What happened
Shares of Roku (ROKU 1.91%) were up 5.9% as of 1:49 p.m. ET on Wednesday. The stock was rebounding after a sudden drop the day before when social media company Snap cut its financial guidance for the second quarter.
Both Roku and Snap make the bulk of their revenue from advertising, so investors took Snap's revised guidance as a red flag about near-term ad spending. The news reverberated across other social media stocks, such as Meta Platforms and Pinterest.
So what
Economic recessions usually spell a slowdown in advertising spending, which is one reason investors have slammed Roku this year. The stock is currently down 63% year to date, compared to the 27% drop in the Nasdaq Composite index. This could be a good buying opportunity, since the long-term shift toward streaming is here to stay.
In better news, Roku announced a partnership to sell onn, its TV models, in Walmart Canada stores. Roku uses its streaming players and its TV models to give consumers affordable access to its platform, which has an abundance of free ad-supported content.
However, supply chain disruptions have caused higher prices for TVs that have made it difficult to acquire new users through this channel. In the first quarter, player revenue fell 19% year over year, while platform revenue, which includes advertising on the platform, grew 39% year over year.
Image source: Getty Images.
Now what
Management expects revenue to grow approximately 25% year over year in the second quarter, down from 28% in the first quarter. The fact that Roku is still growing total revenue in this environment, although at a slowing rate, speaks to how well the company (and the stock) can perform once the economy is on solid footing again.
