Positive Q3 for Roku Overshadowed by Weak Ad Revenue Expectations; Lowering FVE to $65

Roku posted a positive third quarter with revenue and EBITDA ahead of the FactSet consensus estimates. However, the management commentary about the weak U.S. ad market continuing into 2023 spooked investors, leading to a 15% decline in the share price in after-hours trading. While the revenue growth of 12% came in well ahead of the 3% quarterly guidance, the third quarter had the lowest growth on record, with more headwinds ahead as the fourth quarter top-line guidance of $800 million implies the first revenue decline quarter for Roku. As a result, we are lowering our FVE to $65 from $80 on lower revenue expectations and slower margin expansion due to higher content and R&D costs.