Why Roku Shares Dropped Sharply on Thursday

What happened

Following its release of second-quarter results on Wednesday afternoon, the shares of the broadcast TV platform Roku (NASDAQ: ROKU) fell dramatically on Thursday. The shares fell nearly 9% as of 12 pm EDT.

The stock’s pullback was likely primarily due to an uncertain view of the ad industry, prompting management to refrain from providing a financial outlook.

Image source: Getty Images.

And that

Roku’s second-quarter revenue increased 42% year-over-year to $ 356 million. This crushed the consensus analyst forecast for revenue of $ 315.4 million. The company’s net loss per share of $ 0.35 was also much better than the loss of $ 0.50 that analysts had modeled.

The growth was primarily driven by a 46% year-on-year increase in the company’s platform revenue, or revenue derived primarily from Roku’s share of ads and subscriptions on its platform. The platform’s revenue, of course, benefited from an acceleration in broadcast hours as people took refuge at home and spent more time in front of the television. Streaming hours on the Roku platform soared 65% year-over-year to 14.6 billion during the quarter.

Now what

But it’s Roku’s perspective that may have spooked some investors.

“The ad industry outlook remains uncertain for Q3 and Q4, and we believe total TV ad spending will not recover to pre-COVID-19 levels until well into 2021,” management said in the update. Q2 Roku. “Advertisers in industries such as casual dining, travel and tourism have significantly reduced their spending.”

Management, however, said it still expects its ad business to grow as marketers shift ad budgets toward broadcasting TV. But he expects growth to be slower than the company planned before the pandemic.

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Daniel sparks owns Roku stock. The Motley Fool owns shares and recommends Roku. The Motley Fool has a disclosure policy.

Points of view and opinions expressed in this document are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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