What happened
Shares of Roku (ROKU 1.84%) fell 13.1% in September, according to data from S&P Global Market Intelligence. The company took necessary but painful cost-cutting steps early in the month, undermining the progress Roku and its stock had made year to date. That move started another stock price slide that continued for the rest of the month.
So what
Roku's stock roared into September on a full head of steam. Its price doubled in the first eight months of 2023, a solid rebound but far from a full recovery after a price slide of 82% in 2022.
The momentum did not carry on last month. On Sept. 5, the company announced a wide-ranging cost-control program. Its head count will fall by 10% by the end of this year, alongside cuts to the Roku Channel's portfolio of streaming content and tighter spending policies across the company.
All in all, these cost-cutting ideas will add roughly $55 million of restructuring expenses in the third quarter. There will also be approximately $180 million of impairment charges related to terminating office-space contracts before the end of their lease, and around $60 million in costs associated with the removal of certain streaming content from Roku's services.
Management didn't provide detailed projections of expected savings, but it did adjust the official guidance ranges for selected third-quarter metrics. As expected, the cost controls should result in lower losses on the line for earnings before interest, taxes, depreciation, and amortization (EBITDA). At the same time, the top-line revenue guidance rose from $815 million to approximately $855 million, a 5% increase.
At first glance, one might call Roku's new policies shareholder-friendly with solidly helpful revenue and profit effects. However, many investors saw this announcement as a sign of weakness or desperation instead.
NASDAQ: ROKU
Key Data Points
Now what
Roku's stock price behavior is starting to look silly. In this instance, the company took some uncomfortable steps to cut down unnecessary operating costs and shore up its income statement. The debt-free balance sheet with $1.8 billion of cash reserves was never a source of concern.
And you can't rely on price-to-earnings metrics for a business with negative earnings, but the stock looks quite affordable with a price-to-sales ratio of just 3.1. So it's not like the stock was melting its wings by soaring too close to the sun.
And the beat goes on. Roku has been my favorite stock to buy over the last couple of years, and a lower entry price only makes it more enticing. This company appears to have a bright future, exploring global expansion as the world's economy swings back from its recent doldrums. Grabbing more Roku shares from Wall Street's bargain bin makes a ton of sense in that scenario.
