What happened
Roku (ROKU 0.15%) shareholders lost ground, thanks to a falling market on Tuesday. Shares were down 6% by 1:30 p.m. ET, compared to a 3.1% drop in the S&P 500. That decline added to big short-term losses for the streaming-video giant. Its stock is down 70% so far in 2022.
This was powered by increasing pessimism on Wall Street about a potentially steep recession that may be on the way.
So what
The latest government statistics indicated that inflation stayed stubbornly high in August, and that news pushed the wider market down. The Nasdaq index, home to Roku and many other tech specialists, fell nearly 4% on Tuesday. The biggest factor driving Roku lower was that wider market drawdown.
Investors also have some specific concerns about the streaming-video specialist's business, especially considering increasing pressure from inflation and rising interest rates. Executives said in late July that weakening economic trends could hurt its core advertising business.
"Recessionary fears and elevated inflation caused advertisers to significantly curtail or pause" ad spending in Q2, according to CFO Steve Louden. Today's news adds to both of those concerns, so the stock fell a bit faster than the wider market.
Now what
Shareholders will get updates on Roku's operating trends in its Q3 report in early November. The biggest concerns heading into that announcement are slowing ad spending and weak profit margins on streaming hardware. These factors contributed to decelerating sales and declining earnings in Q2.
Another quarter or two of similarly weak results is no reason to abandon the stock. Roku has plenty of flexibility, thanks to its massive, engaging platform and its established relationship with major advertising partners.
But the short-term earnings prospects appear worse today because of the increasing possibility of a recession crimping entertainment spending. As a result, the streaming-service stock took a step backwards on Tuesday.
