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Roku Crashes 26% on Failing to Meet Q2 Expectations

Story Highlights

Roku has missed both revenue and earnings estimates for the second quarter. However, the company expects the sluggish demand to continue well into the second half of the year owing to uncertain macroeconomic factors.

Shares of Roku, Inc. (NASDAQ: ROKU) crashed 26% during after-hours trading yesterday after the company missed Wall Street expectations with its second-quarter results.

What’s more, the company even fell short of Q3 net revenue guidance of $700 million, while the consensus estimate is pegged much higher at $902.66 million. Furthermore, Roku even withdrew its full-year fiscal 2022 revenue outlook, citing macroeconomic uncertainties.

Roku is an American television streaming platform that also sells Roku TV and digital media players. The record high inflation rates have caused consumers to spend less on discretionary items as they end up paying more every time they shop for food items, groceries, and fuel. This has caused a huge gap in demand for Roku’s offerings. Moreover, a significant slowdown in advertising spending by corporates has further hurt its performance.

In a letter to shareholders, Roku said, “For the second half of the year, we are forecasting that advertising spends, particularly in the scatter market, will continue to be negatively impacted. We also believe that consumer discretionary spend will continue to moderate, pressuring both Roku TV and Roku player sales.”

Roku Q2 Results Fail to Impress

Roku posted a diluted loss of $0.82 per share, 13 cents wider than the analysts’ estimated loss. The company had reported a diluted profit of $0.52 per share for the same period last year.

Similarly, net revenue of $764.41 million grew 18% year-over-year but missed the Street estimates by $40.24 million. Markedly, Platform revenue contributed $673.16 million toward the total, growing 26% compared to the prior year period. Meanwhile, Player revenue slumped 19% to $91.24 million compared to Q2FY21.

Despite the weakness in sales, in Q2, Roku remained the number one-selling smart TV operating system (OS) in the U.S. and number two in Mexico.

Roku’s Q2 Key Metrics Show Resilience

During the quarter, Roku added 1.8 million incremental active accounts to reach 63.1 million, and global streaming hours reached 20.7 billion hours, growing 19% year-over-year.

Notably, the average revenue per user (ARPU) of $44.10 rose 21% year-over-year. Plus, the company also surpassed a milestone with $1 billion in upfront commitments.

Analysts Are Cautious about ROKU

The Wall Street community is cautiously optimistic about ROKU stock, with a Moderate Buy consensus rating based on 17 Buys, five Holds, and two Sells. The average Roku price target of $136.70 implies an impressive 60.5% upside potential to current levels. Meanwhile, the stock has lost a whopping 63.5% so far this year.

Investors Remain Positive about ROKU

TipRanks’ Stock Investors tool shows that investor sentiment is currently Positive on Roku, with 1.6% of portfolios tracked by TipRanks increasing their exposure to ROKU stock over the past 30 days.

Similarly, TipRanks’ Hedge Fund Trading Activity tool shows that confidence in Roku is currently Very Positive, as ten hedge funds increased their cumulative holdings of ROKU stock by 2.3 million shares in the last quarter.

Ending Thoughts

With consumer sentiment at an all-time low and inflation at an all-time high, Streaming platforms and electronic gadget manufacturers are currently facing a tough environment. Nonetheless, Roku is gaining market share due to its budget-friendly offerings and was able to deliver year-over-year revenue growth. Meanwhile, investors’ confidence is positive, which reflects a good long-term opportunity for the company.

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