It has been about a month since the last earnings report for Roku (ROKU Quick QuoteROKU - Free Report) . Shares have lost about 27.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Roku due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

ROKU's Q3 Earnings Beat Estimates, Revenues Increase Y/Y

Roku reported third-quarter 2021 earnings of 48 cents per share, outpacing the Zacks Consensus Estimate of 6 cents. The company reported earnings of 9 cents per share in the year-ago quarter.

Revenues increased 51% from the year-ago level to $680 million but missed the consensus mark by 0.4%.

Growth of the Roku Channel in both reach and engagement drove third-quarter performance.

Active accounts jumped 23% year over year to 56.4 million, driven by the popularity of Roku streaming players and Roku TV models. Streaming hours also jumped 21% year over year to 18 billion.

Also, average revenue per user grew 49% from the prior-year quarter to $40.1 (on a trailing 12-month basis).

For the third quarter, Roku’s monetized video ad impressions nearly doubled on a year-over-year basis owing to strong client acquisition and retention.

Quarter Details

Platform revenues (86% of revenues) surged 82% year over year to $582.5 million, driven by significant increases in both content distribution activities and advertising.

Player revenues (14% of revenues), however, decreased 26% from the year-ago level to $97.4 million.

In the third quarter, the company launched the all-new Roku Streaming Stick 4K and Roku Streaming Stick 4K+, which comprises the Roku Voice Remote Pro, Dolby Vision, and HDR10+.

It also introduced a new tool in the reported quarter that permits Shopify merchants to seamlessly build, buy and measure TV streaming advertising campaigns on the Roku platform.

Operating Details

Gross margin, as a percentage of total revenues, expanded 600 basis points (bps) from the year-ago quarter to 53.5%.

Operating expenses increased 45% year over year to 295.1 million. As a percentage of total revenues, the metric contracted 152 bps.

As a percentage of total revenues, research & development, and general & administrative expenses contracted 188 bps and 6 bps, respectively, while sales & marketing expenses expanded 42 bps on a year-over-year basis.

For the third quarter, adjusted EBITDA margin — as a percentage of total revenues — expanded 670 bps year over year to 19.1%.

Operating income was $68.8 million for the reported quarter compared with $12 million in the year-ago period.

Balance Sheet

As of Sep 30, 2021, cash and cash equivalents were $2.18 billion compared with $2.08 billion as of Jun 30, 2021.

As of Sep 30, 2021, the company reported total debt of $91.1 million compared with $92.3 million on Jun 30, 2021.

Guidance

For fourth-quarter 2021, Roku expects total net revenues between $885 million and $900 million. Gross profit is anticipated between $380 million and $390 million. The company expects adjusted EBITDA in the $65-$75 million band.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -93.99% due to these changes.

VGM Scores

Currently, Roku has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Roku has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.