Roku (ROKU) shares plunged lower Thursday after the streaming service hub warned the holiday ad spending will likely prove sharply lower than last year's levels, clouding a solid third quarter update.
Roku posted a narrower-than-expected third quarter loss of 88 cents per share for the three months ending in September, as revenues rose 12% to $761 million, topping Street forecasts, as the group added 2.3 million active accounts and streaming hours on the Roku Channel rose 90% from last year.
Looking into the final months of the year, however, Roku said its expects the "macro environment to further pressure consumer discretionary spend and degrade advertising budgets, especially in the TV scatter market', noting revenues will likely fall 7.5% from last year to $800 million.
"In Q3, advertisers pulled back on spending, consumers were further pressured by inflation and overall economic uncertainty remained high. We expect these conditions will continue and are likely to worsen in Q4," CEO Anthony Wood told investors on a conference call late Wednesday.
"It's hard to say exactly what's going to happen in Q4, but we are seeing signs that Q4 is going to be worse in terms of the ad market than Q3 was. I mean, we're seeing lots of big categories pull back, telecom, insurance," he added. "So I think this holiday season, given the unique set of environments and characteristics, is probably going to be different than the typical holiday season."
Roku shares were marked 14.8% lower in early Wednesday trading to change hands at $46.28 each, extending the stock's six-month decline to around 55.6%.
A host of U.S. companies have cautioned on an ad-spending slowdown heading into the final months of the year, following an early warning from messaging app maker Snap (SNAP) earlier last month.
Google (GOOGL) CFO Ruth Porat, in fact, said revenues from YouTube fell 2% to around $7.07 billion over the three months ending in September amid a "pullback in spend by some advertisers we first noted last quarter" for the world's biggest digital ad market.
"Roku’s guidance implies not only a year-on-year material decline, but an almost unheard of sequential decline in platform revenue into what is normally by far the most robust advertising quarter of the year (boosted this year by political)," said Pivotal Research analyst Jeffrey Wlodarczak, who lowered his price target on the stock by $20, to $40 per share, following last night's earnings report. "And this is despite all the viewing momentum in streaming TV."
"Our view is the TV/digital ad backdrop is not great, but there appears to be something specific going on at Roku that seems to have significantly exacerbated the problem," he added. "Roku management frankly may have overplayed their hand with large advertisers/media companies"
