Earnings Outlook: Roku earnings: What to expect

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After reports from Meta Platforms Inc. and Alphabet Inc. created further jitters about the state of digital advertising in the uncertain economic climate, it will soon be Roku Inc.’s ROKU, -1.58% turn to share how macroeconomic trends are affecting marketing spending in the connected-TV environment.

The maker of streaming technology is due to report third-quarter results after Wednesday’s closing bell. Here’s what to expect when the company posts its numbers.

What to expect

Earnings: Analysts tracked by FactSet expect Roku to report a loss of $ 1.29 a share on a GAAP basis for the third quarter; the company logged earnings per share of 48 cents in the year-earlier period. According to Estimize, which crowdsources projections from hedge funds, academics and others, the average estimate is for a $ 1.22 loss per share.

Analysts surveyed by FactSet also expect the company to deliver a loss of $ 74 million on the basis of adjusted earnings before interest, taxes, depreciation and amortization, whereas Roku generated positive adjusted Ebitda of $ 130 million on the non-GAAP metric in the year-earlier third quarter.

Revenue: The FactSet consensus calls for $ 696 million in third-quarter revenue, up from $ 680 million a year before. On Estimize, the average projection is for $ 704 million.

Stock movement: Roku shares have declined following four of the company’s past five earnings reports, including when they logged a 23% post-earnings decline after the company’s second-quarter report. They’ve lost 76% so far this year, while the S&P 500 SPX, -0.68% has fallen 20%.

Of the 31 analysts tracked by FactSet who cover Roku shares, 16 have buy ratings, nine have hold ratings and six have sell ratings, with an average price target of $ 77.50.

What to watch for

Evercore ISI’s Shweta Khajuria wrote that Roku’s third-quarter setup looks “achievable,” while visibility into the holiday quarter appears “unclear.”

“We are incrementally more cautious given signs of advertising demand softening due to ongoing macro headwinds and largely negative read-thrus” from companies including Snap Inc. SNAP, -3.90%, Meta META, -2.22% and Alphabet GOOG, -1.36% GOOGL, -1.40%, she wrote.

Meta’s commentary indicating that smaller advertisers have been resilient while larger ones are “challenged” is “incrementally negative” for Roku given its mix, in her view. She has an in-line rating on the stock.

Wells Fargo’s Steven Cahall sees the possibility of “another risky” report ahead.

“We think [third-quarter] results will come in below expectations and [fourth-quarter and full-year] numbers will need to be reset lower,” he wrote. Investors could be “especially sensitive” to net-add trends, he wrote, as that metric is viewed as more of a structural indicator of Roku’s positioning, whereas advertising is “cyclical” and macro-driven.

He has an equal-weight rating on the stock.

Wedbush analyst Michael Pachter offered that Roku shares could be “rangebound” for several quarters as the company executes against what he thinks are valuable long-term opportunities, even though it’s facing pain from the ad landscape and broader macro climate in the near term.

“Roku is facing various near-term challenges, including reduced variable advertising spending, and inflationary pressure impacting smart TV sales (and therefore active account growth),” he wrote, while reiterating an outperform rating on the stock. “Meanwhile, Roku continues to invest heavily for future growth, resulting in unpalatable results for investors.”

Citi Research analyst Jason Bazinet recently opened a “positive catalyst watch” on Roku ahead of the company’s report, “given we see scope for a potential top-line beat.” Investor expectations appear “muted” from his perspective due to recession fears.