Q2 2020 Roku Inc Earnings Call
[music].
Good day, ladies and gentlemen, thank you for standing by welcome to the second quarter 2020, Roque <unk> earnings Conference call.
This time all participants are in listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During the session you really need to press Star then zero I get telephone keypad I'm, sorry started one I get telephone keypad.
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As a reminder, this conference call is being recorded I.
At this time I would like to turn the conference over to Mr., Tricia Mr., Matt maybe get.
Thank you good afternoon, and welcome to record financial results Conference call for the first quarter ended June Thirtyth 2020, I'm joined on the call today with the I'm pretty wide with founder and CEO.
The lot in our CFO, Scott Rosenberg, I'd BP and yeah over upon our business will be available for Q.
Well details of our result, an additional management commentary are available in our shareholder letter, which can be found on the Investor Relations section of our website I onsite Roka dotcom.
The following discussion including responses to your question reflects management's views as of today. Obviously, that's 2020 only when we do not undertake any obligation to update or revise information.
And let the statements made on today's call are forward looking and are based on our current expectations forecasts and assumptions and involve risks and uncertainties <unk>.
These statements include but are not limited to statements regarding the future performance, a broker including expected financial results for the third quarter and full year 2020, the impact of the coded Nike condemning on our industry business and financial results and the future growth in our business and our industry.
Our actual results may differ materially from those discussed on this call for a variety of reasons.
Please refer to the today show shareholder letter and the company's periodic filings with the S easy for information about factors.
Cause our actual results could differ materially from these forward looking statement.
You will find reconciliations of non-GAAP measures for the most comparable measures discussed today in our shareholder letter, which is supposed to.
On our Investor Relations website, I encourage you to periodic leaving our IR website for important concept.
Finally, unless otherwise stated all comparisons on this call will be against our results for the comparable period, that's funny thing [laughter] now I'd like to hand, the call Overkill.
Thank you for joining todays call screening is the most powerful for shaking television today.
It is unleashing innovation, and bringing greater choice value and control to consumers.
We're also seeing that the ongoing cobot 19 pandemic is accelerating the macro trends that will define the screening decade. For example, consumers are screening more and they are turning to services offer good value.
Also more and more content owners are adopting a growth marketing mindset partnering with platforms like rocket two acquired engage and retain valuable audiences.
Brands are reevaluating, where their ads need to appear in order to reach consumers, while looking for ways to increase the effectiveness of their campaigns.
Against this backdrop roka delivered strong results and exceptional account growth in the second quarter.
We are increasing platform scale and extending our competitive advantages, while helping content owners advertisers retailers and TV Oems capitalize on the shift the screaming.
The strong relative performance of our ads business also stood out during the quarter agree with the overall TV AD market decline of course, the outlook for the AD industry remains highly uncertain for the balance of this year and we believe it will be well into 2021 before TV AD investment recovers to pre endemic levels.
Despite these headwinds we believe we are very well positioned to increase here in the very large TV ad marketplace overtime.
I'll wrap up my comments by saying that I'm delighted that Steve Latin will be staying on with Roque U.S. CFO and we have ended deserves to find the successor I'm looking forward to continuing to work with Steve and our talented leadership team as we guide wrote due to the pandemic and into the streaming decade.
With that I'll hand, it over to Steve.
Thanks Anthony.
With that I'd like to express out.
To be continuing on as CFO.
We have a great team strong execution any significant opportunity ahead as TV viewing continues to shift to streaming.
Before we take your questions I'll walk through operational and financial highlights and discuss our viewpoint looking forward.
We added 3.2 million incremental active accounts in Q2, a record for non Q4 holiday quarter and ended the quarter with 43 million active accounts up 41% year over year.
As a player unit continued to be real passed up 20% year over year, well average selling price decreased only 2% year over year, given less promotional activity due to strong demand and tight inventory levels for certain products.
Strong active account growth has continued into early Q3.
Year over year engagement on the platform also accelerated in Q2 with broker users streaming 14.6 billion hours in the quarter.
65% year over year versus 47% year over year growth in Q1.
June hours per active account peaked in early Q2 and had since moderated but remained above pre cobot level.
Please note that we have made revisions to historical streaming hours and I would encourage you to review the detailed in our shareholder letter.
There's no financial statement impact of these changes and no revisions are required to other key operating metrics.
Now I'd like to highlight a few financial items.
Hold you to revenue increased 42% year over year to 356.1 million, reflecting robust growth in both platform and player segments, despite external headwinds, including the overall advertising environment.
Well done segment revenue was up 46% year over year to 244.8 million driven by strength in as far as subscription and she bought transaction trends as well as continued growth in our AD business with rope you monetized video AD impressions growing roughly 50% year over year.
Okay.
Their revenue grew 35% year over year, the highest growth rate in over five years.
Gross profit grew 29% year over year in Q2 to 146.8 million, resulting in the gross margin of 41.2%.
I think in gross margin of 56.6% was similar to the Q1 gross margin.
Player gross margin of 7.5% was higher than the same period last year due to fewer promotions as well as lower return rates.
Their gross margins were higher despite continued elevated usage of airfreight.
We anticipate higher airfreight costs to continue in the short term as a tight supply environment persist.
Q2, adjusted EBITDA of negative 3.4 million benefited from a sequential decline in Opex from 196 million in Q1 289 million in Q2, primarily due to lower TNT and facilities operating costs.
Well hiring rate slowed significantly given the initial reaction of potential candidates to sheltered home orders, we've seen a recent increase in the hiring rate.
As a reminder year over year opex growth rates reflect the impact of barring data dues operations and personnel in mid Q4 2019.
Including approximately 3.3 million in Q2 for intangible amortization.
