Roku, a staple in the streaming industry since its inception, was sucker-punched by an over 20% drop in its stock price today. The hard hit came after the streaming service announced significantly slower growth in Q2, with additional slowdowns expected in the foreseeable future. Though not completely unforeseen, analysts including MoffettNathanson were still taken aback and see this as a hallmark of a developing streaming marketplace.
“The company’s recent run of results, like many others over the past few years, were propped up by the massive acceleration in streaming video that has now faded as the world has opened up,” the report stated, seeing an industry-wide drop-off in advertising revenue. The allure of subscription-based video-on-demand (SVOD) services that ballooned during the COVID 19 pandemic has begun to wane, and as the market normalizes streamers are going to have to find ways to make up the difference.
The analysts were startled because of Roku’s other supposed wins earlier this year. In Q1, the company added approximately 1.2 million accounts with over 20.9 billion hours watched. Things only seemed to get better with Q2’s report of 1.8 million more accounts added, streaming 20.7 billion hours of content. Unfortunately, it’s not the subscriber base that’s hurting Roku.
Advertising spending is the name of the game as even Netflix and Disney+ are developing ad-supported video-on-demand (AVOD) subscription tiers for their own platforms. While reports indicate that the two may benefit to the tune of $1.2 and $1.8 billion in ad revenue respectively, Roku’s current advertising issues may force a reassessment of the situation.
Roku has other problems as well. MoffettNathanson points out that, unlike other streamers, the company has to contend with competition from all sides. Smart TVs are becoming more ubiquitous in homes, bad news for a business that relies on secondary streaming device sales for part of its financial base. While Roku was the top-selling smart TV OS in 2021, the latest offerings from Android and Amazon are certainly creating some stiff competition. In addition, smaller companies such as Xperi are working their way into the TVOS market with viable and less expensive third-party alternatives.
Roku also comes face-to-face with the increasing lineup of streaming services, all duking it out for customer eyes and ad space. The market, according to MoffettNathanson, is far from ideal and Roku will have to find a new way to make name for itself. The analysts do suggest turning to original content to draw in more subscribers, which may be a good idea as streamers including Disney+ have found a lot of success in creating a breadth of content for their audiences. Even so, Netflix is actually limiting spending in that category which may indicate overstressing budgets with original material may be a great way to break the bank.
The advertising revenue issue is going to be a persistent problem for streamers going forward. Companies such as Disney+ who are counting on big gains from AVOD implementation may be in for a big surprise as media companies limit their own spending to avoid oversaturation in an increasingly crowded streaming marketplace.
Roku Channel
The Roku Channel is a free live TV streaming service that provides 350+ live linear streaming channels and more than 80,000 free movies and TV shows. The library contains entertainment from several different decades, including some major hits.