US-China tensions sent gold futures above the new record high of $2,050 per ounce on Wednesday.

The rally in gold prices on Wednesday provided a boost to minors of precious metals on the London stock exchange. Shares of Centamin jumped around 10%, while Hochschild Mining’s stock climbed more than 14%.

UK’s services sector activity surged at its fastest rate since 2015, with the IHS Markit/CIPS composite PMI jumping to 57.0 in July. European economic data also drove investor sentiment, with retail sales returning to pre-coronavirus levels in June.

The FTSE 100 index surged 1.1%, while the FTSE 250 closed higher by 1.9% on Wednesday.

Shares of William Hill gained about 9%, despite the company recording a pretax loss of £14.2 million for the first half of the year. The company’s international online revenues grew 17%. Metro Bank’s stock slipped around 7% as the British bank posted a £241 million loss for the first half of the year.

What to watch: Investors await the Bank of England’s decision on interest rates and construction PMI data from the UK. The Bank of England, which maintained the key bank rate at a record low of 0.1% during its last meeting, is expected to keep rates unchanged at its latest meeting. The IHS Markit/CIPS UK construction PMI, which climbed to 55.3 in June, is expected to rise further to 57 in July.

Investors continue to keep an eye on the covid-19 figures, with the total number of cases exceeding 18.7 million globally.

Other Markets: US indices trading closed higher on Wednesday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 1.39%, 0.64% and 0.52%, respectively.

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What else to watch today

     

Germany’s new manufacturing orders and construction PMI, Eurozone’s construction PMI, France’s construction PMI, Italy’s construction PMI and industrial production, Mexico's auto exports, car output and gross fixed investment, Russia’s total vehicle sales and annual inflation rate, Brazil’s unemployment rate, car production and new vehicle registrations as well as the US Challenger job cuts, initial jobless claims and EIA’s natural gas stockpiles.