Roku plunges as streaming service splurges to juice subscriber growth

Roku shares plunged Thursday morning after the streaming service reported a spike in third-quarter costs driven by efforts to expand its services and reach.

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Total operating expenses surged 60 percent from a year earlier to $145 million as the Los Gatos, Calif.-based company added 1.7 million active accounts, bringing its total to 32.3 million. Streaming hours on the platform rose by 900 million, or 68 percent from a year ago, as average revenue per user increased to $22.58 from $21.06 in the second quarter.

"Our goal is to drive scale and reach of the platform, and we will do so by offering consumers exceptional devices and appealing prices rather than optimizing for hardware gross profit," Roku founder and CEO Anthony Wood and CFO Steve Louden said in a letter to shareholders.

Roku lost $11.7 million, or 22 cents a share, better than the 28-cent loss anticipated by analysts in a Refinitiv survey. Revenue surged 50 percent to $260.9 million, also topping projections.

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"We expect the company to reach profitability within the next five years, but R&D spending may remain elevated for several years as Roku competes for TV licensing contracts and funds its international expansion," Wedbush analyst Michael Pachter said in a Thursday note to clients. "Roku has substantial growth opportunities."

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ROKUROKU INC
$153.91
-6.21 (-3.88%)

Looking ahead, the company raised its full-year 2019 revenue and gross profit outlook. It now expects revenue growth of 49 percent to $1.106 billion at its midpoint, up 46 percent from the prior outlook. Gross profit may reach $492 million, up from a previous estimate of $485 million.

Pachter maintained his neutral rating and $105 price target, more than 25 percent below where shares settled on Wednesday.

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Roku was up 360 percent this year.