Roughly two thirds of which is included in platform Cogs in one third in sales and marketing Opex.
Sales and marketing expenses are up 75% year over year due to growth in headcount, including the inclusion of roughly two thirds of acquired David do personnel as well as increased marketing retail and merchandising costs.
DNA expenses are up 56% year over year, driven by headcount growth as well as increased legal costs, primarily related to IP litigation and international expansion.
Okay significantly increased cash and liquidity position in Q2, raising an incremental 350 million in equity capital via an aftermarket offering.
We ended Q2 with 887 million of cash cash equivalents restricted cash and short term investments and have 70 million of available liquidity under our credit facility.
We're pleased with the recent performance of the business against the backdrop, the global Pandemics and the significant economic fallout that this has caused in the short term. However, the macroeconomic environment I mean, both variable and uncertain and we're not issuing a formal financial outlook at this time.
We expect strong consumer interest and the shift to TV streaming to continue.
But we are mindful of the potential for both retail and supply chain disruptions as well as changes to consumer buying behavior during important shopping periods in the second half of the year, including back to school and most importantly, the holiday season.
The at industry outlook remains uncertain in the second half.
And we believe that told TV AD spend will not recover to pre kobin 19 levels until well into 2021.
We remain committed to our strategic investment areas and driving future growth. We will continue to prudently manage expenses based on the performance of the business, but do you anticipate that opex will grow on a sequential basis as we continue to higher and given that headcount facility costs, which make up roughly two thirds of our opex.
Our largely fixed in the short term.
This approach will likely means that we run at an adjusted EBITDA loss for the year.
Despite this uncertainty we remain confident in our ability to grow our AD business in the second half and believed that our overall revenue will grow substantially on a year over year basis in the second half and for the full year 2020.
In summary, we're very pleased with the performance and relative strength of the business in the second quarter, despite the macro challenges and uncertainties.
<unk> competitive advantages make as extremely well positioned to capitalize on the shift that streaming and the large economic opportunity created by the Replatforming of television with that let's turn the call over for questions operator.
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Our first question or comment comes from a lot of a silly covers football from kind of our research. Your line is open.
[noise] drilling.
I have a question Scott I think for you now that you launched one of you can you maybe speaking in a little more detail about what kind of offerings you have for advertisers right now because it's a much more complex I think situation than it used to be so and specifically.
As I understand a advertisers can buy OTI t. advertising through one view, but that's not necessarily roko inventory and can you. Please confirm if it's true and if it is it doesn't that seem to be like a channel conflict. There. How do you go about that so would appreciate the thoughts on this.
Hey, the fairly thanks for the question.
Great Great question actually so you may recall that in.
Early Q2, we relaunched rebranded one healing main effect to that was.
Natively integrate wrote to identity and data into one view so that users of one you could have many of the same benefits the targeting the measurement the performance optimization when they buy through one view that they've had when they bought media from Roque is important to that in into your question is that it really expands the.
Book of business that we can do with an advertiser now they don't just think of buying media.
From wrote to specifically, but using our tools our data our identity to power their buying from publishers directly so it actually rather than produce a channel conflict actually it enables us to work more broadly with advertisers across their broader spend.
In MTT in desktop and mobile it's also expanding this set of clients that we can work with one view one of its strength is data and optimization the ability to help of marketer optimize their campaign to bottom final results like a site visits or product purchases.
As a and so that's actually bringing in a class of performance advertisers, who may not have traditionally invested in TV, maybe they invested heavily in social platforms, where performance is a key capability. So so one view there is a is actually bringing new clients, whereas in the case of TV advertisers that you touched.
Actually expanding this had a business that we can do with them altogether, it's been great progress in a in integrating the when do you Tech and team. We're very very proud of the progress and one of these featuring very prominently in our advertiser upfront discussions this year.
A quick follow up would it be fair to assume that they contribute revenue contribution from one view group compared to Q1.
Well, we don't we don't break that out specifically, but we monetized impressions on the platform, which now include one view has grown more than 50% you'll see that continue one view.
Again is an opportunity for us to participate in the transactions that are occurring in the roka ecosystem, even when it's between an advertiser and publisher on road.
Great. Thank you very much thank you.
Thank you. Our next question or comment comes from a lot of Mark Mahaney from RBC. Your line is open.
Okay that go in a couple of questions. Please could you comment at all and whether you think you've seen any pull forward of demand I think your comments.
Steve about active account growth continuing strong in Q3 suggest that there wasn't a pull forward I'm just trying to compare those comments with what Netflix said and then can you comment at all about the linearity of revenue growth during the quarter that at a mid Fortys platform revenue growth was it kind of constant.
Throughout the quarter and continuing into July did ramp up as advertisers came out of their freeze at the end of March where did it decelerate anything about the linear to the quarter would be very helpful. In terms of helping us think through what substantial means in the back half the year. Thank you.
Hey, Mark this is Anthony <unk> I'll take the first part and then people tend to we'll take the second part of your question.
Turning to pull forward versus you know just an acceleration of of active account, it's difficult to say I mean, if you look at but the indicators that we look at seem to indicate that everything is just not just the pull forward during the year that the shift the streaming in the growth an active accounts as.
And it's just it's calibrated.
So it's a little bit Hey, my Graf, our grass look a little bit different than Netflix is graphs in that regard.
Yeah, Hey markets Steve.
Yeah as you as you mentioned, we said on the active account side that we saw continued strong growth in active accounts and.
Player sales in TV into early Q3, which is encouraging.
In terms of engagement, we noted that streaming hours overall have accelerated significantly from pre covered levels on a streaming hours per active account per day basis. They spiked dramatically during the initial locked down phase and that since moderate the year over year growth of that metric has been.
