roku keeps growing its user base and engagement figures but finances keep dissapointing

Roku attracted 1.6 million users to its platform during the first quarter of 2023, propelling its number of active accounts to 71.6 million for a 17% year-on-year jump according to data shared by the company in its latest quarterly financial report.

During this period, the California-based video streaming company also saw the number of streamed hours by its users surge by 20% compared to a year ago to 25.1 billion at the same time that viewing hours for traditional TV experienced a 10% drop as per data from Nielsen.

Even though these numbers show that Roku is successfully attracting new customers and keeping them engaged, its financials are not displaying similar signs of improvement, starting with the fact that the company’s average revenues per user dropped by 5% compared to the previous year to $40.67 per user.

Meanwhile, Roku reported a shy 1% advance in its total revenues primarily fueled by an 18% jump in the sale of physical devices – i.e. TVs and Roku Player – while its platform revenues – the largest segment of the two – declined by 1% to $634.6 million.

“The macro environment remained challenged in Q1 with the total U.S. advertising market down 7.4% YoY. Ad spend decline was even more pronounced on traditional TV at 12.7% YoY, and traditional TV ad scatter was down 20% YoY”, the management team commented.

Device Gross Margins Improve Amid Supply Chain Normalization

During this first quarter, the company’s platform gross margins experienced a 6.1% decline compared to a year ago and a 3.2% drop sequentially.

On the positive side, Roku’s management reported an improvement in the gross margins of its devices as a result of “normalizing supply chains”. During this first quarter, the gross margin for the segment stood at 3% – the first time in a while that they have been positive – but the management team clarified that this positive number resulted from a $10 million one-time catch-up fee obtained from one of the firm’s licensing arrangement.

Also read: Netflix Lost 1M Users in Spain After Enforcing Password-Sharing Rules

Excluding this item, the negative margin would be 6%. This still means a significant improvement compared to previous quarters where Roku reported negative device gross margins exceeding 15% and even dropping to minus 32.1% in the last quarter.

In addition, on the device side, the Roku operating system was again the top-selling TV OS in the United States with a market share of 43% based on data from Circana.

Roku Keeps Losing Lots of Money and Burning Millions in Cash

Roku is still reporting heavy losses but the management remains confident that it can start to deliver positive adjusted EBITDA for the full year 2024. During this first quarter, the firm’s net losses stood at $212.5 million compared to $23.5 million the company shed the previous year.

Meanwhile, its negative adjusted EBITDA stood at $69.1 million resulting in a minus 9.3% margin. In late March, Roku approved a restructuring plan that included the forced departure of 6% of the firm’s total workforce – around 200 workers.

Roku is still sitting on ample cash reserves of $1.3 billion as of 31 March this year. However, its cash burn accelerated during this first quarter of the year, with the company disposing of over $200 million including capital expenditures.

Even though the firm has plenty of room to keep spending without necessarily endangering its liquidity position, in an environment where tech companies are having a hard time raising capital at decent valuations or advantageous conditions, investors will surely keep an eye on how this liquidity situation evolves.

Finally, in regards to its short-term outlook, Roku’s management asserted that they “expect the advertising market in Q2 to look much the same as it did in Q1, with ad spend from certain verticals improving (travel and health and wellness), while others remain pressured (M&E and financial services).

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