The current advertising climate is carving out distinct winners and losers, and Wall Street is about to see where Roku Inc. fits in.
As Meta Platforms Inc.
META,
and Alphabet Inc.’s
GOOG,
GOOGL,
Google turn their strong ad-targeting capabilities into upbeat revenue performance, many others in the industry are foundering. Snap Inc.
SNAP,
can’t manage to translate its engaged base of young users into top-line growth, and ad agencies are calling out more cautious behaviors from clients, including in the tech industry.
Opinion: Zuck beats Musk at his own game with Meta’s year of efficiency
Roku
ROKU,
is in a particularly unique position given the ever-evolving nature of the streaming landscape. While the industry faces a “muted” ad market, according to Macquarie analyst Tim Nollen, Roku could potentially benefit from the traction Netflix Inc.
NFLX,
has seen with its burgeoning ad-supported tier of service. At the same time, the company faces some uncertainty given Hollywood strikes that could ultimately limit new content on streaming services.
Here’s what to watch for when Roku posts results after Thursday’s closing bell:
What to expect
Earnings: The FactSet consensus calls for $1.27 a share in GAAP losses for Roku, whereas the company lost 82 cents a share a year before.
Revenue: Analysts tracked by FactSet expect that Roku generated $774 million in revenue for the June period, up from $764 million a year before.
Stock movement: Roku shares have gained after four of the company’s past five earnings reports, including when they posted a 11% increase after the most recent one. The stock is up 76% so far this year, as the S&P 500
SPX,
has risen 19%.
Of the 33 analysts tracked by FactSet who cover Roku’s stock, 13 have buy ratings, 14 have hold ratings, and six have sell ratings, with an average price target of $70.50.
What else to watch for
Indications are that the consumer-electronics market isn’t particularly healthy right now, but Macquarie’s Nollen is intrigued by Roku’s rollout this year of its self-branded televisions.
The company’s “move into own-branded TVs pushes [its devices division] into double-digit growth, and can help solidify Roku’s 43% U.S. market share,” he wrote.
On the advertising front, Wells Fargo’s Steven Cahall is somewhat encouraged by signals in the chatter market, which is for ads that aren’t purchased upfront, though he still saw reasons to be cautious.
“Our checks indicate that scatter ad-market trends are improving slightly although mostly driven by easier comps,” or comparisons, he said. “That said, M&E [media and entertainment] comps could prove tougher for longer, as we think streamers started cutting back later, and remain in modes of frugality that could extend past an ad recession.”
Alicia Reese of Wedbush was a bit more blunt in discussing scatter trends, saying that Roku is “beholden to the scatter market, which is experiencing extremely light advertising spend against a difficult macroeconomic backdrop.”
That said, she expects the company to hit an inflection point in ad revenue during the fourth quarter, and thus it will be important to watch management’s forward-looking commentary.
This post was originally published on Market Watch