Moderated a bit but it's still above peak of at levels. So so we do see very strong active account growth in fact that 3.2 million active accounts that we added in the quarter was the largest.
Sequential quarter growth that we've had outside of a holiday period.
In terms of revenue, we haven't provided a lot of detail within that.
Other than to to note that the you know wrote to monetize video AD impressions had grown 50%. So I'm on a year of your basis, which is showing our relative strength to continue to grow a rope who you know the real to advertising side of the house plus extremely strong content distribution you know.
After co bid in the landscape, where the overall U.S. advertising spend is down significantly.
Yeah. Thanks, Anthony I, just I'd, just add that we added 3.2 million account.
In the quarter, which we mentioned in the letter which was exceptional but the other interesting fact was that existing accounts purchased another 3 million rookie devices.
You know, which I think it shows the strength of the affinity for our customers that they refused system.
Okay, that's very helpful, but Steve nothing on whether that exit rate of the quarter was higher or lower than at 46% I know, it's a very impressive growth I don't think there's anything growing faster than that actually but ah, but just curious if you can comment about at all on the linearity, whether the growth is consistent throughout the period or not.
Yeah, we haven't broken broken that down Mark.
Okay, Alright got a steep.
Thank you our next question or comment comes from the line Oh, Laura Martin from Needham Your line is open.
Hey, there I'm glad I get to ask this question. So Anthony you are an aggregation platform that is how you create value and yet Peacock, an H.B.L.O.H. Vale, Max I guess or not on your platform. So could you walk us through is an excellent execution entrepreneur, how you think about the money issues on the table.
All compared to your role as an aggregation platform for AD driven and outstanding services and then Scott one for you Kroger very interesting I'm very interested from you got about how you think about the kroger opportunity to roll out and how big that could be for local over time that process. Thank you guys.
Hey, Laura let me start and then I'll turn it over the Scott to add some detail. So in general you know I think when it comes to content.
We want to add up all the content that we candace available to us to our platform.
A you know what we've said often that will not we're not always first when it comes to adding new.
Services through our platform because it's important to us that we establish a you know a win win win relationship.
That that economic model with our content distribution partners as well as with our advertisers is what funds our business and that's what allows us to invest in innovation and bring low cost excellent devices to consumers those important do we get that right, but in no particular cases that you asked about God is a lot closer to that than I am So I'll let.
Comment on it more specifically.
Yeah, Hey, Laura limits, let me just comment on the content side of the business and I'll come to Kroger and one thing I'll. Just say is that partners that embrace Roque, who are winning I mean, we've had an exceptional quarter of growth.
In terms of engagement every segment subscription transactional Avon has grown significantly and partner she's been invested in working with us it benefited from that growth benefited from our scale in our marketing tools. So as Anthony said it is our goal the clarity services, we look for that win win win relationships something that's great.
New content for consumers.
Helping new content providers get scale, and MTT and economics for Roque, who.
We're not always going to get the deal done first but that's a recipe we think it's achievable.
And we're excited to be platform for these new services.
As to your question on Kroger I agree it's really exciting deal a you know it. So it's an example of the kind of partnership you'll see more of where we've basically partner with Kroger who's a leading aggregator of shopper data to onboard that data and enable it for both measurement targeting and ultimately optimization of ads accord.
Into what CTG, what what the consumer package goods products are leaving the shelves, we've got a campbell's in already participating so for CPG advertisers to big when it's the opportunity to ultimately optimize the media that they buy from rose to the and media that they run through one view to the to the to the thing they care.
About which is product sales.
So it's an exciting example of a partnership and and what's possible with some of our added AD tech capabilities with one do you think it.
People are that Anthony Jim Let me just add one more comment I think the another. Good example on the content partner relationships the Disney I mean Disney just.
Announced that they have reached 100 million direct to consumer customers on platforms like broker and in fact.
So when they streamed Hamilton, we were the largest streaming platform or have any of the streaming platforms, including phones. So we're in important partner to those companies.
And you know we're proud that we can help them, we've built a lot of tools to help them.
Acquired customers screen to customers and you know that that's I think this is a good example of what women partnership looks like for us.
One of the more of those kinds of deals.
Thank you very much.
Thank you our next question or comment comes from online Ralph.
Schacher from William Blair. Your line is open.
Good afternoon, just wanted to come circle back in some of the AD spend uncertainty comments that you highlighted today, just curious how that uncertainty might compare to last quarter enough that you know if there's any improving visibility even if it's on the margin into that spend with some of your advertising partners and then maybe just to kind of a bolt on.
To that you know what the upfronts forecast to be down pretty significantly ramped southern Delaware. So just curious what you're hearing from your advertising partners you know any sense. The benefits you might see in the back half and just generally speaking I pick something up tend to thank you.
Scott will take them.
Hey, Ralph.
The two point here I, just talked about the kind of larger market backdrop. A plot platform revenues grew 46% did you add pressures were up 50%. We had strong client retention strong new client acquisition, we're making good progress new verticals performance driven campaigns.
You know this [laughter] against the backdrop of linear TV declining 15% to 25%, depending on which TV networks earnings you were listening to this week. So it's it's a challenging TV market overall, but I think our growth.
Yeah, both in terms of monetization as well as viewership in the T T.
Highlights the shift in AD dollars, that's occurring out of linear television into you know T. T. I think we're well positioned through the end of year. It isn't uncertain market as you point out upfront are in a bit of disarray in terms of the timing on when the dollars will get committed but we think we're well positioned with.
Our offer into the market.
In terms of the strength and growth of our audience, our add capabilities. One you things like the Kroger partnership and we'll continue to capture share through the end of year.
This is Anthony I just said.
