Roku sees ad sales growth slowing as businesses conserve cash

(Reuters) - Roku Inc said it expects 2020 ad sales to grow at a slower pace and recorded higher cancellations in the first quarter as advertisers save cash amid the COVID-19 pandemic, sending its shares down 10% in extended trading on Thursday.

FILE PHOTO A video sign displays the logo for Roku Inc, a Fox-backed video streaming firm, in Times Square after the company's IPO at the Nasdaq Market in New York, U.S., September 28, 2017. REUTERS/Brendan McDermid

The ad crunch comes at a time when the video streaming device maker is trying to shift focus from device sales to advertising as more streaming services enter the market.

Roku puts advertisements on its free Roku Channel and also charges a commission from media companies that stream programming on the free, ad-supported channel.

“The main driver now is that advertising spend has dried up even on a market share leading platform like Roku. It doesn’t seem like there’s going to be a fast rebound either,” said Elazar Advisors analyst Chaim Seigel.

Platform revenue, which includes ad sales, grew 73% to $232.6 million in the quarter. But gross margin fell to 56.2%, the lowest at least since the third quarter of 2016, from 62.5% in the previous quarter.

“We anticipate that our ad business will deliver substantial revenue growth on a year-over-year basis, albeit at a slower pace and lower gross profit than we originally expected for the year,” the company said.

Roku, whose devices compete with Amazon Fire TV and Google Chromecast, said sales and marketing expenses doubled to $68.2 million from a year earlier. Total operating expenses rose 76% to 196.3 million in the quarter.

The company posted a bigger net loss in the first quarter as it shelled out more money to attract subscribers amid the broader surge in online streaming due to stay-at-home orders.

Roku also saw higher user engagement on its platform due to stay-at-home orders. It added 2.9 million active accounts over the last quarter, bringing the total to 39.8 million at the end of the first quarter.

Net loss widened to $54.6 million, or 45 cents per share, in the quarter ended March 31, from $9.7 million, or 9 cents per share, a year earlier. On a per share basis, this was in line with the market expectation.

Total net revenue rose 55% to $320.8 million, beating analysts’ average estimate of $306.7 million, according to IBES data from Refinitiv.

Reporting by Ayanti Bera in Bengaluru; Editing by Arun Koyyur