Roku, Inc. (NASDAQ: ROKU) the video streaming platform report their second quarter fiscal 2020 earnings that beat analyst expectations, yet the movement of its shares were largely neutral after-hours.

The company reported revenue of $356.1M, above analyst estimates of $314.52M, by 13.2%, and 42.4% higher year-over year.

EBITDA came in at ($3.4)M, which was higher than the street consensus of ($27.71)M, by 87.7%

Roku’s earnings per share for the reported quarter was ($0.35)/sh, above analyst estimates of ($0.527)/sh, by 33.6%

The company grew its active accounts base of 39.8 million from the previous quarter to 43 million in the second quarter. Overall their user base grew by 41% year-over-year.

A Refresher on Dilution
Even though results were solid, management gave cautious guidance on ad revenue through the rest of 2020 which is not what a stock at this high a valuation wants to hear. Analysts expected the company to weather the advertising contraction better than this and the stock is sliding after hours as a result of weaker than expected commentary on the state of Roku’s advertising partners. 

Valuation Breakdown

The pandemic forced lockdown has enabled streaming companies to see their user base increase significantly in the last few months as more and more people are looking for new video entertainment as an alternative to the gloom and doom presented by the news media.

This has led popular streaming platforms including Roku, Netflix see their share price soar. Disney being a late comer to the streaming space with the recent launch of their Disney+ platform, did not see its shares rise as much however due to the impact of the pandemic on their other more focused revenue segments.

In terms of Price to Sales multiples, both Roku and Netflix trade in excess of over 5x, with Roku’s multiple being 4.3x higher than Netflix’s.

This is partly due to the fact that Roku’s current active registration year-over-year growth is higher than Netflix’s, as shown below.

Disney’s video streaming Disney+ platform was launched this year so it could not be included on the prior chart. However, its paid subscribers to the platform as of the quarter ended on June27th, 2020, was 30.7% of the total subscribers which also includes ESPN+, and Hulu.

Another factor to point out is that Roku’s quarterly revenue growth is comfortably higher than Netflix, which could also justify its higher share price premium, as shown below.

Due to these reasons, it would be wise to add Roku to your watch list and look for further weakness to begin building a long term position.

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