Roku is the latest company to report a negative impact on revenue this quarter due to a slowdown in ad spending.
The company missed second-quarter revenue expectations, reporting revenue of $764 million, compared to its estimate of $805 million. Active accounts grew by 1.8 million to reach 63.1 million this quarter, adding more accounts than it did in the previous quarter, but maintaining the same year-over-year growth rate.
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“Consumers began to moderate discretionary spend, and advertisers significantly curtailed spend in the ad scatter market [TV ads bought during the quarter]. We expect these challenges to continue in the near term as economic concerns pressure markets worldwide,” Roku said in its investor letter Thursday.
To try to combat headwinds in the second quarter, the company said it took measures to “significantly slow both operating expense and headcount growth.” Speaking to media ahead of the investor call Thursday, Steve Louden, Roku’s chief financial officer, said most of the company’s content spending is concentrated around third-party licensing, with spending on Roku Originals programming making up “minority” of that spend. Still, he said both areas are under consideration.
“We’re definitely been looking at the total spend that we have for the Roku Channel, as well as the timing of the productions that we can control on the Roku Originals piece,” Louden said.
The company currently has a major release, the feature film WEIRD: The Al Yankovic Story, scheduled to debut on the channel Nov. 4.
In the letter to investors, Roku said content “spend will be commensurate not only with the scale and growth of The Roku Channel, but also with the broader macro environment.”
The company has not conducted layoffs or a hiring freeze, Louden told reporters, but rather has slowed its hiring rate after four years of “growing extremely quickly.”
Roku issued third-quarter guidance, saying it expects revenue to increase to $700 million and total gross profit to reach about $325 million. However, the company withdrew its full-year revenue guidance due to “the uncertainties and volatility in the macro environment.”
Roku shares plunged 26 percent after hours Thursday.
Despite the difficult advertising environment, Roku said it closed upfront deals with all seven major agency holding companies for the 2022-2023 television season, resulting in $1 billion in total commitments, which will be realized by the company at a later date.
As for the current ad climate, Roku CEO Anthony Wood said he believes advertisers are pulling back on spending in the scatter market, in particular, because of its flexibility.
“We are seeing advertisers worried about a possible recession. And so we’re seeing them reduce their spend in places that are easy for them to turn off and turn back on,” Wood said.
However, Roku executives continued to be bullish on the company’s long-term perspective, as they see more advertising dollars moving from traditional TV into streaming and as the platform’s active accounts continue to grow.
They maintained this outlook, even when asked about increasing competition from Netflix and Disney+, as both plan to launch an ad-supported offering in competition with the Roku Channel, saying that those two companies will make streaming advertising “more mainstream,” ultimately benefiting Roku as well.