The news: Last week saw a streak of downer Q2 earnings reports for ad-reliant companies, and Roku is the latest to take a tumble.

• Roku reported net losses of $112 million, up from $73 million in Q2 2021.
• Revenues increased 18% to $764 million, but undershot expectations of around $800 million.
• Citing volatility in the advertising market and supply chain issues, Roku withdrew its estimates for the rest of the year.

What this means: Roku has made itself into a rising star of the media and ad industries thanks to investments in multiple high-demand sectors, and its troubled earnings show that the ad downturn is in full swing.

• Going into 2022, Roku was well positioned to flex its large connected TV (CTV) audience to capture a large share of the fractured digital ad market. We forecast that there will be 109.3 million US CTV households in 2022, and a February Comscore survey showed that 28% of those households used a Roku device.
• Until recently, CTV had been a hot spot of video ad spending thanks to increased time spent viewing CTV platforms. And the rich walled gardens of data that gave advertisers access to robust ad targeting capabilities were comparable with what’s offered on linear TV.
• Roku spent the first half of the year bolstering those capabilities. In May, Roku revealed a swath of new advertising tools and brand marketing programs and even dipped into the streaming wars by announcing exclusive original films.
• All that hype helped Roku secure a record $1 billion in upfront commitments, per its Q2 earnings.

The storm arrives: Still, a fall from grace has been in Roku’s future for some time and it’s only been made worse by macroeconomic conditions.

• Advertisers may have scrambled to get in on CTV advertising, but news during the second quarter cast doubt on the market. A June report from iSpot and GroupM found that CTV impressions were grossly miscounted, costing advertisers $1 billion on ads that ran while devices were turned off.
• That doubt, combined with rising inflation and interest rates and supply chain issues prompting advertisers to pull back on spending, meant CTV was among the first sectors to get cuts.
• Roku said as much in a letter to shareholders, citing consumers’ tightening wallets and advertisers’ curtailed spending as reasons for the rough quarter and murky rest of the year.

What this means: There’s no denying that the ad downturn is in full effect as spending and impressions normalize to levels below their pandemic-fueled highs. That downturn will hurt ad-reliant companies through the rest of the year.

• The high expense and now-uncertain impact of CTV advertising means spending in the sector is likely to slow down.
• Roku’s market cap plummeted following its Q2 news, and larger video or advertising competitors could eye its decreased valuation as an opportunity for an acquisition.