The third quarter wasn’t a good one for Roku, which shared belt-tightening plans in expectation of worse results to come during the all-important upcoming holiday season.
That’s what happens when advertisers get nervous and hit the brakes.
Anthony Wood, Roku’s founder and CEO, didn’t beat around the bush during his opening remarks to investors on the company’s third quarter earnings report on Wednesday.
“In Q3, advertisers pulled back on spending, consumers were further pressured by inflation and overall economic uncertainty remained high,” Wood began the call. “We expect these conditions will continue and are likely to worsen in Q4.”
The company’s total revenue was $761 million in Q3, with $670 million of that coming from its ad platform. Platform revenue, which includes advertising and content distribution, was up by 15% year-over-year, while revenue from actual device sales decreased 7%.
But Wood sees a silver lining in the hardware revenue decline, which he side is actually to Roku’s advantage. While consumers face heavy inflation in practically every other category – in every other aisle of their local Walmart store, for instance – Roku kept its device prices down.
“We continue to insulate consumers from higher cost to prioritize account acquisition,” Wood said.
The low prices have helped support Roku’s account growth. The company added 2.3 million active accounts in Q3, more than it added in the same period last year or 2019.
But still, Roku must navigate a very difficult period for its business.
Roku shares have been flattened. The company’s market cap of about $7.5 billion is less than a fifth of where it was a year ago. Ouch.
Plus, Roku is trying to launch new businesses. Last quarter the company announced a major expansion into smart home devices beyond smart TVs, including lights, plugs, doorbell cameras and the like.
With the cost of those devices on the rise – and the ad market down – Roku’s profitability flipped this quarter. In Q3 2021, Roku had a profit of about $69 million. In Q3 2022, Roku suffered a $122 million loss.
But more investor scrutiny on spending and its need for better cash flow could open up Roku’s walled garden.
“From what I can tell, the majority of your shareholders think you’re making a strategic mistake by refusing to let third-party DSPs bid on (Roku-owned) inventory,” said Jason Helfstein of Oppenheimer on the call.
Wood said that Roku has its DSP, called OneView (the former dataxu), which leverages proprietary Roku data. That means Roku cannot allow the IDs to be exported, as would happen with third-party DSPs.
“Are there other ways we could work with DSPs to generate incremental revenue? There might be,” Wood mused. “We’re definitely looking at ways to work with partners to increase our revenue stream.”
