Roku Inc. projected first-quarter revenue that will fall short of analyst estimates, sparking investor concerns that the video-streaming pioneer may not be able to sustain its sales momentum in the face of larger rivals. Shares plummeted as much as 23 percent.
Sales will be $120 million to $130 million in the current period, the Los Gatos, California-based company said Wednesday in a statement. Analysts projected $132 million, according to data compiled by Bloomberg. The forecast came after revenue rose 28 percent in the fourth quarter and Roku reported an unexpected profit.
An early mover in the market for home streaming devices, Roku’s hardware and software allow users to stream video to their televisions from media providers, including Netflix Inc., Amazon.com Inc., and Walt Disney Co.’s ESPN. Roku went public at $14 in late September. Shares have more than tripled since then, closing Wednesday at $51.10, as investors bet on the continued growth of cord cutters who watch entertainment shows without cable TV subscriptions.
“I think the pullback is rational,” said Woo Jin Ho, an analyst at Bloomberg Intelligence. “With the first quarter disappointing, one would have to think their ability to sustain the growth momentum some investors were expecting is not quite as good as it was prior to the results.”
Sales have been bolstered by Roku’s growing advertising business and its cut of subscriptions for video streamed through its service. In the fourth quarter, active accounts increased 44 percent to 19.3 million and streaming hours grew 55 percent to 4.3 billion hours, the company said in a statement.
Sales of Roku’s devices are likely to experience a seasonal decline in the first quarter from their holiday numbers, Ho said. While ad revenue should continue to increase, it may not gain as much as anticipated with the seasonal drop in Roku player sales.
The company plans to introduce a digital voice assistant this year, expanding its role as a home-entertainment company. Roku faces increasing competition from Apple Inc., Alphabet Inc.’s Google and Amazon, which offer video-streaming devices, voice assistants and smart speakers.
Despite the competition, Chief Financial Officer Steve Louden said Roku is well positioned to take advantage of changing viewing habits. “The ad dollars are shifting to streaming,” he said. “They’re going after an increasingly large audience that you can’t reach on linear TV anymore.”
Fourth-quarter sales were $188.3 million, topping analyst projections of $182.5 million. Roku also reported quarterly profit of 6 cents per share, while analysts had estimated a per share loss of 10 cents.