Please ensure Javascript is enabled for purposes of website accessibility

Why Roku Stock Pulled Back Today

By Jeremy Bowman - May 8, 2020 at 12:19PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Ad sales are falling and that's bad news for the streaming device maker.

What happened

Shares of Roku (ROKU -0.65%) were heading lower today after the video streaming company said in its first-quarter earnings report that ad growth would be slower than originally anticipated due to the impact of the COVID-19 pandemic. Though the streaming-device maker showed off solid growth in other areas like users and hours watched, the warning about ad sales was enough to send investors packing.

As of 12:19 p.m. EDT, the stock was down 7.8%.

A Roku streaming device with remote control and speakers

Image source: Roku.

So what

The streaming company reported preliminary numbers in April so investors already had a sense of what to expect. Active accounts jumped 37% to 39.8 million, while streaming hours rose 49% to 13.2 billion as stay-at-home mandates drove increased consumption in the second half of March. 

Overall revenue was up 55% to $320.8 million, well ahead of estimates of  $306.7 million, and was driven by 73% growth in high-margin platform revenue, reaching $232.6 million. 

Adjusted EBITDA in the quarter flipped from a $10 million profit in the quarter a year ago to a $16.3 million loss as the company more than doubled spending on marketing to try to capture the opportunity from the stay-at-home orders and as platform monetization was negatively impacted by delays in ad spending. Roku finished the quarter with a loss per share of $0.54, which was worse than estimates at $0.45.

What seemed to rattle the market most was management's comments in the shareholder letter warning about growth in the ad business this year, saying, "We anticipate that our ad business will deliver substantial revenue growth on a year-over-year basis, albeit at a slower pace and lower gross profit than we originally expected for the year." It also said it would slow down its rate of growth in operating expenses and capital expenditures because of the impact on ad sales.

Now what

Roku had already pulled its earnings guidance for the year given the uncertainty around COVID-19, but the impact of the pandemic seems to favor it over the long term. The economic recession is likely to increase cord-cutting, which will drive more consumers toward streaming, especially free or discounted options like the ad-supported channels Roku relies on. 

Though 2020 may be a challenging year, Roku's long-term growth story is still very much in tact.


Jeremy Bowman owns shares of Roku. The Motley Fool owns shares of and recommends Roku. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Roku Stock Quote
$77.91 (-0.65%) $0.51

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/19/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.