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Roku users streamed 14.6B hours of content in Q2

Yahoo Finance's On the Move panel breaks down Roku's Q2 earnings report.

Video Transcript

JULIE HYMAN: Well, let's turn to an earnings report that came out after the close yesterday. It's getting a lot of attention. It is Roku. And those shares are actually trading lower by about 9% right now. That's despite some eye-popping numbers that the company reported, included high user traffic. Although it was actually a little bit worse than had been estimated, interestingly enough.

I want to take it over to Dan on this. Dan, again, big numbers. But the company is also a little bit cautious about what's going to happen now.

DAN HOWLEY: Yeah, they beat on revenue, obviously, by a good deal. And they had strong user engagement. That's obviously because people are still stuck inside. Not a lot to do as far as entertainment outside of walking around the block, I guess. So, really, that's what the positives were for this.

The problem is, though, moving forward, as you said, they're not sure what's going to happen as far as advertising goes. Roku makes, now, the majority of its money from its advertising. It's called the platform side of things for Roku. And basically, they sell ads on everything from the home page of Roku to interstitial ads on the Roku channel.

They also scoop up revenue when people do sign ups for different services. But this really has to do with the advertising and the issues that are running rampant through that industry right now, as we're acutely aware as members of the media. But I think that's really where the issue lies for Roku going forward was, they have kind of put a lot of hope on how much the advertising revenue would benefit them. But with this downturn as a result of the economic issues coming from the pandemic, it's kind of a two-way sort, almost, where they're being chopped off from the ad revenue, but seeing a boost from the people stuck inside.

So it really is kind of an interesting problem that they're running into now.

- Yeah. And I thought what was notable was the company actually highlighting and calling out the advertisers and industries-- specifically casual dining, travel, tourism-- that have significantly slowed their spending. And you see that across the board. The tech giants have also sort of echoed that sentiment as well.

So it just shows, those are sort of the sectors that do spend a lot of money on advertising, right? The tourism industry is heavily dependent on the marketing side of things. So for a company like Roku, of course, that will hit pretty hard. And then one other note here, this is when it's fascinating to see the analyst community come out as supremely bullish ahead of an earnings call.

And I think this actually worked against Roku, right? Because the day before yesterday, Rosenblatt came out raising its price target on Roku from 145 to 190. We may have talked about it on the show. We talked about it throughout the programming, saying it's specifically more bullish on Roku's potential ad revenue prospects even though Peacock and HBO Max are not going to be offered on the new sort of setup.

I do feel like, you know, Julie, Dan, unfortunately, that was a cautionary tale, right? Because we did see the stock pop ahead of that news or ahead of the earnings announcement, and then, of course, down about 8% this morning.

JULIE HYMAN: And Dan, you were noting, as well, that Roku is not necessarily the only one that doesn't have those services. Fire TV doesn't have them either. So I don't know how long it's going to take for these various apps or these various platforms to hammer out these agreements.

DAN HOWLEY: Yeah, it's something that, you know, you see every time a new kind of streaming service or platform comes online. It's the question of when they're going to show up. Right now, you know, if you have a Fire TV, you can do something called sideloading and kind of get it on there by using backdoor since it's basically an Android device. Roku, you can't really do that.

And I think, you know, for Peacock and HBO Max, sure, they've seen great pickup so far, particularly Peacock. It's free. That's probably got a lot to do with it. But if they want to maximize their audience, they're going to need to go onto these two players. Because they're the largest streaming players out there.

So to not speak with them is an issue. And I'm sure this all comes down to, as I mentioned, Roku gets a cut of sign ups for people that sign up for services like Peacock or HBO Max on the Roku platform. I'm sure that's the negotiation that's going on behind the scenes that's keeping those particular streaming services off of these devices. At some point, it's got to come through. And they'll be available, though.