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Roku Craters on Weak Outlook, Adding to Advertising Worries

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(Bloomberg) -- Roku Inc. slumped 25% in late trading after saying advertisers are pulling back on spending due to economic concerns, adding to jitters about the slowing growth of marketing spending.

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Shares of the maker of streaming-TV devices fell to $63.35 in late trading after the company reported disappointing second-quarter results. The stock had already declined 63% this year as enthusiasm ebbed on Wall Street for the online video industry.

Roku sells ads for its own Roku Channel and splits some inventory with other streaming services on its devices. During the latter half of the second quarter, Roku said, many advertising clients slowed down or altogether stopped buying spots in the scatter market, where companies charge higher rates for last-minute purchases. Roku reported total revenue of $764.4 million, while analysts had estimated $804.1 million on average. Its forecast for the third quarter of $700 million was about $200 million short of projections.

“It was a challenging quarter for Roku for how significant the pullback was,” Chief Financial Officer Steven Louden said in an interview. “The severity of the pullback in the ad market was not expected”

Tech and media companies have reported mixed results for advertising in the quarter, making it difficult to gauge the health of the market. Alphabet Inc. and Spotify Technology SA have surpassed expectations, while Meta Platforms Inc. and Snap Inc. have come up short. Traditional media companies including Walt Disney Co. and Comcast Corp. have raked in record commitments for ad sales under contract.

The question for advertisers is whether it’s still effective to market to consumers if they rein in spending amid record inflation. One of the major ad agencies Interpublic Group, raised its forecast for the year last week, but Chief Executive Officer Philippe Krakowsky predicted there would be a “flight to quality” to the most effective media platforms if the economy worsens.

“What can I not afford to turn off? Where am I getting the best returns? What makes the most sense?” he said. “It would be about the quality of the back end and the data you’re seeing as a result of making that investment.”

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