Roku handily topped Wall Street estimates for the third quarter of 2022, as the streaming platform and media company packed on 2.3 million streaming accounts to reach 65.4 million.
However, facing inflationary pressure and an ad-spending slowdown, Roku warned of a weak Q4 — telling investors that it expects total net revenue of roughly $800 million, which would represent a decline of 7.5% year over year. The company projected Q4 total gross profit of roughly $325 million (vs. $380 million in the year-ago quarter) and an adjusted net loss of $135 million (vs. adjusted EBITDA income of $86.7 million).
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Shares of Roku tumbled as much as 19% in after-hours trading Wednesday on the Q4 guidance.
“As we enter the holiday season, we expect the macro environment to further pressure consumer discretionary spend and degrade advertising budgets, especially in the TV scatter market,” the company said in the Q3 earnings letter to shareholders. “We expect these conditions to be temporary, but it is difficult to predict when they will stabilize or rebound. We therefore anticipate Q4 Player revenue and Platform revenue to be lower year over year.”
On the earnings call, CEO Anthony Wood said, “This is not a normal holiday season.” The macroeconomic headwinds “are creating a tremendous amount of uncertainty,” and the first thing companies do in that situation is “cancel their ad budgets,” he said. Wood said some large advertisers Roku has worked with in the past “are not spending with anyone.”
For Q3, Roku reported total revenue of $761.4 million, up 12% year over year, and a net loss of $122.2 million (or 88 cents per share). On average, Wall Street analysts expected revenue of $694 million and a net loss of $1.28 per share, according to Refinitiv data.
Operating costs for the third quarter ballooned 71%, to $503.8 million. That significant increase “was largely the result of robust hiring in late 2021 and early 2022 when we believed that the economy was emerging out of pandemic-related disruptions, and we were accelerating investments that we had previously deferred.” Roku began taking steps to “significantly slow” the rate of hiring and other opex growth in late Q2 but said “it will take a few more quarters” for the opex growth rate to “normalize.”
Meanwhile, the company also returned to growth in total streaming hours, which totaled 21.9 billion in Q3 — up 1.1 billion from the prior quarter and an increase of 21% year over year — after a slight sequential decline in Q2. Its account growth in the quarter was above both 2019 and 2021 levels. In addition, the Roku Channel’s streaming hours in Q3 increased more than 90% year over year, although the company does not break out those numbers.
Roku has been ramping up spending on original and exclusive content, and in September hired TV veteran Charlie Collier, most recently CEO of Fox Entertainment, to the newly created post of head of Roku Media. The company’s buzzy biopic spoof“Weird: The Al Yankovic Story,” starring Daniel Radcliffe, is set to premiere Friday, Nov. 4, on the free, ad-supported Roku Channel. Roku had previously picked up a huge trove of short-form originals from the short-lived Quibi, including Kevin Hart’s “Die Hart” (renewed for a second season) and Chrissy Teigen’s “Chrissy’s Court” (which just concluded its third season).
Among other programming additions, the Roku Channel in September became the exclusive home of sports and entertainment talk show “The Rich Eisen Show.” This summer, the company launched Paramount+ as a direct subscription option through the Roku Channel.
In the past few weeks, Roku also launched the Roku Channel in Mexico; launched a new line of smart-home products developed with Wyze and set an exclusive Walmart sales deal; and expanded its partnership with Nielsen to track viewership across traditional and connected TV, desktops and mobile devices.
In announcing the Q3 results, Roku said CFO Steve Louden plans to leave the company sometime in 2023 after he helps recruit a successor. He joined Roku in 2015 and led the company’s 2017 IPO. He had previously planned to leave his position in late 2019, but he later decided to remain at Roku.
