Streaming video services hit by ad decline

Streaming video services hit by ad decline

Just as streaming video services have begun to embrace advertising, Madison Avenue is pulling back on ad spending as the economy splutters. And it takes a bit of ad-focused services like Roku (ROKU).




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Roku shares fell to their lowest level in more than three years after the streaming video platform warned of weakening ad spending. Other industry players affected by the decline in ad spend include AMC network (AMCX), Paramount Global (PARA) and Warner Bros. Discovery (WBD).

“Major advertisers that we traditionally get money from are not spending this quarter,” Roku CEO Anthony Wood said on a conference call with analysts late Wednesday. “They don’t spend with anyone.”

“We’re seeing a lot of big categories pulling back — telecom, insurance. We’re even seeing toy marketers planning to reduce spending in Q4,” Wood said.

Roku Leads Streaming Video Shares Lower

Roku’s dismal fourth-quarter guidance overshadowed better-than-expected third-quarter results. During the period, Roku added 2.3 million active accounts, ending the quarter with 65.4 million. Wall Street had predicted 900,000 new accounts. It also topped views for revenue and posted a smaller-than-expected loss.

But Roku forecast fourth-quarter revenue of $800 million, missing Wall Street’s target of $900 million.

In afternoon trading on the stock market today, Roku shares fell 5.5% to 49.01. That’s on top of a 4.6% drop on Thursday. Roku hit a record high of 490.76 in July 2021 before starting an epic slide.

Other streaming video stocks also fell to multi-year lows after posting third-quarter reports last week. Warner Bros. Discovery hit its lowest level since it was created in a mega-merger last April. In afternoon trade on Friday, WBD shares fell 14.4% to 10.25.

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Warner Bros. Late Thursday, Discovery badly missed third-quarter sales estimates. It also reported a 13% year-over-year decline in ad revenue in the September quarter.

On a call with analysts, CFO Gunnar Wiedenfels warned that the company has a “lack of visibility” in ad spending that has clouded the outlook.

Netflix, Disney also seek advertising dollars

Roku CEO Wood is also unsure when the advertising market will recover. “There’s a lot of uncertainty. It’s hard to say exactly what’s going to happen in Q4, but we’re 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 spending trends that have weakened due to high inflation and macroeconomic uncertainty, Wood said.

“Companies are pulling back on their advertising budgets because they are unsure whether there will be a recession or not,” he said. “And so many ad campaigns for the fourth quarter are being canceled.”

Reports of declining ad spend come as Netflix (NFLX) and Walt Disney (DIS) introduces ad-supported streaming video services. Netflix launched its ad service on Thursday and Disney will follow on December 8.

Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.

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