Roku shares drop over 14% as fourth-quarter profit guidance disappoints

Investong.com -- Roku (NASDAQ:ROKU ) reported better-than-expected third-quarter results but saw its shares slump by morethan 14% in premarket US trading as investors focused on the company's fourth-quarter guidance.

The streaming platform provider posted a narrower-than-expected loss of $0.06 per share for the third quarter, significantly better than the analyst estimate of $0.32. Revenue for the quarter came in at $1.06 billion, surpassing the consensus estimate of $1.02 billion and marking a 16% increase year-on-year.

Roku's platform revenue grew 15% versus the year-ago period to $908 million, thanks in large part to ongoing cord-cutting by viewers and increased political advertisements. The company also reported its fifth consecutive quarter of positive adjusted earnings before interest, taxes, depreciation and amortization and free cash flow on a trailing 12-month basis.

But analysts at Morgan Stanley flagged in a note that they see "risk to sustaining" the current rate of advertising revenue growth at the platform unit due to intensifying competition in the so-called connected TV market. These services allow users to browse and stream videos through a connection to the internet.

The analysts also noted headwinds to streaming service distribution revenue "as streamers look to avoid app store fees."

Roku's fourth-quarter core profit forecast of $30 million missed estimates of $35.7 million as the firm flagged elevated operational costs.

The group added that it will no longer provide investors with a look at streaming household in its results, echoing a similar move by rival Netflix (NASDAQ:NFLX ). It is a key metric that includes insight into crucial average revenue per user.

Still, Roku's current-quarter revenue guidance of $1.14 billion was above consensus forecasts of $1.11 billion. The guidance represents a 16% year-on-year growth in the top-line figure.

(Senad Karaametovic contributed reporting.)

Source: Investing.com