Roku Stock Crashes 25% on Big Q2 Miss, Withdrawn Guidance Prompts a Downgrade

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By Senad Karaahmetovic

Shares of Roku (NASDAQ:ROKU) are down around 25% in premarket trading Friday after the company’s Q2 results widely missed estimates.

Roku reported a Q2 loss per share of 82c, wider than the expected loss per share of 69c, according to Refinitiv. Revenue came in at $764 million, missing the consensus projection of $805 million.

Roku said its disappointing quarterly results were due to the current macroeconomic environment including 4-decade high inflation and supply chain constraints.

The streaming device maker said it expects the advertising market to continue facing headwinds in the current quarter as consumers ease spending, which could hurt Roku’s TV and other hardware sales. It added that advertisers also reduced spending on TV ads during the quarter, emphasizing how recession fears are forcing businesses to cut their marketing expenses.

The company slashed operating expenses and slowed hiring in the second quarter, it said.

“We believe this pullback mirrors the start of the pandemic in 2020 when marketers prepared for macro uncertainties by quickly reducing ad spend across all platforms,” Roku said in a letter to shareholders.

Roku said it expects to generate $700 million in revenue in the third quarter, way below the consensus estimates of $902 million. The San Jose, California-based company is withdrawing its full-year growth outlook due to current market volatility.

An Evercore ISI analyst downgraded the stock to In Line from Outperform with a $75 price target, down from $140. The analyst sees “significant near term macro challenges”.

“Roku’s headwinds are primarily macro driven (the business is not broken) and with slowing topline growth in a cautionary demand environment with elevated OpEx spend, the company is facing a double whammy on its P&L this year. That makes forward EBITDA multiples look elevated (off of a smaller base) and near-term Revenue and Profit fundamentals weaker,” she wrote.

Still, the analyst remains positive long-term as “Roku will be a large beneficiary” once advertisers feel comfortable/confident again, although this is not likely to happen for a few quarters.

A Raymond James analyst reiterated Evercore's thoughts.

“While positive on the long-term fundamentals, we maintain our Market Perform rating as we expect macro headwinds to impact Roku through the remainder of 2022 and potentially into 2023.”