Roku Posts Weak Q2 With Top-Line Growth Expected to Weaken in Second Half; Lowering FVE to $80

Roku reported a weak second quarter with revenue and EBITDA below FactSet consensus. Revenue growth of 18% year over year came in below management’s prior 25% guidance. Management pulled its full-year top-line forecast of 35% growth, which we had viewed as too aggressive. Roku expects the slowing economy to further hurt the ad scatter market, while inflation worries lower consumer spending. The firm forecast 3% growth for the third quarter, which would be the first single-digit growth quarter over the last five and half years. As a result, we are slashing our fair value estimate to $80 from $135 on lower revenue expectations in not only 2022 but over the next five years (14% on average versus 21% previously) due to increasing competition for streaming ad dollars from both incumbent players like Pluto and Hulu and newer ones like Disney+ and Netflix.