Roku And Pinterest: Ad-Tech Earnings Review
August 25, 2020
Beth Kindig
Lead Tech Analyst
This article was originally published on Forbes on Aug 20, 2020,11:32pm EDT
On August 5th, Roku announced very strong Q2 results led by outstanding account growth. Total revenue grew 42% YoY to $356 million, representing a beat of 7% above consensus estimates. This was by far the strongest Q2 sales growth across ad-tech as Roku’s competitors each posted significant revenue growth decelerations.
This was a challenging quarter for the industry, as digital advertising spend is expected to decline 5% YoY. Roku outpaced its competitors by growing monetized video ad impressions 50% and expanding first time ad clients 40%. From H1 2019 to H1 2020, Roku’s retention rate among advertisers that spent $1 million or more in H1 2019 was a resilient 92%.
Deutsche Bank is estimating that US ad spend for connected TVs will double over the next few years from the current $8B spent annually. Roku is ideally positioned to be the main beneficiary of this trend as growth in the number of active accounts and streaming hours reinforce Roku’s role as an essential distribution partner for advertisers who want to scale rapidly. Further, Roku is depending on the hardware portion of its business less than ever, as consumer hardware has shrunk from 55% of Roku’s revenue at its IPO to less than 30% in Q2.
Despite posting the highest growth in the industry, Roku trades at the most attractive valuation in comparison to its peers. The Trade Desk, Snap Inc., and Pinterest have each seen their multiples expand 15%+ over the last year & trade at a premium to Roku. Their growth rates have declined significantly over the same time frame.
The Trade Desk, in particular, now trades at a 70% higher premium than it did a year ago while its growth rate has dropped from 38% to -12.9%. In comparison, Roku’s multiple has contracted from 12.8x to 11.4x despite posting consistent 40-55% growth. Roku is in an ideal position to continue to deliver sustained 30%+ growth as it has proven to be the most resilient ad-tech stock and will capitalize on growing ad spend for connected TVs.
Pinterest reported better than expected Q2 results, beating consensus estimates by 9% on revenue and 7% on global monthly active users (MAUs). Most impressive was its international revenue growth, as the $42m number they announced came in 46% above estimates. Pinterest also reported 49% international MAU growth, blowing past estimates by 9%.
Sign up for I/O Fund's free newsletter with gains of up to 403% - Click here
Pinterest saw broad based user growth in the US and international regions, so the key remains increasing its average revenue per user (ARPU), which dropped 21% globally to $0.70. In the US, the company’s ARPU was $2.50 (-11% YoY) while international ARPU was just $0.14. In comparison, Facebook’s global ARPU stands at $8.52. This represents a great opportunity for Pinterest to accelerate its growth, particularly by increasing monetization per-user internationally. Monetization for international regions should improve over time as the company expands its sales presence in under-capitalized markets.
Credit Suisse estimates Pinterest will report $0.23 International ARPU in Q4, representing a 64% improvement in international monetization from Q2. This would be the best quarter of international ARPU the company has ever reported, which coincides with estimates calling for a record quarter of international revenue.
Pinterest saw US revenue fall 3% YoY in Q2, but management guided for 35% growth in Q3 and noted that revenue in July accelerated 50% YoY. With the expected rebound from a weak Q2 in the US, Pinterest can reaccelerate its growth to 40%+ by capitalizing on its international monetization opportunity. Management addressed its plan for this opportunity in the conference call, clarifying that that they are investing in those markets by hiring aggressively and building out their sales team. If the company can execute on these initiatives to drive higher international ARPU, as analysts are forecasting, shares of Pinterest will benefit from the upcoming growth.
Clearly, ad-tech companies make solid investments especially for their tendency to have strong bottom line growth. This particular subsector usually has a clear path to profitability while other tech verticals must spend heavily on R&D. However, guiding for 30%+ revenue growth following single to double-digit negative growth carries risk as covid-19 has proven to drive unpredictable ad spend this year. Pinterest and The Trade Desk have set a high bar for themselves based off July results with this forward guidance.
