Roku’s Ad Revenue Grows Slower Than Expected. The Culprit? ‘Macroeconomics’

Like most technology companies out there in the cold right now, Roku’s Q2 earnings are quite a mixed bag compared with earlier this year.

Revenue from content and ad monetization (the “platform” business as opposed to the hardware side of the biz) was up 26%, but the company missed Wall Street’s expectations, and the stock plunged by more than 26% in after-hours trading.

Roku’s total Q2 revenue was $764 million, up 18% year-over-year, but was relatively flat compared with last quarter, when revenue clocked in at $734 million.

CFO Steve Louden was probably referring to that plateau when he warned of a TV ad spend hiatus. US advertisers are pulling back in reaction to inflation and supply chain shortages.

“Right now, we’re seeing a significant slowdown in TV advertising spend due to a difficult macroenvironment, which is pressuring our platform business growth rate in the short term,” he told investors on Thursday during Roku’s Q2 earnings call.

Louden cited a recent Advertiser Perceptions study, which found that 47% of advertisers say they made in-quarter pauses on streaming ad spend. Forty-two percent of advertisers have paused their linear spend and 44% pulled back on digital.

“It’s a broad, macroeconomics-driven market trend,” Louden said, noting that “advertisers tend to hit the brakes when there’s a high level of economic uncertainty – they did the same thing during the pandemic.”

For the sake of comparison, Netflix and NBCUniversal’s Peacock didn’t get through their Q2 earnings with flying colors either – their subscriber counts declined and stagnated, respectively.

“The severity of the pullback in ad spend wasn’t expected,” Louden said.

Tailwinds

But there is reason to be optimistic.

Macroeconomic factors – inflation, recession, what have you – are temporary, and Roku is focusing on longer-term growth.

“The consumer shift to streaming is continuing en masse – CTV streaming comprises over half of all TV viewing hours, but only 22% of TV ad spend,” Louden said. “That’s a huge opportunity for streamers, especially Roku.”

To be fair, Roku did add 1.8 million active accounts in Q2, up from 1.1 million last quarter. But overall streaming hours on the platform, which clocked in at 20.7 billion, were down by 0.2 billion hours in the quarter.

The more promising news was tied to this year’s TV upfronts.

Roku reported a record $1 billion in upfront commitments, which included all seven major agency holdcos, Louden said.

But there were also a bunch of newbies: 25% of all advertisers who made commitments to Roku this year hadn’t done so last year.

Roku sees this as encouraging news and a good reason to stay focused on its original content slate.

“Content spend is an area of growth and investment for Roku,” Louden said. “We’re making sure we’re spending the right amount on content commensurate with the scale and growth rate of The Roku Channel.”

And there is reason to see the glass as half full. Roku did see an increase in its number of active accounts this quarter, which could help attract more advertisers who are willing to spend.

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