What happened
Roku (ROKU 1.32%) shareholders lost ground to the market early Monday as shares fell 4% by 11:15 a.m. ET, compared with a 0.2% decline in the S&P 500. The drop added to a tough year so far for owners of the digital streaming service platform. Roku's stock is down 78% in 2022.
Monday's slump seemed to be triggered by a souring mood on Wall Street about the digital advertising market.
So what
Meta Platforms stock fell early Monday after it was downgraded ahead of its earnings report later this week. Wall Street is worried about what the company might say about its digital advertising business, which has shown weakness in recent quarters.
Roku also depends on digital ad revenue for a big part of its sales, so it makes sense that the stock would drop in sympathy with Facebook's owner.
Investors also have specific worries about Roku's upcoming third-quarter earnings report, slated for early November. The company said slowing spending in areas like streaming video hardware and advertising pressured the business in Q2. Executives might sound a similarly downbeat note in Roku's Q3 update on Nov. 2.
Now what
Watch for signs that Roku's business is stabilizing in that announcement next week. That stability would show up in streaming hours, which decreased slightly last quarter. Roku also needs a return to robust ad spending and higher sales of its streaming devices to accelerate growth by late 2022.
In the meantime, investors are bracing for another quarter of slowing growth, with revenue gains landing at 6% in Q3 compared with 18% in the previous period.
These declines don't threaten the bullish investing thesis, but they do make it more likely that Roku's stock will be volatile in the short term as Wall Street tries to predict the timing of any rebound in the digital ad market.
