Roku (ROKU) Streams Lower After Providing Weak Q4 guidance, Ad Market Looks Bleak
1:54 pm Thursday, November 03rd, 2022
Roku (ROKU) is streaming sharply lower today after its Q3 earnings report last night. Roku reported a narrower than expected loss in Q3 with nice upside revenue. However, there was also weak Q4 guidance and cautious commentary on ad spend. Roku also announced that CFO Steve Louden plans to leave the company sometime in 2023.
The Q4 guidance was pretty rough with the $800 mln revenue outlook being well below consensus. Roku also expects a large Q4 adjusted EBITDA loss of $(135) mln vs $(34) mln in Q3. The holiday season is typically the strongest period for Roku, but not this year. Roku expects macro uncertainties and inflation will continue to hurt consumer discretionary spend. This will in turn further weigh on ad budgets, particularly the ad scatter market. Also, Q4 is typically back-end loaded, which reduces visibility.
Roku expects these conditions to be temporary but concedes it is difficult to predict when they will stabilize or rebound. On its Player segment, Roku expects Q4 sales to be lower yr/yr and margins will be significantly lower sequentially primarily due to traditional holiday promotional pricing.
It was not a big surprise that online ad spending would be weak as the topic has been well-covered in recent weeks. SNAP reported weak results on October 20 that took the whole group down. Then META and GOOG had weak results and expressed concerns about the ad environment. We think what is different here is the magnitude of the Q4 shortfall.
Overall, investors are clearly disappointed with Roku’s Q4 guidance. We think what further spooked investors is that Roku is usually pretty cheery on its calls even when the numbers are not the best. However, management was uncharacteristically somber in terms of its Q4 outlook on this call. Briefing.com thinks it is pretty risky to be bottom fishing down here. This ad weakness could easily extends into 1H23. The timing is not great for Netflix (NFLX), which will launch its ad-supported tier next month.
