- Roku reported strong Q2 earnings compared with the broader TV and digital ad markets as it continues to attract TV advertisers to its platform.
- And these strong results will continue into H2, especially as brand advertising begins to rebound.
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In its Q2 earnings, Roku announced that its net revenues were up by 42% year-over-year (YoY), reaching $356.1 million. The company attributed this growth in part to its strong ad business.
Contextualized against our forecasts for TV ad spend growth (-15%) and overall digital ad spend growth (1.7%), these are stellar results, though not unexpected. We forecast that despite the pandemic, the company’s ad revenues will grow healthily by 30.9% this year to reach $691.7 million.
Part of Roku’s success lies in its continued ability to attract advertisers away from TV, which has been intensified by traditional TV’s struggles amid the pandemic. Prior to the pandemic, most of Roku’s ad revenues — and connected TV (CTV) ad revenues in general — have come from ad dollars that have shifted away from traditional TV as marketers try to keep up with cord-cutting audiences.
TV’s comparatively poor performance during the pandemic has only hastened this shift: The loss of live sports has accelerated cord-cutting, and though screen time is up across the board amid lockdowns, digital video has seen a much larger bump than TV. It’s a perfect storm for Roku to attract even more would-be TV advertisers to its platform, which it seems to have done, according to its shareholder letter: The company reported a 40% YoY rise in its first-time ad clients this quarter.
We think these strong results will continue into H2, especially as brand advertising begins to rebound. Due to the uncertain nature of the pandemic, Roku opted not to release any guidance for the remainder of the year — but we think the company is likely to continue its positive streak. “In general, we do expect that Q3 2020 will be better than Q2 2020, economy-wise,” said Eric Haggstrom, eMarketer forecasting analyst at Insider Intelligence. “Because brand advertising is correlated with the broader macro economy, it should improve in Q3 — and Roku will benefit from that recovery.”
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