In terms of our AD business I think I think that a key thing to think about is that we're growing.
Our AD business is growing strongly in a once a down market for the advertising business and also if you just think about the fact that all television is going to stream that of course means all TV ads are going to screen on advertising is going to push though T. For video and you know we're just still in the very early days. So that is the huge aren't you had it.
Great. Thanks, Ethnics gotten Steve good to hear sticking around.
Thank you.
Our next question or comment comes from the line over shy on Patel from Susquehanna. Your line is open.
Hey, guys its Ryan on for Sean.
To first you talked about a international a little bit just had gained traction there and I mean, if the pandemic is driving internationally like it is a domestically.
And then secondly, you recently added the buckets panels to the broker channel.
But those driven more interest there and are there any other lucky enough to call out on the broker channel.
Thanks.
A this is Anthony let me let me take the international question and then they just got can talk Scott can talk about Trc.
So international generally is going great you know, we're making good progress.
The the you know the position we built into U.S. the advantages the technology in the skills. We built in the U.S. is working for us internationally.
It's a huge huge market internationally, it's a billion broadband households, they'll all be screaming eventually.
And we're seeing we're seeing good progress. So for example, you know in Canada and the UK in the quarter players there players sales doubled year over year.
TV sales were strong in Canada Rookie TV sales one in four smart TV sold in Canada.
Our roka Tvs.
Mexico, we're making great progress, we announced a TV partnership with sharp today.
You know until we have a total of sticks OEM partners in Mexico now.
Brazil, we started shipping broker TV models recently with a well see a local TV manufacturer that stopped or a great start.
We also recently expanded our our relationship with Tcl to include.
More geographies around the world So international going good in terms of versus U.S. I mean international active account growth is stronger than doesn't do U.S.U.S. as a more mature market.
And then on I think the Trc question. Scott did you want to take that are yeah, Hey, Ryan two points on Trc one is the.
It serves continues to grow very significantly more than doubling reach year over year Outreaching active accounts with 43 million households in the quarter.
We added a live EPG a grid like experience in the quarter added 30, new linear services for a total of 100 and that's just an example of how we're expanding the content offering in order to broaden the reach the study users who find something interesting or if the channel and deepen engagement, but trc is not just an apple.
As an integral part of our platform in one of the key ways that content partners are starting to publish content into OTI Ti for many partners. It is a source of similar or greater audience and they can achieve in the Standalone D to C experience. It's not mutually exclusive was doing a D to C experienced but it does bring to bear personalization.
One data marketing a faster content onboarding monetization help that content partner doesn't necessarily get in if they're going it alone into D to C experience. So.
Trc has grown very significantly not just in terms of consumer engagement, but the set of content partners, who are looking to trc to substantially grow Darrow TT audience.
And that growth has been driven not just by advertising supported content, but also subscriptions conference as well we've had skews had very strong as five growth with broken premium channels recently as well.
Great. Thanks.
Thank you. Our next question or comment comes from a line of Jason Helfstein from Oppenheimer. Your line is.
Thanks Heath glad to see sticking around two questions. One can you talk a bit about more the factors that weighed on platform gross profit margin and you think about on a year over year basis, including data do you mean in the release you mentioned content distribution being.
Longer and monetize video AD impressions, but just any other color and if there was any other.
Benefit that you saw high margin kind of 70, she was a year ago that were weaker <unk>. This year and then just secondly, you did stay in the release.
That you intend to expand your partnership with Tcl beyond North America to include International markets. If there's any other color you can provide there if there's any economic change to that relationship that.
[noise], Steve can take the first part your question I can I will talk about Tcl.
Yeah, Hey, Jay something thanks for the shot I'd appreciate it in terms of platform margin yeah for the segment overall, we ended up at 56.6%, which was very similar to where we were last quarter, you're right. We didnt note at strong content distribution performance in the quarter.
And that tends to have higher margin profile in terms of the S father, and T. Vod ruptured that we have we also noted you know strong premium subscription performance, which if you'll remember is on a gross revenue treatment basis, and so that is good for revenue dollars and gross profit dollars and.
And happy about the progress there within the wrote the channel for premium subscriptions, but on the margin basis. That's at a relatively low margin. So that that was one of the other factors and then in terms of the AD business certainly there. There's some different factors in there you know there was a kind of a similar gross versus net.
ER phenomenon in terms of the mix similar to last quarter within the AD platform business, which is the data to this side of things and then the see kind of traditional road Q business I'm was similar to last quarter in terms of the margin.
And then on on Tcl.
On a few comments, we have a strong relationship for Tcl, they're a good partner, we just expanded our current relationship to move more countries. We recently announced that the project co project with them to create an 8-K roki TV. So that that's been a longstanding relationship and is a is continuing to be a very strong and good.
Listenership breast.
In terms, but in terms of broke through TV, we have we'd have ninea rookie TV partners. Tcl is it is probably the biggest but we also have some other large and growing.
Partners as well so for example.
Hi, sense and Walmarts House brand on both had strong growth in the quarter.
Taking a lot of market share. So we're seeing a lot of growth there and then I mentioned internationally, you know markets like Brazil, with AOCI, adding sharks in Mexico.
So you know, it's a broad array of partners to participate in the wrote the TV program. It brings them a lot of value in terms of.
Allowing them to grow their market share and deliver an excellent solution for customers at the lowest possible price point with the most amount of content. So.
Rather TV continues to be a great program right.
Okay. Thank you.
Thank you. My next question account permit comes from the line of Tim Nolan from quite Macquarie. Your line is open.
Hi, Thanks, very much I'd like to come back to data do I think one of the many reasons that you like and acquired this asset was its.
