There’s still a “big gap” for advertising to fill as consumers continue to switch to connected TV, according to Steve Louden, chief financial officer of streaming TV maker Roku, during a press conference Thursday.
“In the second quarter, there was a significant slowdown in TV ad spending due to the macroeconomic environment,” Roku announced in prepared remarks on its quarterly shareholder letter.
Louden spoke after a disappointing second-quarter earnings report from the company, in which Roku missed revenue estimates for the June quarter by 5% and forecast revenue for this quarter ten percent below consensus. , and withdrew its revenue forecast for the full year.
“What you see is that about half of consumers’ TV time is now streaming,” Louden said, “advertisers know where the world is moving, but they’re taking an emergency pause because of the uncertainty” in the economy, including recession prospects. “Those things can exist,” Louden said.
The combined supply chain and recession and inflation concerns are a continuation of the broad weakness in the Roku market that first surfaced in the quarterly report for November last yearand became more pronounced with February forecast fails.
by roku shares lost a quarter of their value in late trading after the report.
In the June quarter, Roku’s revenue and earnings, $764 million and a net loss of 82 cents per share, fell short of the Wall Street consensus of $805 million and a loss of 62 cents.
For the current quarter, the company forecasts revenue of $700 million, below the consensus of $902.7 million.
Roku withdrew its full-year forecast for “total net revenue growth to be 35% year-over-year.”
During the call with reporters, Louden noted the disparity between advertising budgets and broadcast usage. While more than half of TV is now streamed, “there’s a lot of friction and inertia” in TV ad spending budgets, he said, with only about 22% of budgeted TV ad spend going to streaming. transmission.
“There’s still a big gap there,” Louden said of the disparity in budgets versus consumption. “That’s a great opportunity for streamers, I think it’s the fundamental opportunity.”
In addition to the advertising shortfall, Roku continued to struggle with a widespread industry slowdown in connected TV sales, amid supply chain issues.
The company said: “Retailers managed through elevated U.S. TV inventory and temporarily lowered TV prices in the second quarter, which helped soften the drop in TV unit sales in the trimester.
“Overall US TV and player industry sales, as well as Roku TV and player unit sales, were lower than in the second quarter of 2021.”
Roku continued to absorb higher average TV prices to insulate consumers, Louden said. The company’s gross profit margin on its hardware products, which has always been a “loss leader” to promote new account registration, plunged in the quarter to negative 24% from negative 17% in the quarter. previous.
Other business metrics also slowed. Although the number of active accounts, 63.1 million, increased year-over-year in the quarter by the same 14% from the previous quarter, the company’s revenue per user grew more slowly, rising 21% versus 34% in the quarter. of March.
With the revenue shortfall, Roku’s profit margin, Adjusted Ebitda (earnings before interest, taxes, depreciation, and amortization), fell into negative territory, coming in at negative 1.6% of revenue, vs. 7.8. % positive in the previous quarter and 19% positive. % in the quarter of the previous year.
asked by ZDNet how the company will manage its spending this year, after stripping away promises of revenue growth, Louden said the main emphasis is on slowing the company’s hiring. That slowdown is not a “freeze” in hiring or layoffs, he pointed out, rather a reduction in what had been a “significant” pace of new hires.
Roku will also look at spending on discretionary projects such as the development of Roku’s original programming, though it’s currently a minority of the company’s content spending, he said.