Roku Shares Plummet 24% as Q2 Ad Spending Withers

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Roku failed to meet its modest revenue expectations as growth and advertisement sales continue to slow to the company’s lowest pace in over four years, according to its second-quarter earnings report Thursday.

The company posted overall revenue of $764 million for Q2, up 18% year over year, which couldn’t quite meet expectations that had its growth at around $805 million due to a depressed ad sales market. Roku also added another 1.8 million active accounts in Q2, bringing the company to a total of 63.1 million.

“In Q2, there was a significant slowdown in TV advertising spend due to the macro-economic environment, which pressured our platform revenue growth. Consumers began to moderate discretionary spend, and advertisers significantly curtailed spend in the ad scatter market (TV ads bought during the quarter). We expect these challenges to continue in the near term as economic concerns pressure markets worldwide,” Roku’s Anthony Wood, founder and CEO, and Steve Louden, CFO, said in a letter to shareholders.

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Investors weren’t thrilled by the report as shares plummeted during after-hours trading right after the quarterly results were released to about 24% below the regular session close of $85.17.

Roku has continued to post slower active account growth in recent quarters — despite continued investment in original content — which has contributed to both Wall Street and the company’s own modest expectations for this quarter. Q2’s growth represents a 14% increase year over year compared to 35% growth in Q2 2021, with an increase of 2.4 million accounts.

Streaming hours decreased by about 200,000 hours over last quarter to 20.7 billion, which is still a 19% increase year over year.

Louden described the company’s decrease in ad sales as a “a broad-based significant pullback” within the industry during a “challenging macro environment,” rather than an omen for Roku individually. With a looming recession, “advertisers know that’s where the world is moving to” in terms of TV streaming, but at the same time “they’re hitting the brakes in the short term.”

“We’re very well-positioned as the leading streaming platform to capture that,” Louden said during a press call Thursday. “We’re trying to balance the short-term realities with the long-term opportunities.”

Advertising sales in media typically decline in times of economic recession. The struggles of Roku, one of the most dominant video streaming platforms in the domestic market, may be a harbinger of tough times to come for the industry. As the the streaming industry embraces ad-supported models, Roku was thought to be positioned as a primary beneficiary.

Though a rumored Netflix acquisition never came to fruition, Roku (which counts an $11.5 billion market value as of this writing) may now be seen as a prime takeover target following this stock slip.

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