Shares of streaming advertising giant Roku (ROKU) - Get Report were down roughly 4% Friday morning, at $131.90, after the company Thursday evening reported revenue slightly higher than its pre-announcement last month, but also failed to offer a forecast for the current quarter, citing uncertainty in the advertising world.
The stock price decline was a slight recovery from a drop of over 10% in Thursday's after-hours trading.
In an interview with TheStreet following the report, Roku's chief financial officer, Steve Louden, put a positive spin on the uncertainty, saying that a looming “Great Recession” would bring continued gains for the company as advertisers demand higher return on investment in times of budgets cuts for ad spending.
“There’s still going to be a significant financial recession or great Recession,” said Louden, in response to the question whether ending lockdowns of cities will return things to normal. “And so they [advertisers] are going to have to justify their marketing spend more heavily, unfortunately, to people like myself, you know, the CFO.”
“And so I think this will be a big catalyst, where the advertisers are taking a harder look at their allocation," Louden added.
For the March quarter, Roku reported $320.77 million in revenue, a 55% increase, year over year, and comfortably ahead of the average $309 million estimate. The final amount was higher than a pre-announced range of $307 million to $317 million offered on April 13. A net loss of 45 cents per share was a penny better than expected.
The report was marked by a surge in April in viewership and new accounts for Roku, which the company believes will last even when lockdowns in some places such as New York City end. While advertising budgets are under pressure, with the company seeing higher-than-normal ad cancellations in the quarter, Louden noted the pandemic and its aftermath are already accelerating trends in Roku’s favor.
“Certainly some advertisers are cutting back, and we're not immune to that,” Louden said. “But we also have budgets that are previously allocated to linear TV, especially around sports that have gotten canceled, like the NBA playoffs or the Olympics.”
“And we see some advertisers moving those budgets over to OTT, and to Roku in particular," Louden said.
Roku’s number of new accounts rose by 70% in the month of April, while hours of video that its users streamed on its platform rose by 80%, the company said. Asked if those trends would continue, Louden said that individual metrics might not last, “but the trends in general will accelerate, these fundamental shifts to streaming.”
Louden specifically called out a deep recession to come as perpetuating a generational shift in ad budgets from “linear” television to streaming.
Regarding the coming economic slump, Louden made the comparison to advertising cuts in print media in the 2008-09 recession, when a shift accelerated to online advertising that never went back after the recession was over.
“They [advertisers] moved to the better mousetrap, in terms of a more targeted, more measurable ad spend that you could better justify your ROI,” Louden said. “We think that's probably a similar trend that may play out here over time.”
As evidence for the broad changes, Louden noted that Nielsen data before the lockdowns went into effect showed that a key demographic, 18-34-year-olds, showed as much as 50% of video watching was done via streaming, while at the same time, linear TV viewing, especially in prime time slots, was in decline.
As for the lack of a forecast, there’s no telling when the company will be able to guide investors again. The company on April 13 had withdrawn its forecast for the full year.
“What we need to see is a stabilization in terms of the trends,” Louden told TheStreet when asked how investors should think about the possibility of a forecast down the road. “The trends are just so new that it's hard to tell at this point.”
Analysts have been chopping their expectations for Roku, with the average estimate for this year’s revenue having been cut to $1.49 billion from a prior consensus of $1.61 billion as recently as February.
Asked if Roku’s own spending will be reined in, Louden indicated cuts will be made to both hiring and capital expenditures as the company plans to grow more slowly this year.
“We've taken steps to slow the rate of growth of our headcount, which is our largest single category of op-ex spend,” Louden told TheStreet, “as well as to reduce our capital, our cap-ex spend for the year, largely around built facility expansion that we expected to do, we will defer on.”
Louden also addressed new competition from TiVo (TIVO) - Get Report. Regarding the $50 streaming video dongle introduced by TiVo on Wednesday, the "TiVo Stream 4K," which competes with RoKu’s set-top device and with Amazon’s (AMZN) - Get Report “Fire Stick” TV adapter, Louden replied, “Roku is the leader in this price point and think we have a good model to continue that lead.”