Bulletins

Supply chain disruptions have been bad for Roku's business

But overall revenue is still growing fast.

A TV sitting on a credenza with Roku’s interface on the screen.

Roku saw TV sales slow down due to supply chain issues.

Photo: Roku

Count Roku among the companies that's starting to see its business being impacted by the ongoing global supply chain crisis: The streaming platform company saw its account growth slow down significantly in recent months due to supply chain issues, it revealed in its Q3 earnings report Wednesday.

Roku added just 1.3 million new accounts in Q3, compared to 1.8 million in the same quarter last year. The company pointed to slowing TV sales as one of the main culprits for the slow-down. "Overall U.S. TV sales in Q3 fell below pre-COVID 2019 levels," it wrote in its letter to investors Wednesday. "Some of our Roku TV OEM partners were hit particularly hard with inventory challenges, which negatively impacted their unit sales figures and market share in Q3."

The company also continued to feel the impact of the chip shortage on its Roku player business. Instead of raising the prices of its streaming adapters, Roku has been selling streaming hardware below cost, resulting in a 15% negative gross margin. "We view this Player gross margin erosion as temporary," the company noted in its letter to investors.

Roku CFO Steve Louden acknowledged in a call with reporters Wednesday that the company didn't know when things would return to normal. "These overall supply chain disruptions are going to continue throughout the holiday season, and into 2022. That's going to create some challenges for the overall US TV industry [...] because of price increases and overall inventory availability issues."

Louden was more optimistic about the company's first-party streaming player business, saying that Roku had avoided stock shortages by changing some of the chips it used. "I don't foresee any significant issues with inventory on the Roku Player side," he said.

Despite these challenges, Roku was still able to grow its revenue for the quarter 51% year-over-year to $680 million, with diluted earnings per share coming in at $0.48. That's largely due to Roku's business model, which uses hardware as a way to distribute services that are then monetized via advertising.

Advertising revenue still continues to grow for the company, but Louden admitted that some advertisers, including carmakers, have cut their budgets due to their own supply chain issues as well. Both ongoing hardware supply chain issues and these first signs of ad budget cuts prompted Roku to issue a somewhat more cautious Q4 forecast.

The company still expects to grow year-over-year revenue by 37%, but that's well below the 50% growth it saw in a pre-pandemic 2019 holiday quarter. Investors were thoroughly spooked by this, sending Roku's share price down up to 10% in after-hours trading.

Update: This post was updated following a call with Roku CFO Steve Louden.


 Janko Roettgers

Janko Roettgers (Twitter, Mastodon) used to be a senior reporter at Protocol, reporting on the shifting power dynamics between tech, media, and entertainment, including the impact of new technologies. Previously, Janko was Variety's first-ever technology writer in San Francisco, where he covered big tech and emerging technologies. He has reported for Gigaom, Frankfurter Rundschau, Berliner Zeitung, and ORF, among others. He has written three books on consumer cord-cutting and online music and co-edited an anthology on internet subcultures. He lives with his family in Oakland.
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