What happened
Roku (NASDAQ: ROKU) shareholders lost ground to the market on Monday. The steaming-video specialist's stock fell 5% by 2:45 p.m. ET, compared to a 0.2% drop in the S&P 500. Roku is down significantly in 2022, with shares lower by 77% since early January.
Monday's drop came as investors continue to take a bleaker view of the short-term growth prospects for the industry.
So what
Late last week, Roku announced a plan to slash costs as advertising revenue continues to drop. Executives said the move was aimed at slowing down operating expenses to bring costs more in line with current economic conditions. The move will affect about 200 employees, Roku noted, and should reduce expenses by about 5%.
Roku had previously described accelerating losses in the advertising market that accounts for a large portion of its revenue. Ad spending on TV commercials was down 38% in Q3 after falling by 17% in the previous quarter, according to executives' early-November earnings update.
Investors had been hoping for signs of improvement in advertising demand and consumer demand for streaming-device hardware over the holiday shopping season. Roku's latest cost-cutting program suggests that those profit pressures are likely to continue into 2023.
Now what
There's still a strong appetite for streaming video. Netflix recently announced a return to user growth, for example. Roku is still gaining users, as well, and engagement on its platform is expanding.
Yet the stock might stay under pressure until the company can show a clear path back to profitability, which is harder for Roku, given its smaller scale when compared to Netflix.
Roku is also working to reduce its reliance on advertising spending, which is highly cyclical. Watch for CEO Anthony Wood and his team to update investors on these rebound initiatives when they announce Q4 operating results in mid-February.
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Demitri Kalogeropoulos has positions in Netflix. The Motley Fool has positions in and recommends Netflix and Roku. The Motley Fool has a disclosure policy.
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