Roku shares jump on promise of turning a profit

(Reuters) – Streaming device maker Roku Inc is aiming to turn a profit in 2024 as it strives to drastically cut costs to ride out a weakness in the ad market, sending its shares up 12% in trading before the bell on Thursday.

The company said it expected the pace of its operating expenditure to slow to 40% in the first quarter from 70% in the previous three months as it works on its cost structure, while building on the platform’s monetization and engagement tools and partnerships.

“We believe the majority of the OpEx cost cuts will be driven by headcount reduction, followed by reduction in some investment areas,” Evercore ISI analysts wrote in a note.

The company cut 200 jobs, or about 7% of its workforce, in November.

Analysts are optimistic about Roku’s cost-cutting goals and forecast, with at least nine of them raising their price targets. The stock was set for its best day in nearly a year.

“I think the rally in shares is a reflection of the company clearly identifying a path to profitability,” said D.A. Davidson & Co analyst Tom Forte.

Ad-reliant firms are struggling to cope with the current turmoil in the ad market as most companies make deep cuts to their marketing budgets in anticipation of an economic recession.

The company, however, said that there were still a few bright spots as restaurant operators, travel firms, and health and wellness brands continued to spend.

The company’s shares are up 56% so far this year, after falling nearly 82% last year.

(Reporting by Chavi Mehta in Bengaluru; Editing by Anil D’Silva)