Roku (ROKU  ) declined 7% following a strong earnings report but lower than expected first-quarter guidance. The stock initially opened as much as 8% higher but quickly gave back these gains. The major question for Roku and investors concerns the company's path to profitability, basically how and whether or not it's capable of executing. Hopes for profitability in 2020 were dashed as the company's costs will be higher than forecast.

Inside the Numbers

Roku's results show that it's been very successful in adding users and increasing revenue. It reported $411 million in revenue against expectations of $392 million for the fourth quarter. For 2019, Roku booked $1.13 billion in revenue which beat analysts' expectations of $1.11 billion. It also reported a lower than expected loss of $0.13 per share versus expectations of $0.14 per share.

The average revenue per user increased to $23.14 on a trailing 12-month basis which was a 23% increase from the same quarter in 2018. Total hours streamed increased to a staggering 40.3 billion hours on a 12-month trailing basis versus 24 billion hours streamed in the fourth quarter of 2018.

The company forecast 2020 revenue at $1.6 billion, slightly above analyst expectations of $1.58 billion. For the first quarter, it forecasts revenue around $305 million which is above the consensus of $297.5 million. The company is hoping that it can breakeven in 2020 on a full-year adjusted EBITDA basis. This is despite expecting an increase in costs to $905 million as it expands headcount and invests in operations.

Long Odds

Roku makes devices to turn any TV into a streaming device. It's been benefitting from the large number of new streaming services launched over the past few years. Roku anticipates that half of all current cable customers will "cut the cord" which would mean that Roku is early in its growth trajectory.

Roku's stock has more than quadrupled since the market bottom in December 2018. However, even if optimistic projections about steaming come to fruition, there's no certainty that Roku will benefit. It makes a low-margin, relatively low-priced technology product that doesn't have any distinguishable features from Apple's (AAPL  ) Apple TV, Google's (GOOG  ) Chromecast, or Amazon's (AMZN  ) FireStick. However, it's still competing with these companies who have much bigger pockets.

Investors should be cautious with Roku. It does share many of the characteristics of big winners in this bull market like being part of a major trend, increasing users, and increasing revenue per user. However, there are notable differences. Roku has a lower-margin product with little customer satisfaction or differentiation versus its competitors. It's also at a disadvantage against its competitors who have their own content libraries and deeper pockets.