Just as streaming video services have begun embracing advertising, Madison Avenue is pulling back on ad spending as the economy sputters. And that's taking a bite out of ad-focused services like Roku.
Roku stock sank to its lowest level in over three years after the streaming video platform warned of deteriorating advertising spending. Other industry players hit by the ad spending downturn include AMC Networks, Paramount Global and Warner Bros. Discovery.
"Big advertisers that we traditionally get spend from are not spending this quarter," Roku Chief Executive Anthony Wood said on a conference call with analysts late Wednesday. "They're not spending with anyone."
"We're seeing lots of big categories pull back — telecom, insurance. We're even seeing toy marketers planning on reducing their spend in Q4," Wood said.
Roku Leads Streaming Video Stocks Lower
Roku's dismal fourth-quarter guidance overshadowed better-than-expected results for the third quarter. During the period, Roku added 2.3 million active accounts, ending the quarter with 65.4 million. Wall Street had forecast 900,000 new accounts. It also topped views for revenue and posted a smaller-than-expected loss.
But Roku predicted fourth-quarter revenue of $800 million, missing Wall Street's target of $900 million.
On the stock market today, Roku stock fell 4.3% to 49.59. That's on top of a 4.6% drop on Thursday. Roku hit its record high of 490.76 in July 2021 before starting an epic slide.
Other streaming video stocks also dropped to multiyear lows after posting third-quarter reports in the past week. Warner Bros. Discovery hit its lowest level since it was created in a megamerger last April. On Friday, WBD stock tumbled 12.9% to 10.43.
Warner Bros. Discovery late Thursday badly missed sales estimates for the third quarter. It also reported a 13% decline in advertising revenue year over year in the September quarter.
On a call with analysts, Chief Financial Officer Gunnar Wiedenfels cautioned that the company has a "lack of visibility" into ad spending that has clouded its outlook.
Netflix, Disney Also Seeking Ad Dollars
Roku CEO Wood also is uncertain when the ad market will recover. "There's a lot of uncertainty. It's hard to say exactly what's going to happen in Q4, but we are seeing signs that Q4 is going to be worse in terms of the ad market than Q3 was," he said.
Advertisers are taking their cue from consumer spending trends which have weakened due to high inflation and macroeconomic uncertainties, Wood said.
"Companies are pulling back their ad budgets because they're uncertain if there will be a recession or not," he said. "And so, a lot of Q4 ad campaigns are being canceled."
Reports of slowing ad spending come as Netflix and Walt Disney are introducing ad-supported streaming video services. Netflix launched its ad service on Thursday and Disney will follow on Dec. 8.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.