People and technology and a it always struck me as ironic that in your business a lot of Erad sales is done sort of kind of an old fashioned way if I can say that not necessarily to real time bidding, which I know is very very small and connected TV in general I just wonder if you could address maybe some of the progress Youve may have been making and how they can.
Back to TV AD process in general can become a more automated process using more real time bidding. Thanks.
Scott paper.
It's a great question Oh, we'll look I mean, the bottom line is we're here to sell how this buyers want to buy and most of the budgets coming into CPV are coming out of television and they're they're still bought in the old fashioned way or however, you positioned it. So it's important to be able to sell that way and then there's a tremendous amount of scale and efficiency that actually.
Comes from selling that way, but also many of the benefits of data and targeting measurement optimization or really only available to you. When you have machine help you do it ultimately you're going to work with a marketer to toss out the audience and optimized to site visit or product purchase you need machines in the next and that's that's a big part of.
What we're dealing with the one who asked that and our AD product Road map is is laying the to the rails. So to speak to give marketers that level of automation and optimization that we know that they need and want ultimately there's also a whole class of advertisers courses have grown up prime.
Nearly.
In highly automated machine driven AD buying it, especially marketers that invest in social media, we highlighted in the shareholder letter significant growth out of our performance segment performance advertising segment. This is b to C ran see our brands Francis spent a lot of money in social media because of the high ROI.
This segment was up 346% year over year.
And that itself for a flexible ultimately the power of being able to sell a in a programmatic machine here than when itself or the answers both need both to play in both fields, but our investing very heavily.
Let me.
He's more advanced ways of Uptrading optimize marketing.
Thanks, and I would assume this wouldn't be a positive for your at your your AD revenue growth in general as as the ecosystem evolve towards Q. What would they are also be cost efficiencies in doing this in a more automated way.
Pershore.
And also as I mentioned earlier, there's some task that just can't be done with here you know you're trying to use machine learning to find the audience is that really deliver a marketers ROI you really need.
Machines to help help you do that and so that's why our investments and know that ml and optimization in our AD stack are so important is so that we can deliver those those are.
Those are outcomes that marketers.
Great. Thanks, guys.
[music].
Thank you. Our next question or comment comes from a line of Michael Morris from Guggenheim. Your line is open.
Thank you good afternoon I have one question on on OEM partnerships and then one on performance advertising.
On the OEM partnerships, we get asked this question a lot I want to present to you do you have revenue share relationships with those OEM partners, where you are compensating them on a variable basis, you'll based on the revenue that you generate on the platform. Therefore, you have a rev share and you have a pay.
Out to them is that in your OEM relationships any of them all of them or not.
And then second on the performance advertising side Theres clearly a lot of enthusiasm for this format in general, especially on social media platforms were sort of makes more intuitive sense in a feed to stop on an AD, perhaps seems a bit more complicated on TV in terms of disrupting the experience I'm curious.
How you make that a great experience for the consumer how it adds value and yes, you know what steps you're taking the attraction there. Thanks.
Let me talk for a second about the rookie TV and then Scott can take the second part of your question about performance advertising. So just in general.
The Roka TV program has been very successful for us as I mentioned before it continues to be successful. It brings a wide range of value to TV a company in terms of the partnership you know for example.
With our purpose still operating system. The only purpose still operating system for screening one of the things that we've optimized around is the cost to build a TV input costs less they'll brokered TV Easton.
All of our all the other competitive options. They have available. So that's one way for example, we delivered a lot of value for them. We also have a lot of passing from our customers strong consumer demand low returns.
And we really help them both on engineering and on on factory support. So there's a lot of ways, we add value. We don't talk about our specific business model.
In the past we said the Rev shares is not part of our business model, but and we don't talk about our business model generally.
And it's been very successful you know third of the TV sold in the U.S., our Roki TV is now.
We're seeing broken TV is continuing to sell well I mean that we had an outstanding order in terms of active accounts and a lot of those of you know very strong part of those active accounts came from the Rocky TV program continues to be a big success for us.
And then Scott in your question Yeah, Mike on your question about performance advertising I think one of the things are getting at is of course television advertising is still a heavy brand immediate yeah, that's 15 or 32nd spot in the chance to really influence how a consumer thinks about your brain and that's one of.
That's one of the great and most powerful things about though TT about connected TV advertising is the opportunity to blends that brand impact together with data and targeting and measurement.
So.
I think it really the way. This plays out is that Oh. He is can be both a top funnel powerful branding eating that compete headlong with with traditional television because it's not that play sound emotions TV advertising, but also can compete.
With more performance did and media like social media, because it's Scott data and optimization to bear on the problem. So that's one of the reason we're seeing good strength. There does does it change up but you know how an advertiser approaches the created it's not a matter of like adding a few tech pieces.
Taxable one graphic you've got to produce a video, but even there we're leaning in as a company to help.
Brands quickly produced a video creative so they can participate so overall, it's an exciting new segment for us and as I mentioned earlier in the call. It's a it's a way to expand the set of clients that were able to work with.
That's helpful. Thank you bye.
Okay.
Okay.
[noise]. Thank you our next question or comment comes from the line of Mark.
Good good or whats from Rosenblatt Securities. Your line is open.
Thank you very much Oh, Scott, maybe just a follow up on that last point you made a.
I'm just curious if you think.
Maybe looking at this linear topic a little differently.
How would you what would you characterize as a tipping point and you meet and it was helpful. Just how you characterize in terms of.
Yeah, you offer both top of funnel and bottom funnel, but you know where's the tipping point, you're obviously, you know sports the sport lenient sports picture looks.
You know more more dire every day as we look forward and obviously those dollars.
