Roku Earnings: ROKU stock gets slammed in premarket after major miss

Roku (ROKU) posted worse-than-expected earnings late Thursday that persuaded the market that the worst is not yet over. ROKU stock showcased an $-0.82 loss in adjusted earnings per share compared with Wall Street consensus of $-0.68. Revenue likewise came in low at $764 million, which was more than $40 million below expectations.

Also read: Amazon Stock Deep Dive: AMZN price target at $106 with near-term risks offset by long-term growth

"In Q2, there was a significant slowdown in TV advertising spend due to the macroeconomic environment, which pressured our platform revenue growth," said the company in a statement alongside the earnings results. "Consumers began to moderate discretionary spend, and advertisers significantly curtailed spend in the ad scatter market (TV ads bought during the quarter)."

Roku stock earnings

Roku revenue still grew 18% YoY, so it is hard to say that the results were terrible, but investors had grown accustomed to much higher rates of growth. Last year's YoY growth was above 50% for the most part, and this is the fourth straight quarter of slowing revenue growth.

Roku added 1.8 million accounts in the quarter, which gave it 8 million in the past 12 months. This figure is well below the mid-pandemic figure of 14.3 million accounts in a 12-month period. Still, the TV company now has 63.1 million active accounts, which is rather large for any company.

Roku management placed much of the blame at the feet of ad spending. Average revenue per user (ARPU) fell from $11.54 in Q2 2021 to $7.64 in this year's quarter.

"We expect these challenges to continue in the near term as economic concerns pressure markets worldwide," management said in a statement. "In response, we took steps in Q2 to significantly slow both operating expense and headcount growth. While our revenue and gross profit growth have slowed, we continue to win advertising share and grow active accounts."

The big plunge in the share price was caused by the third quarter guidance. While Wall Street had been expecting $902 million in revenue for Q3, Roku management said to instead expect $700 million. 

Roku stock forecast

It is always a bad sign when you need to start analyzing with the help a monthly chart. In this case, it shows us that if $58.22, the low from March 2020 does not hold, then ROKU stock may drop to the January 2019 low of $30. 

One issue for bottom-feeding value scouts is that the Relative Strength Index (RSI) is still at 35, hardly overbought. This is likely at least partly the fault of the RSI sitting in overbought territory for so long during the pandemic boom in streaming. I, for one, would steer clear of this one until the RSI reaches at least 30.

ROKU monthly chart