As I covered previously, Apple’s changes to IDFA will likely put pressure on The Trade Desk as a third-party ad exchange without a first-party relationship. Pinterest also alluded to the decreased ability to measure conversions, yet thanks to their first-party relationship, this may be surmountable through their own measurement tools. These effects will begin to show up in Q4 after the release of iOS 14 in September.
Gains of up to 403% from our Free Newsletter.
Here are sample stock gains from the I/O Fund’s newsletter --- produced weekly and all for free!
+344% on Nvidia
+403% on Bitcoin
+218% on Roku
*as of March 15, 2022
Our newsletter provides an edge in the world’s most valuable industry – technology. Due to the enormous gains from this particular industry, we think it’s essential that every stock investor have a credible source who specializes in tech. Subscribe for Free Weekly Analysis on the Best Tech Stocks.
If you are a more serious investor, we have a premium service that offers lower entries and real-time trade alerts. Sample returns on the premium site include 324% on Zoom, 601% on Nvidia, 445% on Bitcoin, and 4-digits on an alt-coin. The I/O Fund is audited annually to prove it’s one of the best performing Funds on the market with returns that beat Wall Street funds.
More To Explore
Newsletter
Investing In AI with Beth Kindig: 1-Hour Video Interview
Jordi Visser, CIO and Chairman of Weiss Multi-Strategy Advisers, spoke to Beth Kindig on the Real Vision podcast on March 20th, to dive deep into AI’s potential for explosive economic growth, how to f
Semiconductor Stocks Q4 Overview: AI Gains Heat Up
Semiconductor stocks are standout performers so far in 2024, with investor appetite for AI stocks remaining elevated as AI chip leader Nvidia continues its streak of high growth.
I/O Fund Catapults to 131% Cumulative Performance Due to Leading AI Allocation: Official Press Release
I/O Fund, a tech research site that actively manages a real-time portfolio, announces returns of 57% in 2023 with a cumulative return of 131% since inception. This compares to popular tech ETFs that h
The Importance of Verified Returns and Risk Management for Retail Investors
Last year was a stellar year for investors – in 2023, the Nasdaq 100 rose 54% for its best annual return since 1999, while the S&P 500 gained 24%. The Magnificent 7 were the de facto leaders of this m
Arm Stock: AI Chip Favorite Is Overpriced
Arm Holdings is positioned to capitalize on the growing adoption of artificial intelligence (AI) technologies, leveraging its established licensing model and extensive ecosystem to drive future growth
Top 3 Ad-Tech Stocks For 2024
Ad spending growth is widely forecast to accelerate in 2024, after a challenging macro environment significantly dented budgets and growth in 2023. The US advertising market is already showing positiv
Cybersecurity Stocks: CrowdStrike Soars While Palo Alto And Zscaler Fall
This year has led to a split landscape for cybersecurity stocks, with two of cybersecurity leaders up more than 20% YTD while others are negative YTD. In the past, we’ve discussed the resiliency of th
The Magnificent 7 Are Falling Like Dominos; Only 3 Remain
The Magnificent 7 of 2023 have now become 2024’s Magnificent 3: Nvidia, Meta and Amazon. Of these, Nvidia’s saw a stellar start to the year as shares have gained nearly 60% YTD due to the GPU leader’s
Nvidia Stock Gained $1.5 Trillion To Surpass The FAANGs - Apple Is Next
Today, Nvidia surpassed a $2 trillion market cap compared to Apple’s $2.8 trillion. The company has surpassed Amazon, Google, Tesla, Meta and Netflix. The only one left standing is Apple and we have 2
Palantir Stock Surges From Artificial Intelligence Platform
Palantir’s Q4 earnings confirmed an acceleration in its US commercial business as it closed out its first GAAP profitable year. Shares are reflecting the optimism surrounding Palantir’s commercial seg