Roku misses Q2 expectations, touts $1B in Upfront commitments

As Roku on Thursday reported second-quarter earnings that missed expectations, the streaming company disclosed securing record commitments from this year’s Upfronts season despite a challenging ad environment.

Roku said it surpassed a milestone of $1 billion in commitments for the first time, notching deals with all seven major agency holding companies.

In detailing some of the highlights, Roku said 25% of all advertisers at the Upfronts were new commitments and the company saw 100% retention in key categories of auto, telecom and travel. Marketer investment spanned Roku Originals, the Roku Brand Studio and its OneView advertising platform.

“We continue to take ad dollar share away from traditional TV. Our negotiations with brand advertisers occurred at the same time as the broadcast networks, signaling a strategic shift to TV streaming,” wrote Roku CEO Anthony Wood and CFO Steve Louden in a Q2 letter to shareholders.

During Roku’s Upfront presentation earlier this year, it debuted shoppable TV ads as well as a partnership with Microsoft. In June the company announced a deal with Walmart as the first retailer to pilot shoppable ads, which let viewers purchase products directly from the TV with their Roku remote with shipping and payment details pre-populated by Roku Pay.

The Upfront commitments (a process that starts in Q1 and ends in Q3 - with ad dollars committed for the coming year) come as Roku reported lower-than-expected platform revenue and gross profit growth in Q2, as it faced a slowdown in TV advertising spend in the latter part of the period due to a challenging macro-economic environment.

“Consumers began to moderate discretionary spend, and advertisers significantly curtailed spend in the ad scatter market (TV ads bought during the quarter),” the letter to shareholders stated. “We expect these challenges to continue in the near term as economic concerns pressure markets worldwide.”

In response, the streaming player said it took steps to significantly slow its operating expense and headcount growth, and emphasized that it continued to win advertising share and grow active accounts.

Platform revenue increased 26% year over year to $673 million, while gross profit rose 5% to $355 million. Player revenue declined 19% to $91.2 million as Roku TV and player unit sales were lower than the same period a year ago.  Net income plummeted to a loss of $112 million, with Adjusted EBITDA down 110% to $12.1 million.

In the letter to shareholders, Roku executives pointed to a survey by Advertiser Perceptions which found 47% of U.S. advertisers paused ad spending on TV streaming during the quarter, 44% on digital video and 42% on legacy pay TV.

“We believe this pullback mirrors the start of the pandemic in 2020, when marketers prepared for macro uncertainties by quickly reducing ad spend across platforms,” Roku told shareholders.

Roku is forecasting Q3 net income losses of $190 million and negative Adjusted EBITDA of $75 million. It expects total net revenue to increase by around 3% year over year to $700 million with gross profit of roughly $325 million. Roku decided to withdraw its full-year revenue growth estimate, citing macro uncertainties and volatility stemming from fears of a recession, inflation, rising interest rates and ongoing supply chain disruptions. It expects advertising spend will continue to be hit in the second half of the year, while consumer discretionary spending will also slow down, putting pressure on Roku TV and player sales.

Still, the company believes it's well positioned for the long-term opportunity in TV streaming. 

Despite the worse-than-expected Q2 results, Roku added 1.8 million incremental active accounts in the quarter – now standing at 63.1 million. Streaming hours on the platform stood at 20.7 billion, a decrease from the 20.9 billion in Q1 – but up 19% from Q2 2021. ARPU was up 21% year over year to $44.10.