Roku announced Thursday that it would eliminate 200 jobs or 5% of its workforce. “economic conditions in our industry.”
The streaming platform’s volatile shares dropped on the news, a reversal from the typical Wall Street reaction to cuts in labor expenses. Roku fell 1% to $55.15 in morning trades, while the broad market indices dropped around 1%. Stock reached $61.63 on Friday. This is still a significant increase from December’s $266.05 high.
“Taking these actions now will allow us to focus our investments on key strategic priorities to drive future growth and enhance our leadership position,”Roku spoke in a very brief statement.
Roku estimated it would book one-time charges of between $28 million and $31 million in connection with the layoffs, primarily consisting of severance payments and related costs.
“The company expects that the majority of the restructuring charges will be incurred in the fourth quarter of fiscal 2022 and that the implementation of the headcount reductions, including cash payments, will be substantially complete by the end of the first quarter of fiscal 2023,”It said In a regulatory filing.
Two weeks ago, Roku warned investors it expected revenue to fall 7.5% from last year to $800 million in the fourth quarter. Despite several reductions and downgrades, analysts’ average estimate remains above that figure, at $810 million, for the current quarter.
“As we enter the holiday season, we expect the macro environment to further pressure consumer discretionary spend and degrade advertising budgets, especially in the TV scatter market,”The company stated in Letter to shareholders – Earnings letter. “We expect these conditions to be temporary, but it is difficult to predict when they will stabilize or rebound.”
Jeffrey Wlodarczak from Pivotal Research called the revenue guidance “frankly horrific”A downgrade of shares “sell”The day following earnings release.
Roku’s guidance suggested both a year-over-year decline, as well as an “almost unheard of sequential decline” in revenue, the analyst noted, during what is typically the year’s strongest advertising quarter, and despite the growth of streaming overall, Wlodarczak wrote in a research note.
He suggested that there might be “something specific going on”Roku “that seems to have significantly exacerbated the problem”Advertising slowdown
“Advertising spend on our platform continues to grow more slowly than our beginning-of-year forecast due to current weakness in the overall TV ad market and the ad scatter market in particular,”Roku made the announcement in the Nov. 2, earnings announcement.
However, the pain caused by the slowdown is not limited to Roku.
Steady advertising losses have caused thousands of layoffs or announcements at multiple companies in the media and entertainment sector, including Facebook parent Meta Platforms and Paramount Global, which are both TV and film giants.
Magna Media Research, which is a media research firm in September, cut its advertising spending forecasts through the fourth quarter and for 2023 all together. But it still expects total U.S. advertising dollars rising by about 4.8% next fiscal year. But with expectations for a recession rising — JPMorgan was the latest to predict a “mild recession” Thursday morning with more than one million jobs cut by mid-2024 — the ad slump may end up deeper than expected.
Warner Bros. David Zazlev, Discovery CEO, stated that the ad market was “very weak.”
“This is weaker than it was during COVID,”Zazlev claimed during an investor presentation. “and right now there is a pretty big miss of the whole Christmas season.”