Roku dives as tough ad market drives downbeat forecasts

(Reuters) -Roku Inc shares dropped 14% to a more than three-year low on Thursday following downbeat forecasts a day earlier, as the streaming tech provider suffers from a collapse in advertising dollars.

The company expects fourth-quarter revenue substantially below market estimates, while its adjusted operating loss outlook was much wider than Wall Street expectations.

“This Q4 guidance … begs the question if Roku’s management is baking in unusually high conservatism or if Roku’s business mode is structurally impaired,” analysts at Evercore ISI said.

Snap Inc, Meta Platforms and Alphabet Inc have also made similar warnings in recent weeks, stoking fears that ad-reliant tech firms are set for tough times as recession-wary businesses cut spending.

“We expect these conditions to be temporary, but it is difficult to predict when they will stabilize or rebound,” Roku Chief Executive Anthony Wood said in a letter to investors.

Analysts say companies such as Roku are also lower in the advertising pecking order, particularly during an economic downturn, as they are unproven platforms and come with risks of lower returns.

“As we saw with Snap and now Roku, smaller platforms without a true upfront (advertising) mechanism are the easiest for marketers to cut, and therefore are the first to get cut,” MoffettNathanson analysts said.

Roku shares, which have lost more than three-quarters of their value this year, were trading at $46.92.

“Roku is likely dead money over the next two quarters at least, but should rebound within the next twelve months,” Wedbush Securities said.

(Reporting by Akash Sriram and Nivedita Balu in Bengaluru; Editing by Vinay Dwivedi)