A Streaming Battle

Shares of Roku have turned into one of tech's biggest battles. The streaming video platform tumbled late last week after the company reported a larger-than-expected quarterly loss and offered a sobering forecast for the current quarter. 

The company seems to be dealing with every Wall Street worry: 

We are in an economic environment defined by recessionary fears, inflationary pressures, rising interest rates, and ongoing supply chain disruptions. For the second half of the year, we are forecasting that advertising spend, particularly in the scatter market, will continue to be negatively impacted. We also believe that consumerdiscretionary spend will continue to moderate, pressuring both Roku TV and Roku player sales.

Shares tumbled 23% after the report. Bank of America issued a rare double downgrade of the stock, going from Buy to Underperform. But today, Roku was up 9%, partly because Cathie Wood, one of tech's biggest bulls, continues to buy the stock. Wood's ARK Innovation ETF bought 374,000 Roku shares on Friday, while selling some shares of Tesla. Roku is ARK's No. 3 holding. Tesla remains in the No. 1 spot, with Zoom Video at No. 2.

Cathie Wood tends to take long-term positions and big bets. One slide in a presentation about ARK's investment case is titled: "We Believe Disruptive Innovation Technologies Are Ready For Prime Time" and outlines a $14 trillion market for disruption expanding to $210 trillion by 2030. Not surprisingly, ARK has been caught up in the growth selloff in 2022. The fund is down 52% this year, though it's rallied with the market in the last month, up 11%.  

Wood's Roku buy is symbolic of choosing the long run over the short run. In between its short-term warnings, Roku still offers an optimistic picture:

 

The significant and long-term opportunity in TV streaming is not changed by the current economic cycle. At the start of the pandemic, ad spend slowed but ultimately rebounded as advertisers reset, and in many case saccelerated, budgets into higher ROI [return on investment] mediums like TV streaming. Furthermore, a significant gap remains between TV streaming viewership and ad spend. In Q2, U.S. consumers aged 18-49 spent more than half of theirTV time streaming while advertisers are expected to spend just 22% of U.S. TV ad budgets on streaming in 2022. Over time, we expect this gap to close as advertising dollars continue to follow audiences to TV streaming. 

Barron's Connor Smith has much more on Roku and the growing debate about the stock here.