Why Is Roku (ROKU) Stock Down 15% Today?

Source: Michael Vi / Shutterstock.com

Today, ROKU stock has plunged more than 15% in early afternoon trading as consumer-facing tech and the social media space get hammered. This move follows one of the highest-profile profit warnings among digital ad-related companies in recent memory.

This morning, Snap released a profit warning that sent a significant portion of the tech sector lower. In its commentary to investors, Snap said that it is unlikely to meet its own top- and bottom-line targets this quarter, given an abrupt deterioration in the macroeconomic environment.

Let’s dive into why ROKU stock and the rest of the tech sector is bleeding red today.

Why Is ROKU Stock Down Today?

Roku and Snap are two very different businesses, to be sure. However, both companies have a number of similarities.

One of the main comparable elements between these two companies is the consumer-facing nature of their businesses. Social media and streaming companies rely on consumer eyeballs in order to earn recurring revenue. Accordingly, in times like the pandemic, growth can appear much more robust than what the longer-term trends suggest.

Right now, investors are pricing in a much more muted environment for growth over the long term. Indeed, many of the benefits that stay-at-home stocks saw from the pandemic will likely expire soon. When it comes to growth generation in the consumer discretionary space, this isn’t a great outlook.

Snap’s release this morning is the first of what could be many profit warnings on the horizon. As such, investors appear to be revaluing their high-growth names, starting with names like ROKU stock today.

On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris MacDonald's love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.