Roku Stock Plummets After Third-Quarter Earnings Report

ONE TIME USE ONLY - Anthony Wood, founder and chief executive officer of Roku - Getty-H 2018
David Paul Morris/Bloomberg via Getty Images

The company beat Wall Street's expectations slightly, but investors responded by sending the stock down by more than 10 percent.

Roku shares dropped more than 10 percent on Wednesday afternoon after the maker of connected TV devices reported earnings that just barely beat investors' expectations. 

The company said that during the third quarter of 2018, it brought in revenue of $173 million and lost 9 cents per share. Wall Street, per Refinitiv, was looking for revenue of $169 million and a loss of 12 cents per share. 

During the period, which ended in September, Roku had 23.8 million monthly accounts, up 43 percent year-over-year, and reached 6.2 billion streaming hours, up 63 percent. The company's revenue from selling advertising on its platform continued to grow, reaching $100 million during the period. Meanwhile, revenue from the sale of its players was $73 million, up just 9 percent from the same period last year.

Roku started as a business devoted to selling connected devices for televisions that allows them to stream programming from online providers like Netflix and Amazon Prime. Over the years, the ecosystem of consumers with Roku TVs grew to a place where the company could begin selling advertising to reach people who regularly use Roku devices. As a result, its business has shifted from one that relied on device sales to one that is increasingly supported by advertising revenue. It is likely that the declining growth of its device business is what has some investors concerned, even if it comes as platform revenue grew 74 percent during the period.

"We believe that all TV will be streamed and as a result, all TV advertising will eventually be streamed," CEO Anthony Wood wrote in his shareholder letter. "We believe ads on the Roku platform simply work better than ads on linear TV."

Wood started his call with investors on Wednesday by noting, "Cord-cutting continues to alter the TV landscape." The company not only benefits from people buying its devices to watch apps like Netflix, it has also introduced its own ad-supported app, the Roku Channel, where people can watch free movies and TV shows from Roku partners. 

Wood also explained on the call that Roku continues to see demand for sub-$50 streaming devices and that the company's advertising business has benefited from buys from two-thirds of Ad Age's list of the top 200 advertisers.

Roku shares closed the day's regular session up more than 5 percent to $58.86, but fell during after-hours trading.