I need to go somewhere so it's kind of curious how you see it flowing in maybe you could talk about where your dialogues are with some media buyers, where they may be sure perhaps be behind or past the learning curve in terms of getting just at the table talking about TTB versus you know those it's still a it's still kind of a pull to get there.
I'm, a you know to sit down with you at the table.
Thank you.
Great question, well, despite what Malcolm Gladwell would tell you tipping points are always easiest to observe in retrospect, but our view is that that a tipping point is here and that coded ultimately is pulled forward a bunch of cord cutting it was going to happen anyway, I mean linear television was already.
Experiencing double digit ratings declines year over year, we see that most TV networks. Their AD sales are down significantly. This spending was already significantly disproportionate to the audience is that have already left linear television and so you know our view is that <unk>.
The tipping points here, it's driven by cord cutting and that the pandemic has really forced marketers to come to grips with something that was was coming anyway, which is that there's been a significant departure of audience out of linear television and it's not coming back it broke who ran a streaming study last quarter and.
Sounds that of consumers, who cut the cord only one in five actually intend to go back to a traditional pay TV package and if they go back they're going to go to a a virtual and the PD service. So.
Our view is that the movements, but certainly with consumers and marketers are following and that the pandemic is really just to help accelerate that reckoning.
Okay, and thanks, guys, just maybe a bit unrelated follow up as it relates to the Campbell's a partnership.
With your Kroger Ah.
Is it or is there anything you can talk about yet in terms of metrics ROI metrics or how.
You know how early are we there and in sort of what does that that's fun. It looked like the other specific team that is.
Sort of Onboarding CPG no other partnerships there it'd be helpful. Thanks, Yeah. It is early in the partnership we've had a team for a long time, that's focused on CPG as well as our DSP and the Kroger partnership plays to the existing business, we do it and our technology capable capabilities, but we.
We need that part we need partners like Kroger, who got unique data assets to pull off some of these optimizations. We're very excited about the partnership it's a it's indicative of what's possible you've gotten at scale, a t. platform with first party consumer identity, and so and a great partner like Kroger. So it's still early but.
We we are excited about the partnership and I'm bullish about the long term.
Proceeds of it.
Okay. Thanks much appreciated.
Thank you. Our next question or comment comes from a lot of Michael <unk> may for some from Muffin No Hanson Your line is open.
Thank you.
I've two questions I guess, one for Skyworks Anthony Scott. So when we were doing research on this opportunity we talked a lot of Attritional TV buyers and I feel I forgot about Roque, who is consistent which is.
We'd like to have more transparency about where the inventory is running so can I ask your what what are the gating factors to maybe opening up the transparency letting people living with the buyer see where their inventories running and when can that possibly change and Anthony. The question. We got a lot of Android TV and Google moving into the space you did a deal with.
One of your partners. What do you think is the long term him talk to them getting into connected Tvs I got that changes the dynamics in this market globally next couple of years.
Sure Scott you want to start.
Yeah, Mike I'll take the first part of your question you know the.
Constrain on unfolding is totally where the AD ran a usually actually comes from our publishers, who are sensitive to channel conflict, Although I will say that there are.
Tons and tons of data and insights that we breakout and ultimately for a market or what they care about as performance and resolved.
Mm one thing I'll also highlight is that with one you it's a chance for a market or to leverage all the road to identity data assets that we have while still trading directly.
With a publisher and so.
Certainly it wasn't it is the driving or strategy for us behind one view it as you acquisition, but having that asset having that ability to trade with markers and give them the ability to leverage our data while trading with all the other folks that they trade with any media space then an M. P T.
Enables them to have that transparency, while still taking advantage of are these unique capability.
Okay.
In terms of competition.
I guess I'd say.
This is a a competitive industry, we've been competing very successfully with large companies for the entire life of the company.
I think a lot of people don't remember, but actually I mean, you mentioned Android TV, Google TV was actually the first.
Platform the ship as a license platform for TV is the ship well before Roku TV is the program came into being.
Yet now broken TV is by far the number one feeding platform in the United States.
And it's because you know we are just think we've well first of all the foundation is that we built a purposeful operating system for TV, whereas there using Android, which is designed primarily for phones and imported TV.
And that this offers lots of fundamental intrinsic advantages, including a better cost structure.
You know a better user experience great return on the result of that it's been a.
You know the Roque has become a very strong brand prescreening, we're the number one streaming platform in the country.
In the United States.
You know we also offer a full lineup of products, we have a variety of players different price points, a variety of TV partners, a variety of TV capabilities and even whole home products.
We have almost probably over a thousand engineers that are.
I believe the best engineers in the business of screening business focused every day on building the best being product so.
We'd be competing for a long time, we compete successfully we're growing market share. We're number one in the U.S. and we're making great progress.
Internationally as we enter new some new countries as well.
Thanks, I'm very confident in our ability to compete.
Thank you My next question or comment comes from a line of David <unk> from Berenberg capital. Your line is open.
Hey, Thanks, so much for the question I have got to actually so the first would be on a monetizable impressions delivered growth of over 50%, which is obviously an incredible pace, but.
I'm reserves quite a bit slower than prior quarters. So I'm wondering is that more a function of AD supply or overall demand that is we're monetizable add viewing hours, but they also do you celebrate meaningful and why would that be the cake and second question you talked about thinking about the big picture average.
Using opportunity you often talk about switch or the shift in AD dollars from linear to a linear TV digital TV, but with things like performance marketing and enhance data capabilities should we also be thinking about a bigger pie. But also includes many forms of digital advertising today.
It's got will take that.
Hey, David.
It's cabs, you know that the growth of 50%, which we're very pleased with considering what's happening in the broader market is absolutely a function at demand we did see Avon consumption, along with S. Faade <unk> consumption really surge in the quarter during shelter at home policies.
