Roku Shares Plunge 22% as Streaming Platform Posts Q3 Results

Shareholders remain unimpressed after Q4 warning, though the company said its streaming hours increased by 90% during the period

Roku Earnings
Photo illustration by TheWrap

The advertising slump claimed another corporate victim on Wednesday, with streaming platform Roku forecasting that its fourth-quarter results will come in well below Wall Street expectations as a weakening economy tempers companies looking to sell their products on television and streaming.

Roku reported that it added 2.3 million subscribers during the three months ended Sept. 30. However, while investors cling to how many people are paying for the service and the fact that streaming hours on the Roku Channel increased 90% during the period, the company telegraphed that the final quarter of the year won’t be impressive.

Shares tanked in after-hours trading after Roku warned investors that it expects revenue of roughly $800 million. That’s a decline of 7.5% from the year-ago period. The stock plunged 22% to roughly $54.

“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.”

While the streaming platform still experienced slow growth as a result of the larger economic environment, revenue grew 12% year over year, to $761.4 million. The company had warned the quarter would be sluggish, projecting it would realize $700 million in sales during the quarter. It also posted a net loss of $122.2 million, or 88 cents per share. Wall Street analysts were expecting a revenue of $694 million and a net loss of $1.28, according to Yahoo Finance.

Previously, the company’s second quarter earnings saw shares fall 24% because of the economic downturn. As a result, Roku stated that it expects those challenges to continue through the end of the year, slowing both operating expenses and headcount growth. At the time, the platform said its outlook for Q3 was a net revenue growth of 3% year over year, to $700 million, with total gross profit of $325 million.

Per analyst predictions, the company experienced a revenue drop due to depressed ad sales. Also of concern was stock performance going into the third quarter, given the limited advertising that can be shelled out during an expected downturn.

In a call with reporters, chief financial officer Steve Louden emphasized Roku’s expanding content slate as the basis for subscriber growth (total number at 65.4 million), such as its entry into hosting third-party content, programming originals and anticipated fare like “Weird: The Al Yankovic Story” that stars Daniel Radcliffe as the parody musician. The film debuts Friday on the free, ad-supported Roku Channel.

The company also recently acquired Nasim Pedrad’s “Chad” for Season 2, after the sitcom had been shelved at TBS. Louden told Wall Street analysts that he will be planning to leave the company next year, after helping establish a successor to his post.

In recent weeks, Roku also launched the Roku Channel in Mexico, launched a line of Wyze smart-home products with an exclusive Walmart sales deal and expanded its partnership with Nielsen to track viewership across connected devices.