Please ensure Javascript is enabled for purposes of website accessibility

Why Roku Stock Fell Sharply on Thursday

By Daniel Sparks – Aug 6, 2020 at 12:43PM

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

Second-quarter revenue blew past estimates. But an uncertain outlook from management spooked some investors.

What happened

Following its second-quarter earnings release on Wednesday afternoon, Shares of streaming-TV platform Roku (ROKU 1.59%) fell sharply on Thursday. The stock was down nearly 9% as of 12 p.m. EDT.

The stock's pullback was likely primarily due to an uncertain view for the advertising industry, which led management to refrain from providing a financial outlook.

A chart showing a stock price falling

Image source: Getty Images.

So what

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

Growth was driven primarily by a 46% year-over-year increase in the company's platform revenue, or revenue mainly derived from Roku's share of ads and subscriptions on its platform. Platform revenue, of course, benefited from an acceleration in streaming hours as people sheltered at home and spent more time in front of the TV. 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 outlook that may have spooked some investors.

"The ad industry outlook remains uncertain for Q3 and Q4, and we believe that total TV ad spend will not recover to pre-COVID-19 levels until well into 2021," management said in Roku's second-quarter update. "Advertisers in industries like Casual Dining, Travel and Tourism have significantly slowed their spending."

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

Daniel Sparks owns shares of Roku. The Motley Fool owns shares of and recommends Roku. The Motley Fool has a disclosure policy.

Stocks Mentioned

Roku Stock Quote
$60.73 (1.59%) $0.95

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

Related Articles

Premium Investing Services

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