One stock that should be on the move -- one way or another -- this week is Roku(NASDAQ: ROKU). The streaming video pioneer is reporting fresh financials later this week, and there never seems to be a dull moment when it comes to its volatility. Roku stock more than doubled last year, only to shed 38% of its value so far in 2024.
There is no shortage of reasons for Roku to be under pressure this year. Its last quarterly report back in February was disappointing. Walmart's surprising entry into this market through its pending acquisition of Vizio is also rattling the bullish camp.
Walmart rattles Roku
Walmart's $2.3 billion deal for smart TV maker Vizio is surprising. Walmart hasn't had a lot of success in the digital realm beyond the e-commerce options of its physical merchandise. The last time it spent money on a fringe play on digital video -- 2010's deal for Vudu -- it ended badly, with Walmart unloading the service several years later.
Vizio is best known as a smart TV manufacturer. More than two-thirds of its flat screens are reportedly sold through Walmart. However, the real draw here for the country's largest retailer is Vizio's SmartCast operating system that competes with Roku's market-leading hub for smart TVs.
It's not much of a match right now. Roku has 80 million active accounts. Vizio's SmartCast is at just 18.5 million. Roku's user base is growing faster, viewer engagement is stronger, and average revenue per user is superior. It's also not as if Walmart picked up a distant silver medalist here. Between Roku and Vizio you have some of the world's most valuable consumer tech businesses with their platforms.
Roku remains a leader in terms of total time spent on a smart TV platform, keeping wealthier companies from the top of the hill. Can Walmart be the one that finally topples Roku? It seems unlikely, but the argument for the mass-market retailer being a thorn in Roku's side involves using its storefront presence to ramp up SmartCast users from the pedestrian 6% increase it posted in 2023. It still seems like a long shot. Roku will have to make sure it addresses those concerns in its shareholder letter and subsequent earnings call that will take place after the market close on Thursday.
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Pushing the right buttons on the remote
Roku sees reasonable improvement when it reports this week. Its guidance back in mid-February called for total net revenue growing 15% to $850 million, accelerating from the 14% increase it posted last time out. It sees its loss narrowing substantially to $90 million and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) breaking even after a $69 million deficit a year earlier.
The real number that investors will be watching is its average revenue per user, or ARPU. It was surprising to see ARPU decline sequentially and year-over-year back in February. Can Roku get its monetization efforts back on track? The streaming services company can't afford to keep going in the wrong direction after years of building up its ad-supported business model.
It's fair to say that Roku will be a big mover on Friday after investors and analysts weigh what it has to say after the market close on Thursday. Calming investors about the Walmart threat is important, but it remains to be seen if regulators will even sign off on the deal. A lot of deals have come undone on antitrust concerns. The real test here will be the report itself. Roku coming through with another quarter of double-digit growth will help, but getting that much closer to returning to profitability and delivering strong engagement trends would be even better.
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Rick Munarriz has positions in Roku. The Motley Fool has positions in and recommends Roku and Walmart. The Motley Fool has a disclosure policy.
