Roku (ROKU) stock soared roughly 25% on Friday after the company reported second quarter earnings that beat Wall Street expectations — although challenges remain through the back of the year, particularly surrounding the "muted" TV advertising market.
Roku reported net revenue of $847 million, up 11% year-over-year, on a net loss of $107.6 million, or $0.76 a share. That net loss was an improvement over the prior-year period when losses amounted to $112 million.
Platform revenue, which includes ad sales, revenue from distribution deals, and the over-the-top streaming service The Roku Channel, came in at $744 million — also up 11% on the year.
"While Q2 Platform revenue exceeded our expectations, the macro environment continued to create uncertainty," the company said in the earnings release.
Total US advertising was flat year-over-year in the quarter as ad spend on traditional TV fell 9.4% while traditional TV ad scatter, or ad inventory not purchased at the Upfronts, was down 17.2%.
Brand advertising on the Roku platform remained pressured in verticals like technology, as well as media and entertainment. There was increased spending in categories like consumer packaged goods, along with health and wellness, the company said.
Management warned the ongoing double strike in Hollywood will continue to negatively impact media and entertainment spending through the back half of the year, which will be a notable challenge, according to analysts.
"This hits Roku in particular given the heavy promotions it provides for content," Macquarie analyst Tim Nollen wrote in a note on Friday.
Still, Nollen, who reiterated his Outperform rating and $93 price target, called out several efforts by Roku to diversify its ad base. That includes opening up the Roku City home page to advertising, using more third-party technology to increase ad demand, and capitalizing on the recently announced Shopify partnership, which should spur demand from smaller advertisers.
"While advertising is cyclical, Roku continues to amass a scaled platform that is increasingly open to abundant [connected TV] demand sources to offer full scale top and bottom funnel advertising," Nollen said.
Roku added 1.9 million active accounts in the quarter to reach 73.5 million, a 16% year-over-year increase. Still, growth in average revenue per user, or ARPU, was negative at $40.67, down 7% year-over-year.
Streaming hours came in at 25.1 billion, up 4.4 billion hours compared to the prior-year period.
The company guided to third quarter revenue of roughly $815 million, above Wall Street consensus estimates. It also expects total gross profit of about $355 million and adjusted EBITDA of negative $50 million.
"We think the guide has more opportunity than risk," Wells Fargo analyst Steve Cahall wrote in a note on Friday. "Monetization and hours spent on the platform have been improving quarter-over-quarter, so we think ROKU can meet or beat."
Cahall warned ROKU is still at the behest of ad market machinations, hence his Equal Weight rating on the stock. He did bump his price target, however, to $84 a share, up from the prior $63.
Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on Twitter @allie_canal, LinkedIn, and email her at [email protected].
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