Published - September 7th, 2023 @ 4:40 PM (GMT+2)
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Roku's (NASDAQ:ROKU) share price surged by up to 14% in early market activity last Wednesday, following the announcement of a series of austerity measures aimed at reducing operational costs. The company disclosed in a regulatory filing that it plans to cut 10% of its workforce, equivalent to 300 positions. This is the third wave of layoffs for Roku within a year, having previously reduced its staff by 200 in March and another 200 in November of the previous year.

Financial Outlook Brightens for Q3:
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The company has also revised its financial guidance for the third quarter. Excluding specific charges like severance and content removal, Roku now anticipates Q3 net revenue to fall between $835 million and $875 million. The adjusted EBITDA is expected to range from a loss of $40 million to a loss of $20 million. These figures are notably better than the company's prior Q3 estimates, which projected a revenue of approximately $815 million and an adjusted EBITDA loss of $50 million.

Analysts' Take on Roku's Surprise Move:
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Financial analysts were quick to comment on Roku's unexpected guidance uplift. JPMorgan maintained its 'Overweight' rating on the stock, expressing that the 7% revenue increase was unforeseen, especially considering ongoing strikes in Hollywood. The revenue boost is partially attributed to a rise in ad spending across various sectors like Consumer Packaged Goods (CPG), health and wellness, and travel.

Advertising Trends and Challenges:
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In the second quarter, Roku faced challenges in brand advertising as total U.S. advertising remained stagnant year-over-year. Traditional TV advertising saw a decline of 9.4%, and non-upfront TV ad inventory dropped by 17.2%. The company had cautioned that the continuing strikes in Hollywood could adversely affect media and entertainment spending for the rest of the year.

Future Projections and Analyst Ratings:
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Wells Fargo analyst Steve Cahall reiterated his 'Equal Weight' rating and set a price target of $84 per share. He noted that Roku's revenue upside, combined with its cost-cutting strategies, could substantially elevate the estimated adjusted EBITDA for 2024, potentially exceeding $300 million as opposed to Wall Street's $64 million estimate.

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