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Roku stock (NASDAQ:ROKU) has traded down 25% in the after-hours session before the company launched a conference call to discuss a second-quarter earnings miss - another victim of a downturn in advertising and ad spending sentiment that has wiped out a ton of equity value for digital media names in recent months.
Due to "volatility and uncertainty" the company is pulling its previous full-year revenue growth outlook for 2022. And along with the earnings report, it had guided Q3 net revenues to $700M, vs. a much higher Street expectation for $903M.
"As we look ahead to the third quarter we're facing an increasingly difficult and uncertain environment," Chief Financial Officer Steve Louden said. "Recessionary fears, inflationary pressures, rising interest rates and ongoing supply chain issues will continue to impact those consumers and advertisers."
"We believe consumers are going to continue to moderate discretionary spend, and the scatter (ad) market will remain pressured as a result," Louden said.
Despite that, "Roku's business and strategic fundamentals are stronger than ever and growing strong," founder and CEO/Chairman Anthony Wood said. "Our TV advertising market share continues to grow and our active accounts continue to increase."
Detailing important verticals under pressure, Wood noted the scatter market (an important source of revenue) is an "easy market for advertisers to turn off and turn back on" and so it's seeing an outsize effect from the downturn. But even as advertisers pull back spend, they're still investing more in streaming than traditional TV, he added.
By way of example, he noted a couple of the verticals seeing particular impact are consumer products and automotive, where ads declined 9% for traditional TV generally, "but growing double digits for us."
The "silver lining," Wood said, is that stress on TV budgets causes people to evaluate effectiveness of spending. "You know, 22% of TV budget spent on streaming in 2020, vs. about ... half of all TV hours (spent) on streaming. So there's a big opportunity to accelerate the transition from traditional TV advertising dollars to streaming; this event will have a positive impact on that acceleration."
It's a reminder, he said, of "when advertisers paused spend during the 2008 recession. But it became a catalyst that accelerated the shift of ad spend from print publishing to digital. We believe that similar opportunity exists now for advertisers to accelerate their shift from legacy pay TV to TV streaming."
Roku was among Wednesday's beneficiaries of the news that Google was again delaying its move off of third-party cookies, lifting the ad-tech sector more generally.