So so this is a function of demand as I've mentioned earlier, we we remain bullish on.
The markets continued recovery in our ability to continue.
Capturing an increased chair of the market as marketers redeploy there their TV budgets.
You know in terms of your second question, Yes, I do we do focused heavily on TV AD budgets because that is a very large a pocket as a marketer and CMO investment that is going to get redeployed in the coming years and it's a it's a it's a.
Got it budgets that we think we're uniquely situated to compete for but it is also reality as you alluded to that the capabilities of.
Our AD platform are also attracted to a broader class of advertisers who are interested in optimizing to the bottom funnel affects things that they really actually can't do in linear television, it's just not possible as a.
D to C. Harry Shave club type brand, if you're if your soul Katie I am I, making this up I can't speak to them and their strategy, specifically, but if you're still PPI is is a hell of a sport of a product is very hard to get linear television to do that for you, whereas Oh Gee is Ah that's all the the capabilities of Uh Huh.
You know I'm highly measurable high ROI digital platform like you might see in social media.
And a key take away from me during the quarter was just how strong of a growth we had in our AD business in TV Mark AD market is now down quite a bit.
Great. Thank you.
Thank you again, ladies and gentlemen, if you ever question or comment at this time. Please press Star then one on your telephone keypad.
Our next question or comment comes from the line of Alan Gould from Loop capital. Your line is open.
Thanks for taking the question I've got the too.
First for Scott I think that's the first time I see you mentioned social media in your shareholder letter, how big is social media I assume it's tiny what's the opportunity there and now that we're into August how much of you benefit from the state from the Facebook boycott and then secondly for Anthony when you look at the traditional media companies they.
Seem to be finally coming around your sure Viacom will be talking about Pluto Tomorrow, and Fox is talking about to be and NBC. You has hit the Comcast as its peacock in its flex devices, how was the competitive environment changing now the traditional media guys are at least getting somewhere into streaming.
Hi, Alan I'll take your first party or your question.
But in referencing social media really you know I mean in 10 here is just highlight that many of the same capabilities in criteria that performance marketers look for it and get in social media are available in a T. I was trying to put too fine a point specifically on.
Social media and we're certainly not I wouldn't characterize brokers or social media platform, but the capabilities that we're building are very attractive to performance advertisers, which is why we've seen such strong growth out of that category is the class advertisers she's been kt is visiting a site and by buying a product and that's a core capability.
Oh Gee I, you know I don't you can't comment on the face that boycott a in terms of like whether it's had a real effect on them.
But certainly we've seen lots of interest from advertisers, who today spend the majority of their budgets in social media.
In terms of competition or you know I talked about device competition on how we're competing extremely effectively there.
In terms of media companies I mean, those those companies are not our competitors there our partners you know, we're a content distribution platform.
We offer a variety of ways to distribute content over the top in the screening dreamworld.
One ways. They can publish apps on our platform and ER and most of them do and we're in most cases were probably their largest platform for screaming hours.
We have a lot of tools are built into our platform that we built from the beginning to allow.
And to make it possible for content publishers to attract and build audiences.
You know, we have lots of tools around tune in promotions for content companies.
Content publishers.
What's it.
Well you know we are we view or one of their roles in the World is we are the glue that connect ecosystem together no. We aggregate very large faces of customers, we connect them with companies that want to screen customers to those screen content to those customers and they can do it a variety of ways. They can do absolutely talks about that but they can also published content directly in the future.
Channel.
Where we handle all the heavy lifting of.
Getting customers interested in doing the content is subscription content handling all the payment systems you know.
For example, rookie pay our billing system, we more than double in the quarter, we more than doubled.
The amount we build year over year, there's a lot of customers take advantage of markets, who you've integrated into our platform.
So customers can publish that they can distribute content through the rocky channels and their option you know on how they want to approaches we have a lot of partners to do both you know they they have an app and they distribute content because it really channel and and they can vary you very effective doing that.
So they're not they're definitely not competitors there are there our most important.
One of our most important instead of partners or content company.
Thank you. Our next question or comment comes from the line have been swim Swinburn from Morgan Stanley. Your line is open.
Thanks, Good afternoon, I've two questions Scott I think the work just sticking with the broker channel I think its but maybe 18 months old something like that.
Can you give us a sense for sort of where that product is relative to your expectations, where it goes from here in any kind of engagement statistics, you can share I know the reach numbers you provide but I'm just wondering if you could share a bit more about the evolution of that offering and what it does for the business over the next several years.
And then I don't know if this is for Steve, but you know through earnings we've sort of heard from most companies in the advertising space that the second quarter was sort of the trough.
The call, 50% growth trough I think you know what I'm, referring to I'm. Just wondering if you think the third quarter, we'll see an acceleration in your AD business versus the Q2 growth or if you're willing to comment at all about you know what you're seeing near term.
Thanks, guys.
Scott will take that.
Hey, Ben you on your first question about throat channeling were actually coming up on two years the launched in there.
In September 18, actually so yeah. The growth continues to be really exceptional and to beat our expectations. It's a function of the broadening ever array of content that we put into it our investment user experience with the launch of Oh or E.
Gee with live linear channels, and it's what's allowed us double each year over year and reach active accounts with about 43 million people in them. So you know we are both broadening our reach which is important as an add offering that we help advertisers get in front of a larger and larger share user base, but as.
We had more Barry content more deepening our engagement with survey.
And then of course, we're taking Trc internationally, Canada, UK and its into its a pretty essential part of our platform and our approach to both engaging consumers as well as well as providing content provider for the new passed the publishing MTT.
Do you want to take.
Second question.
And then actually let me just add a couple of points on the broker channel before Steve I'll take the second question I think it's important.
