Is Roku Stock the Rodney Dangerfield of Streaming?

Key Points

• Roku reported better-than-expected second-quarter numbers after Thursday's market close.

• The shares moved lower despite an earlier-than-expected profitable turn and raised guidance.

• Roku has now moved lower after earnings in four of the past five quarters, but it's still working out for investors.

• 10 stocks we like better than Roku ›

There were a lot of good things in Roku's (NASDAQ: ROKU) financial update on Thursday afternoon. The company that ushered in the era of streaming video through your TV topped its earlier revenue guidance. It surprised the market with its first profitable quarter in more than three years. Roku also raised its full-year guidance across the board.

It apparently wasn't enough. Roku stock opened lower on Friday morning. At least 10 analysts would go on to jack up their price targets on the stock, from as little as $1 to as high as $26. It didn't matter. There's still a silver lining to the initial downtick in the shares. I'll get to that, but first let's dig into the second-quarter results.

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No buffering or blubbering this time around

Expectations were modest heading into the results that were announced shortly after Thursday's market close. Roku's guidance established three months ago called for $1.07 billion in revenue, a 10.5% advance. This was seen as a disappointing outlook at the time. Roku had posted double-digit top-line jumps in each of previous eight quarters. This would stretch the streak to nine, but it would be the weakest revenue move in the run.

Roku fared a lot better than expected on that front. Roku's $1.11 billion in revenue is a nearly 15% increase. An 18% surge in platform revenue -- its high-margin business accounting for 88% of the business -- was able to overcome a 6% decline in device sales. A slowdown in hardware to expand its audience may be seen as a negative, but this was also the first time in more than a year that Roku's devices business didn't crank out a negative gross profit.

Image source: Getty Images.

The bottom line is the real head turner. Roku's outlook in May was calling for a $25 million net loss for the quarter, but its full-year guidance implied that the streaming video pioneer would be profitable in the second half of the year. Investors would simply have to bear with a rough second quarter, and a projected $22 million profit in the second half would mean a turnaround likely in the third, or, if not, in the fourth quarter.

Roku got there sooner than expected, as I predicted earlier this week. Roku scored positive net income of $10.5 million for the three months heading in June. It got there despite a sequential and year-over-year dip in gross margin for its platform revenue, bailed out by the gross margin improvement on the hardware side.

It was a strong report. Roku went four-for-four in exceeding all four of the metrics its offers up as guidance. It also raised its outlook for all four metrics, by more than just the degree of the second-quarter beats. It's a report that should be applauded, but don't let the market's initial reaction dissuade you. Investors have been here before. It's been turning out just fine in the long run.

Image source: YCharts.

I promised you a silver lining

Take a look at Roku's stock chart through Thursday's close. The stock is up more than 50% over the past year. Most investors would take that return, but take a closer look at the purple circles with the letter "E" inside. That is when Roku announced quarterly earnings results.

Roku shares moved lower the day after offering up fresh financials in three of the four previous quarters. The one time it did move higher -- the fourth quarter of 2024 -- it was trading lower a few days later and substantially lower a few weeks after. Barring a recovery as Friday plays out, this will be the fourth time in the last five quarters that Roku takes a substantial hit the day after earnings. It has bounced back before. Recent history suggests it will do the same this time.

Roku can't seem to get the market's respect as a growth stock, just as funnyman Rodney Dangerfield used to say in his most popular catchphrase. The iconic comedian still got the last laugh. Roku seems to play it that way, too.

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Rick Munarriz has positions in Roku. The Motley Fool has positions in and recommends Roku. The Motley Fool has a disclosure policy.