Q1 2021 Roku Inc Earnings Call
[music].
Welcome to the Q1 2021 Roku earnings Conference call. My name is John all of your operator for today's call.
At this time all participants Arnold can only mode. Later, we will conduct a question and answer.
During the question and answer a second if you do have a question prefer the one on your Touchtone phone.
No one I'll turn the call over to Conrad garage.
Thank you operator.
Good afternoon, and welcome to Roku as financial results Conference call for the first quarter ended March 31st 2021.
I'm doing it on the call today by Anthony Wood Roku standard C. E O. Steve Louden are CFO and Scott Rosenberg Senior Vice President Joe manager of a platform business, who will be available for Q&A.
Full details of our results in additional management commentary are available in our share whole letter, which can be found on the investor Relations section of our website at <unk> Dot Roku Dot com.
The following discussion including responses to your question reflects management views as of today May six 2021, only and we do not undertake any obligation to update or devices information.
So those statements made on today's call are forward looking and are based on current expectations forecast on assumptions and involve risks and uncertainties.
These statements include but are not limited to statements regarding the expected performance of our business future performance results the future of T. D. C D streaming in television advertising globally, the impact of the COVID-19 pandemic on our industry business and financial results and the future growth of our business and our industry.
Our actual results may differ materially from those discussed on this call for a variety of reasons. Please.
Please refer to today's shareholder letter and Roku is periodic filings with the SEC for information about factors, which could cause our actual results to differ materially from these forward looking statements.
You'll find reconciliation of non-GAAP measures to the most comparable measure disgusted day in our circle letter, which is posted on our website at I R. Dot Roku dot com and I encourage you to periodically visit our website for important content.
Finally, unless otherwise stated all comparisons on this call will be against Ah results for the comparable period of 2020.
Now I'd like to end the call over to Anthony.
Thank you conradt and thanks to everyone for joining today's call I'm pleased to report that Roku delivered unexceptional first quarter, driven by strength and platform monetization.
This quarter, we saw that.
Advertisers are increasingly moving money to screaming.
The rookie channels virtuous cycle is attracting viewers advertisers constant partners and the creative community.
And screening services are taking advantage of the tools Roku offers to help build audience and make their screaming business successful.
We believe the inevitability of screaming is clear and they broke his business model allows us to optimize screaming for all stakeholders, including viewers advertisers and content partners.
With that let me have the call over to Steve.
Thanks, Anthony and Q1, we exceeded our outlook for revenue gross profit and adjusted EBITDA and continue to make significant operational and financial progress.
For taking your questions I'll walk through highlights and discuss our approach to outlook using the current level of macro uncertainty.
We added 2.4 million incremental active accounts in Q1 ended the quarter with 53 6 million.
Sales of player units were up 14 per cent year over year, while average selling price decrease two per cent year over year.
Roku user stream 18.3 billion hours in the quarter, an increase of 49% year over year five.
Platform monetization continue to increase with our <unk> $32.14 on a trailing 12 months spaces up 32 per cent year over here.
Total Q1 revenue increased day records, 79% year over year, two $574.2 million.
Platform segment revenue was up 101 per cent year over year, two $466 $5 million, representing 81% of total revenue while player revenue growth of 22 per cent year over year was in line with our expectations.
Our chief financial metric gross profit.
132% year over year in Q1, two $326 8 million, resulting in a record gross margin of 57 per cent.
Player gross margin of 14 per cent was higher than expected due to fewer promotions, owing and parts of tight inventory related to supply chain disruption.
As a reminder, Q1 is traditionally a lighter promotional period and the retail calendar, resulting in higher than average player gross margins.
Form gross margin of 67% was also more than expected due to a favorable mix of higher margin activities. As a result of new direct to consumer launches with investments in the audience development and positive six O six accounting impacts from increases and the estimated lifetime deal values of our content distribution agreement.
Q1, adjusted EBITDA of $125 9 million exceeded our outlook due to the outperformance and platform months a nation.
You want Opex was $251 million up 28% year over year as.
As a reminder, Q1 was the last quarter before we begin lapping our actions in 2020 to slow the rate of Opex in capex growth to manage COVID-19 related uncertainty.
Thus, we anticipate more difficult expense growth comparisons going forward.
Roku significantly increased its cash and liquidity position in Q1, raising approximately $1 billion, an incremental equity capital via in at the market offering.
We ended Q1 with approximately 2.1 billion of cash cash equivalents restricted cash and short term investments.
With that let's turn to our outlook.
We believe we have sufficient visibility into Q2, two offer a formal outlook, but as we move further out into the future a number of uncertainties make providing a formal outlet for the full year 2021 difficult.
R Q2 outlook calls for robust growth with total net revenue $615 million at the midpoint up 73% year over year in total gross profit of 300 million at the midpoint on.
104% year over year, implying an overall gross margin of approximately 49%.
