Shares of Roku (ROKU) fell more than 20% on Friday as continued weakness in the advertising market and more competition from tech giants like Amazon (AMZN) weighed on investor sentiment.
Roku beat fourth-quarter revenue and profit expectations and posted double-digit growth in both accounts and hours streamed, with 80 million active accounts on the platform.
Still, the company slightly missed gross profit forecasts for the current quarter. Roku forecast first-quarter gross profit of about $370 million. Wall Street had expected around $373 million.
Average revenue per user (ARPU) fell 4% year-over-year due to increased focus on international markets. Management said domestic ARPU was flat to slightly increased in the quarter.
While the advertising market has recovered for Big Tech companies, smaller companies have not reaped the benefits. Roku acknowledged the difficulties: “We remain cognizant of near-term challenges in the macroeconomic environment and an uneven recovery in the advertising market,” the company said in its letter to shareholders.
As a result, Wall Street took a negative view of the company's prospects.
“A high percentage of platform revenue is driven by subscription video on demand (SVOD) advertising, SVOD price increases and media and entertainment (M&E) advertising. These areas are expected to struggle for most of 2024,” Oppenheimer analyst Jason Helfstein wrote in a note on Friday, downgrading the stock to “Perform” from “Outperform” and raising his price target of 100 US dollars removed.
He added that while Roku can remain a market leader by leveraging its advantages in pricing and merchandising, the company's near-term headwinds in its exposure to M&E and streaming subscription services will likely dampen investor sentiment.
A video sign displays the logo of Roku Inc, a Fox-backed video streaming company, in Times Square after the company's initial public offering on the Nasdaq Market in New York, September 28, 2017. (Brendan McDermid/Portal/File Photo) (Portal / Portal)
The company faces increasing competition in the connected television and streaming advertising business.
Amazon launched advertising for its Prime Video streaming service in the US last month. Wall Street is optimistic that the tech giant will massively disrupt the changing media market, with companies like Netflix (NFLX) and Disney (DIS) also in the race for ad buyers.
The story goes on
In addition to Amazon, another heavyweight company – Walmart (WMT) – could also weigh on device sales.
“Walmart’s unexpected interest in a takeover [budget TV maker] “Vizio would create another well-scaled entrant that could compete with Roku in its key retail channel,” wrote Michael Nathanson, an analyst at MoffettNathanson, a path less traveled by many of these players.
JPMorgan, which maintained an overweight rating and $100 price target, said Roku's first-quarter revenue forecast, which calls for 15% year-over-year growth, coupled with 13% platform revenue growth, “ultimately does not seem to be enough to address investors’ concerns.” around the potential impact of Amazon video-on-demand advertising in the second half of the year.”
Roku has taken a number of cost-cutting measures over the past year, including layoffs, to reduce operating costs. Shares have fallen about 20% since the start of the year, weighed down by Friday's sharp selloff.
Alexandra Canal is a senior reporter at Yahoo Finance. Follow her on X @allie_canalLinkedIn and email her at [email protected].
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