Streaming TV platform company Roku (ROKU +4.46%) made several announcements Wednesday morning, and in one of them it unveiled plans to reduce its workforce head count by about 10% as part of the company's "continuing evaluation of its operations." While the company's cost-reduction efforts were notable, the big news for investors was likely buried deeper in the Securities and Exchange Commission (SEC) filing, where Roku disclosed that it now expects third-quarter revenue to be significantly higher than its previous forecast.
That management has the confidence to raise its revenue outlook so substantially, even though there are still over three weeks left in the quarter, suggests the company is seeing advertising spending ramp up on its platform. Indeed, the midpoint of the company's new revenue guidance range implies an acceleration in Roku's year-over-year (YOY) growth rate.
Here's a closer look at what Roku said, and why the streaming platform company's announcements are good news for shareholders.
NASDAQ: ROKU
Key Data Points
Getting leaner
Roku said on Wednesday morning that it is executing a plan to "bring down its YOY operating expense growth rate." The key efforts the company is implementing to achieve this include:
- Consolidating office space
- Reviewing content spending
- Reducing expenses on outside services
- Slowing the YOY growth rate in its workforce
- Limiting new hires
In total, Roku expects to lay off about 10% of its employees. Though the company will begin layoffs this quarter, the full impact of the strategic cost-cutting move won't be "substantially complete" until the end of Q4, management said in its SEC filing about the workforce reduction. The company anticipates incurring a restructuring charge during Q3.
These measures are a continuation of priorities management had already emphasized. The company said in its second-quarter shareholder letter in July that it remained focused on moderating the YOY growth rate in its operating expenses.
Accelerating top-line growth
Roku also used the regulatory release as an opportunity to update investors on its third-quarter financial performance.
Looking to its top line, management now anticipates revenue of between $835 million and $875 million. This is up from management's previous guidance for revenue of $815 million. For more context, the company's previous guidance called for revenue growth of 7% while the midpoint of management's updated view translates to 12% growth -- an acceleration from the 11% YOY revenue growth Roku reported in Q2.
A third-quarter growth rate of around 12% would notably mark a huge uptick in growth compared to the 1% growth the company reported earlier this year.
In Roku's second-quarter letter, management said that the company had begun to see improvement in some advertising verticals, giving management confidence that it was "well positioned to reaccelerate growth as the ad market recovers." But the company's top-line guidance at the time still reflected the risks an uncertain economy presents to ad spend. It appears, however, that the company is likely seeing further revenue growth acceleration after all. Otherwise, management likely wouldn't have provided a revenue guidance range with a midpoint implying further acceleration.
Roku also gave its outlook for its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) a significant face-lift. The company said it now expects third-quarter adjusted EBITDA to be between negative $40 million and negative $20 million, up from a previous forecast for adjusted EBITDA of negative $50 million.
This revised view puts the company on the path of hitting its target of positive adjusted EBITDA for the full year. This assumption, of course, models for the fourth quarter to help bolster the profitability metric. The holiday quarter is Roku's biggest and most profitable quarter due to seasonality.
