Roku Facing Ad Spend Cuts, Lagging Smart TV Account Growth: Wedbush

Roku, set to report Q3 earnings Wednesday, is facing near-term challenges, including reduced variable advertising spending and inflationary pressure affecting smart TV sales and resulting user account growth, Wedbush analyst Michael Pachter wrote analysts Monday. The streaming platform company “continues to invest heavily, resulting in unpalatable results for investors,” Pachter said. Most of Roku’s ad revenue is derived from "the scatter market, and scatter budgets are the first to go when macroeconomic pressures hit," he said. Since Roku is a relatively new ad partner, "this hits Roku disproportionately versus traditional TV broadcasters." Wedbush expects Roku’s user base to grow globally to make it a “compelling outlet” for advertisers, he said. Once macroeconomic trends improve, Wedbush sees “significant runway ahead for shifting ad dollars from linear TV to digital,” and Roku is positioned to take growing share of that shift, he said. But shares will “remain rangebound” for the next few quarters, Pachter said, lowering the price target from $85 to $75, while maintaining an “outperform” rating on the stock. Shares closed 1.8% higher Monday at $55.44.