To recognize that the rookie channels that is.
An important part of our strategy, we think that I'm, having the capability for a content owner or content publisher to decide whether they want to write in Athens heavy lifting this associated with that or have a.
Full service Onestop publishing solution for their content, having both of those options is very important and.
You know were expert for both we've been building a lot of capabilities into the Roki channel everything from machine learning recommendations to billing systems to different business models, where the description or any vod.
And we'll consider and we've also integrating it into key points into the platform that will continue to do that and you know my my belief is that the broker channel will continue to become to be an important part of our distribution Nixon probably a larger part of the mix over time.
It's it's it's very difficult for content for any company to replicate especially a content company. This is kind of.
Engineering goes into liver cancer.
If you want to talk about a second yeah.
Yeah, Hey, Ben just on your second question.
I think a you know first I mean, we're really pleased with the strong second quarter and I think we're cautiously optimistic we mentioned yeah. Some some continued strength in on the account side in the player in TV sales side and that the engagement levels ours are still above pre covis.
I think for as you know and certainly the relative you know continued growth of the of the business, albeit lower than what we would have expected trico bid has been significantly better than than the overall market I think the trick for us and the reason, we we haven't provided formal guidance.
You know for the for Q3 in Q4 is just while we have a lot of positive trends and we think we're well well relatively well positioned and resilient in the face of a lot of these headwinds as it did you have these these.
Or other factors in terms of the holiday season, how advertisers relate to continue economic uncertainty if if the world goes into locked down. So I think you know the short term you know we feel pretty good about where we sit I think that's the part that we have less visibility and less control into are.
Actual broader shocks out there and that and that's really what we're monitoring.
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Thanks [noise].
Sure.
Thank you we have time for one final question Mark front of course, my comment comes from a lot of Richard Greenfield from like <unk> Partners. Your line is open.
Thanks for taking the question a couple of topics first Disney's clearly signaling that they agree with you in terms of the global shifts to IP based TV with what they're doing with the launch of star and the continued rollout of Disney plus.
You sort of talked about to the faster growth of your overseas business, but is there anyway. You can frame like are we at the point now were 10% of your active accounts or international.
You know is the what's the ARPU look like of international versus domestic and he's engagement, meaning streaming hours per user how does that compare overseas to the U.S. given obviously fewer services overseas just any way of framing. It in then I've a follow up on P. Vijay.
Sure. So are you know in terms of international obviously, that's the big investment area for US. It's just an important part of our business. We haven't broken out the numbers you know I would say that the different countries are in a different phases. I mean, if you think about kind of the the phases of our business model. The first phase is really just focused on building active.
Accounts and there's countries where that that's our focus will just focused on building active account.
Then there is you know then there's the phase where we ship from building active accounts engagement the monetization and those countries, where we're starting to do that like we've launched the broker channel in Canada UK for example, which is primarily about monetization. So.
Overall, no I think the way I think about is that there's a lot more people outside the United States inside the United States that though it's a bigger market overall.
But the U.S. has a very high d. and so the ARPU is probably going to be lower.
Internationally, but but in any case, it's still a huge huge market and we're making making good progress.
Okay and then the second question is.
When I think about P. Vod, obviously, the the what happened with.
Milan is front and center and a lot of people are thinking about what it means and I think in your press release, you even talked about trolls in school in the quarter.
Being meaningful for you on the movies Brian.
With Milan, showing up inside the Disney plus that I'm. Just wondering you if the consumer comes into a row crude device, where they bought or signed up for Disney plus inside of Roque, who do you get any benefit from that meaning is there any ability for you too.
Degenerate participate in the economics of that type of P. Vod transaction or is that purely Disney if they signed up on a robotic device.
You know will first you know we don't get into the specifics of anything of any deal, but we said and that's still true the generally for T. bought transactions anywhere on our platform Oh, we get a Rev share every other pieces the transaction.
That's true.
Oh, sorry go ahead, sorry distant yeah, I was just gonna say I mean, I think it's a huge win for consumers for Roque, who for Disney to see the sort of loosening up here of the theatrical window. So yeah. Obviously its of necessity people are going to theaters right now.
But I think it's also just a broader signal that big players like Disney are going to exercise these windows more more aggressively and the consumers the winter here.
As is Roque you as it is optionality is awesome for the consumer and I think it's a sign of even more interesting things to come.
Do you think you've got an opportunity to sell that as well, meaning like do you think it's only gonna be inside of Disney plus or do you think rohkohl get a chance to sell directly some of those titles as well.
Well without well not again not talking they supposed to be deal, but that is one of the one of the primary things. We do his help our content partners merchandise content across our flat. That's one of our that's of Super important part of our business model and I couldn't agree more with Scott that.
It's incredible the thing that I keep on title would be released direct to video direct the screening. It just shows how far the industry's come when we started when we started you know the only partner we had with Netflix and.
Big media companies did even believed that the world's which the screening it was kind of weird.
And that's you know that's changed the world is all in on streaming though.
Thank you very much that's helpful.
Thank you I'd now like to turn the call back over to Mr. Anthony work for any closing remarks.
Thank you operator, we had a strong quarter with exceptional active account growth that increase platform scale.
Despite the many challenges caused by the Cobot 19 pandemic rookie was executing well attracting outstanding talent and becoming stronger in fundamental ways.
I believe that the streaming decade has begun with a period of fundamental reassessment major content owners are going all in on screening advertisers are shifting budgets to T.
TV Oems or licensing operating systems like ours on a global scale.
And platform is focused on meeting consumer needs are thriving.
Thank you again for your support unhappy screening.
Ladies and gentlemen, thank you for participating in todays conference. This concludes the program you may now disconnect everyone have a wonderful day space right.
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