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Roku stock (ROKU) soared as much as 14% in early trading on Wednesday after the company revealed a slew of cost-cutting measures including layoffs in an effort to bring down operating expenses.
In a regulatory filing released Wednesday morning, Roku said it would be eliminating 10% of its workforce, or 300 jobs, in addition to slowing down its pace of hiring. This marks Roku’s third round of layoffs in less than a year after it cut 200 jobs in March 2023 and another 200 in November 2022.
Excluding charges related to items such as severance and the removal of select content from its streaming platform, Roku now expects third-quarter net revenue in the range of $835 million to $875 million, with adjusted EBITDA in the range of negative $40 million to negative $20 million. This is ahead of its previous Q3 forecast for revenue of roughly $815 million and adjusted EBITDA of negative $50 million.
Analysts weighed in on the surprise guidance raise, with JPMorgan reiterating its Overweight rating on the stock.
“We (& investors) initially thought Roku’s 3Q revenue guide was conservative, but a 7% increase (at the high-end) two months into the quarter was certainly not expected given the ongoing Hollywood strikes,” JPMorgan analyst Cory Carpenter wrote in a note on Wednesday.
“We believe the revenue increase was in part driven by continued improvement in ad spend across verticals Roku called out as showing green shoots in the first half of the year (i.e., CPG, health/wellness, & travel), a positive read-thru for the online advertising group,” the analyst continued.
In Roku’s second quarter results, brand advertising remained pressured as total US advertising came in flat year over year. Spending on traditional TV fell 9.4% while traditional TV ad scatter, or ad inventory not purchased at the Upfronts, sank 17.2%.
At the time, management warned the ongoing double strike in Hollywood would continue to negatively impact media and entertainment spending through the back half of the year — a notable challenge given the heavy promotions Roku provides for content.
“We do not believe that the revised top-line guide has any meaningful media and entertainment improvement implied given strikes are ongoing, implying some strength/recovery in the advertising video-on-demand market for connected TV,” Wells Fargo analyst Steve Cahall said on Wednesday.
Cahall, who reiterated his Equal Weight rating and price target of $84 a share, added the potential upside to revenue, coupled with Roku’s cost-cutting initiatives, could significantly boost estimated adjusted EBITDA for 2024.
“We think implied adjusted EBITDA could exceed $300 million for ’24E [versus] Wall Street’s $64 million estimate,” he wrote.
Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on Twitter @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.
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