Last Friday, July 29, 2022, Roku (ROKU) lost 23% of its value. The streaming platform posted disturbingly weak results. Advertisers abruptly cut spending. The tight monetary conditions and high inflation rates could subside. That would improve customer-spending levels. Until then, advertising spending levels will suffer.
Roku posted revenue of $764 million, up by 18% Y/Y. The company said that TV ads bought in Q2 moderated. In the current Q3 period, economic concerns pressuring markets worldwide will continue. Investors fear growth will not return. Already, player revenue fell by 19% to $91.2 million.
Customers have many streaming stick options. You could buy a Google Chromecast for just US$49.99. Amazon’s Fire TV Stick 4K streaming costs the same. Roku’s streaming stick is $39.99. With similar pricing, consumers loyal to Google or Amazon may avoid Roku. Besides, Roku’s free content has too many ads. Viewers may avoid watching the free content. This would hurt ad revenue.
In Q2, operating expenses rose due to headcount growth. Roku slowed hiring but will need to cut staff next. The Roku channel content spend does not align with the economic realities. Roku will need to spend less on original content.
The world economy is highly uncertain. Advertising spending budgets could worsen. Investors should avoid Roku until conditions improve.
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