Roku stock crashed Friday after the streaming video platform posted a bigger-than-expected loss in the second quarter, missed its sales target, and offered weak guidance.
The San Jose, Calif.-based company late Thursday said it lost 82 cents a share on sales of $764 million in the June quarter. Wall Street had expected Roku to lose 71 cents a share on sales of $804 million. In the year-earlier period, Roku earned 52 cents a share on sales of $645 million.
The company's platform business, mostly advertising, accounted for 88% of revenue in the June quarter. Roku's hardware unit contributed the remaining 12% of sales. While platform revenue rose 26% year over year, player revenue fell 19% amid supply chain disruptions and lower consumer spending.
For the current quarter, Roku expects revenue to increase just 3% year over year to $700 million. Analysts were predicting $898 million in sales, according to FactSet. In the second quarter, Roku's revenue rose 18%.
Roku Stock Tanks After Report
On the stock market today, Roku stock plummeted 23.1% to close at 65.52. That's its lowest weekly close in over three years.
On the plus side, Roku added 1.8 million active accounts in the second quarter, ending the period with 63.1 million user accounts. Analysts had predicted Roku would add 800,000 new users in the June quarter.
"In Q2, we saw a significant slowdown in TV advertising spend due to the macroeconomic environment, which is pressuring Roku's platform business growth in the short term," Chief Executive Anthony Wood said on a conference call with analysts.
Online Advertising Market Weakens
Advertisers have reduced their spending as consumers have tightened their wallets, Chief Financial Officer Steve Louden said on the call.
"As we look ahead to the third quarter, we are facing an increasingly difficult and uncertain environment," Louden said. "Recessionary fears, inflationary pressures, rising interest rates and ongoing supply chain issues will continue to impact both consumers and advertisers."
Other companies exposed to the advertising-supported streaming video business also fell on Friday.
Smart TV maker Vizio saw its stock drop 0.4% to 9.16. Shares of ad-tech firm The Trade Desk fell 4.5% to 45. Magnite, another ad-tech company, saw its stock retreat 5.7% to 7.64.
Roku Stock Hit With Downgrades
At least three Wall Street firms downgraded Roku stock to neutral or sell ratings after the report. And more than a dozen firms slashed their price targets on the stock.
"While we think Roku is dead money over the next quarter at least, we expect a rebound within the next 12 months once the (advertising) market normalizes," Wedbush Securities analyst Michael Pachter said in a note to clients. He maintained his outperform rating on Roku stock but cut his price target to 85 from 125.
Pivotal Research Group analyst Jeffrey Wlodarczak called Roku's second-quarter report and guidance "awful." He rates Roku stock as hold and lowered his price target to 60 from 80.
Roku stock ranks eighth out of 23 stocks in IBD's Leisure-Movies & Related industry group, according to IBD Stock Checkup. Roku stock has a poor IBD Composite Rating of 9 out of 99. The Composite Rating scores a stock's key growth metrics against all other stocks regardless of industry group.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
