Roku executives warn of rough holiday quarter, see potential in smart home devices

Executives at Roku say the upcoming holiday season could be a tough one for the streaming television hardware maker as companies pull back on ad spending due to economic uncertainties.

On Wednesday, the tech company revealed its total net revenue was $761.4 million during its third financial quarter, a 12% increase compared to this time last year, but down by about $3 million when compared to the previous quarter.

While Roku added more than 2.3 million active accounts during the last quarter, its year-over-year revenue from sales of its streaming sticks and pucks dropped to $91 million, a 7% decline. Platform revenue, which includes advertising against a user's home screen and within free, ad-supported streams on The Roku Channel, increased to $670.4 million, a bump of 15% compared to last year.

Roku said it lost $122.2 million, or 88 cents per share, over the last financial quarter, compared to a profit of $68.94 million, or 48 cents per share, last year.

While the holiday season typically sees an increase in both advertising and hardware sales, Roku executives say this year is expected to be different because of recession-like economic factors. Anticipating lower discretionary purchases this year, companies have already started to tighten the ad budgets accordingly, and executives think this trend will get worse before it gets better.

"We believe that macro uncertainties and inflationary pressures will continue to negatively impact consumer discretionary spending, and these pressures will further weigh on advertising budgets, particularly the ad-scatter market," Steve Louden, Roku's chief financial officer, said on a conference call with investors on Wednesday.

"We anticipate that these macro pressures will offset what would ordinarily be seasonal tailwinds, and, as a result, our platform revenue will be slightly down on a sequential basis," Louden said.

Executives warned that overall revenue is expected to be around $800 million for its next financial quarter, which includes the holiday shopping season. Last year, Roku reported revenue of $865.3 million during its holiday sales quarter.

But things are not all bad at Roku: The company is set to debut its first full-length feature film — a parody biopic about musician "Weird Al" Yankovich — on Friday, and the movie was warmly-received by critics and audience members at its premiere earlier this week. (Roku executives are very excited about the movie: Ten minutes before the conference call, a trailer for the film played on a loop; it was repeated after the call concluded.)

The company also recently released a line of Roku-branded smart home items in partnership with Wyze, including Wi-Fi connected light bulbs, security cameras and a smart doorbell. When asked by a financial analyst why Roku ventured into the smart home territory, Chief Executive Officer Anthony Wood said it was a natural extension of the company's mission of "making complicated things simple."

"It's just a very natural extension that we already built a lot of the pieces we need," he affirmed.

Out of the four smart television platforms that dominate the domestic streaming market — Roku, Amazon Fire TV, Apple TV and Android TV (Google TV) — Wood said Roku's platform was unique because it wasn't forked from an operating system intended for mobile phones or other devices. Instead, Roku's operating system is designed from scratch, with the sole focus on streaming television.

Wood said that thought process carries through every part of Roku's mission of making streaming TV devices as simple as possible, and their new line of smart home items are expected to be well-received by people who find them easy to integrate with a television platform that they're already familiar with.

Right now, Roku's line of smart home devices is only sold at Walmart's brick-and-mortar retail stores, and Roku and Walmart's websites. As more customers snatch up Roku-branded lights and cameras, Wood said the company is well-positioned to "monetize those through service revenue streams."

"It's not a particularly big investment for us, because we're leveraging a lot of what we've already done," he said. "But it's an option on something that could be very big and have a very high return."