Roku is cutting 10% of its staff, eliminating certain licensed content, and downsizing its office space to curb operational expenses.
Roku, known for its TV streaming hardware and software, is redefining its operational structure amidst increasing operating expenses.
In a recent SEC filing, Roku expressed its decision to downsize its workforce by 10%, translating to over 300 employees. This move is consistent with Roku’s current endeavors to manage its expenses, having already reduced its staff count by 400 in March and November of 2022.
By the close of 2022, Roku’s workforce was estimated to be about 3,600 full-time employees spread over 14 countries. The company’s layoffs align with its effort to manage its finances, particularly after observing a 71% increase in operating expenses in the last quarter of the previous year. This trend was followed by a 42% increase in Q1 2023 and an 8% increase in Q2 2023, totaling $504 million.
On July 27th, Roku disclosed its Q2 financial data, highlighting increased active user accounts and platform revenue. The company added 1.9 million net active accounts in this quarter, an improvement from the 1.6 million added in Q1.
The reported net revenue was $847 million, an 11% year-over-year increase. Of this, the revenue attributed to the platform, which includes The Roku Channel and advertising, was $743.8 million. However, the company also reported a net loss of $126 million, a change from the $212 million in Q1 2023 and $110 million from the year before.
In their Q2 letter to shareholders, Roku executives pointed out that the broader economic environment remains uncertain. With U.S. advertising spending remaining stagnant, and in light of the ongoing WGA and SAG-AFTRA strikes, the company expects a downturn in media and entertainment promotional expenditures in the upcoming Q3. CFO Dan Jedda highlighted this anticipation during an earnings call in July.
Additionally, Charlie Collier, the head of Roku Media, mentioned that upfront ad-sales negotiations need to catch up to expectations.
Besides staffing changes, Roku is re-evaluating its business strategy, which includes a review of its content offerings, which might result in removing certain licensed and owned content, leading to an expected impairment charge between $55 million and $65 million. Another anticipated impairment charge is projected to be between $160 million and $200 million due to discontinuing the use of specific office spaces.
Roku is also looking into office space consolidations and reductions in external service expenses. The company is also taking a more cautious approach to hiring, suggesting fewer new hires in the future.
From a financial perspective, the anticipated cost of these changes for Roku is estimated to be between $45 million and $65 million in the next quarter, mainly due to severance and benefits. However, the company’s projection for Q3 net revenue stands between $835 million and $875 million, with an adjusted EBITDA ranging from a negative $40 million to a negative $20 million.
Roku’s primary source of revenue is its “The Roku Channel” platform, which combines three content types. It provides ad-supported content (AVOD), original content under “Roku Originals”, and live TV channels (FAST), and also allows for subscriptions to third-party premium streaming services like Paramount+ and AMC+.
To diversify and expand, Roku has partnered with Shopify to offer a unique shopping experience for its users. This collaboration will allow users to buy products directly from Shopify merchants through their TV screens using Roku Action Ads.
Additionally, in a strategic move to increase exposure for “The Roku Channel”, Roku announced its availability on Google TV and Android TV platforms. Previously, the channel was only accessible on Roku devices, Samsung TVs, Amazon Fire TV, and their mobile app.
Roku is also focusing on its FAST Channels portfolio, evident by its strengthened partnership with NBCUniversal (NBCU). The partnership aims to introduce more free ad-supported streaming TV (FAST) from NBCU’s Global Distribution library to The Roku Channel.
In conclusion, while Roku is making notable shifts in its operational strategies, its focus remains on adapting to the changing market environment and evolving user needs. The company’s continued investment in advertising, content, and new partnerships reflects its commitment to growth and innovation.
Ragul Thangavel
With over nine years of diverse professional experience, Ragul has made significant contributions across various domains, including Media Operations, OTT Technologies, Video Production, Ecommerce, and Social Media.
Holding an Engineering degree, Ragul's career took an unconventional turn when he discovered his passion for writing, leading him to begin his journey as a content writer.
His career has been exclusively dedicated to the growth and development of startups, where he has played a pivotal role. His unique blend of technical knowledge and creative prowess has enabled him to drive innovation and success in every venture he has been a part of.