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Roku Lays Off 5% of U.S. Staff, Citing ‘Economic Conditions’

The tech company says many of the 200 positions in play will be fired by the new year

Roku on Thursday said it will eliminate 200 jobs, or about 5% of its workforce, citing “economic conditions in our industry.”

The streaming platform’s volatile shares dropped on the news, a reversal from the typical Wall Street reaction to cuts in labor expenses. Roku gave up 3% to $55.15 in morning trading, as the broader market indices slipped around 1%. The stock hit a recent high of $61.63 on Friday, still well off the high of $266.05 seen in December.

“Taking these actions now will allow us to focus our investments on key strategic priorities to drive future growth and enhance our leadership position,” Roku said in a short statement.

Roku estimated it would book one-time charges of between $28 million and $31 million in connection with the layoffs, primarily consisting of severance payments and related costs.

“The company expects that the majority of the restructuring charges will be incurred in the fourth quarter of fiscal 2022 and that the implementation of the headcount reductions, including cash payments, will be substantially complete by the end of the first quarter of fiscal 2023,” it said in a regulatory filing.

The cuts come two weeks after Roku warned investors that it expects revenue to plummet 7.5% in the fourth quarter from last year, to roughly $800 million. Despite several reductions and downgrades, analysts’ average estimate remains above that figure, at $810 million, for the current quarter.

“As we enter the holiday season, we expect the macro environment to further pressure consumer discretionary spend and degrade advertising budgets, especially in the TV scatter market,” the company said in the earnings letter to shareholders. “We expect these conditions to be temporary, but it is difficult to predict when they will stabilize or rebound.”

Pivotal Research analyst Jeffrey Wlodarczak called the revenue guidance “frankly horrific” in a downgrade of the shares to “sell” the day after the earnings release.

Roku’s guidance suggested both a year-over-year decline, as well as an “almost unheard of sequential decline” in revenue, the analyst noted, during what is typically the year’s strongest advertising quarter, and despite the growth of streaming overall, Wlodarczak wrote in a research note.

He suggested there is “something specific going on” at Roku “that seems to have significantly exacerbated the problem” of the advertising slowdown.

“Advertising spend on our platform continues to grow more slowly than our beginning-of-year forecast due to current weakness in the overall TV ad market and the ad scatter market in particular,” Roku said in the Nov. 2 earnings announcement.

But the pain of the slowdown is being felt far beyond Roku.

Steep advertising losses have led to thousands of layoffs or announced layoffs at multiple other companies across the media and entertainment space, including Facebook parent Meta Platforms, TV and film giant Paramount Global and Amazon.

Media research firm Magna in September cut its advertising spending forecasts for the fourth quarter and all of 2023, though it still expects overall U.S. advertising dollars to rise about 4.8% next year. But with expectations for a recession rising — JPMorgan was the latest to predict a “mild recession” Thursday morning with more than one million jobs cut by mid-2024 — the ad slump may end up deeper than expected.

On Tuesday, Warner Bros. Discovery CEO David Zazlev said the ad market is “very weak.”

“This is weaker than it was during COVID,” Zazlev claimed during an investor presentation. “and right now there is a pretty big miss of the whole Christmas season.”