Strong gross profit growth is expected to outpace opex growth, resulting in queue to adjusted EBITDA of $65 million at the midpoint.
Q2, Opex is expected to be roughly 15% higher than in Q1 in part due to organic headcount growth and the inclusion of opex related to recent acquisitions.
For modeling purposes. Please note the queue to adjusted EBITDA exclude stock-based compensation of roughly $39 million and an estimated 12 million of depreciation and amortization and net other income.
As we observed in our shareholder letter, we will face a mix of headwinds and tailwind for the rest of 2021 and into 20 twenty-two as we laughed periods that were significantly impacted by COVID-19.
<unk> also year over year comparisons will likely be exacerbated by decreased player inventory availability and anticipated cost increases associated with the global supply chain and logistics issues.
We anticipate revenue growth rates on the second half of 2021 will be robust, but at a slower rate than the first day.
For the full year, we expect overall gross margin be in the high 40 per cent range. We anticipate that platform gross margin will be similar to 2020 levels as we expect the outperformance of content distribution to normalize in queue too and in the back half of the year.
Looking ahead at the player business as a reminder, we do not optimized per player gross profit, but rather account growth.
Such given this why can't issue sleep day, we anticipate slightly negative player margins for Q too and the likelihood of increasing negative player margin in the second half of 2021, given anticipated component cost increases.
I'll summarize by saying how pleased we are with the performance of the business and the strong momentum we're seeing across the broader screaming landscape that benefits roku.
With that let's turn on the call over for questions operator.
Thank you and I'll begin the question and answer session. If you do have a question press Star then one on on your Touchtone phone.
If you wish to be you're moving on acute please first of all content or the hacking.
If you're using a speakerphone you may need to pick up the handset first before pressing the numbers.
Once again, if you have a question press star than one on your Touchtone phone.
And our first question from Ralph check on from William Blair.
Good afternoon, and thanks for taking the question. The question on that platform revenue Uhm. It accelerated again and the letter talked about capturing larger share of <unk> T V budgets, but also talked about performance advertising social budget. Instead of you had mentioned some positive six O six impacts to just curious.
What was driving that outperformance if you could sorta give us a sense of that then second maybe more importantly, you know given that we're starting to see some sense of a reopening now just curious on the TV budget set of shifted over since the pandemic give us a sense of you know sort of the scale of that the durability of that and sort of the impacts of business with them and the driver.
Future platform growth going forward. Thank you.
Hey, Ralph this is Anthony Uhm.
I'll just make a few introductory remarks, and then I think Scott can.
Take this.
You know overall the ship the screaming was in full gear, it's mainstream but there's still a long way to go a lot of growth ahead of us.
If we look at advertising for example, what you asked about you know we've said historically that the biggest impediment or governor of our AD business growth has been television buyers buying patterns that they traditionally tend to prefer traditional linear T. V vs. You know new things like screaming.
And there's a gap there as viewers move over to screaming vs. The AD dollars. What we saw I think in the pandemic was that that GAAP started to close but there's still a big gap and a lot of room to go but advertising momentum in general is very strong.
I Dunno, Scott she would like to add to that yeah yeah.
Yeah, I'll add on to that Anthony Thanks Route for that question.
With non top 200 advertisers significantly faster I think that's an indication of the broad appeal of our platform to all advertisers both traditional.
Top of funnel branding oriented advertisers as well as mid and long tail advertisers, who are focused on performance and on offer up. An example, with home chef are very performance based advertisers, who invested with us and so on two four X two to four times return on AD spend and then came back.
<unk> significantly invested more with us and we have case studies like that left and right. It's really a unique attribute of streaming that can both compete at top of funnel brand as a top of funnel branding medium as well as a mid and bottom funnel performance media and so on.
Overall, a really strong quarter for the advertising business and an indication I think that the the.
The reallocation of TV budgets, as well as digital and social budgets towards streaming is here to stay so thanks, Rob for the question.
Great. Thanks, Scott Thanks, Anthony I appreciate it.
Our next question is from Jason <unk> from Oppenheimer.
Hi, guys. This is shown on the call for Jason can you provide some commentary on how one view has changed the overall AD sales effort with the company and then also can you comment on volume versus pricing trends has demand started to offset the very large increase in supply to the point, where cpm's are growing.
Thank you.
Scott do you want to take that.
Yeah. Thanks.
Thanks, Jason for the question. So one day is already playing a very prominent role in our advertising relationships. For example, we kicked off the iab new fronts on Monday.
And one view is featured very prominently marketers are going to continue to accelerate their plans to automate their media spending and optimize that spending towards performance and DSP platform and AD platform like one new is ultimately a better tool set for them to do that then.
On the traditional way of writing insertion orders the traditional way in which TV is traded now the importance of one view is it's not just a better way to take advantage of Roku is unique identity and data to optimize your AD spend for reach and frequency across a lot of different supply sources.
Is it also weighed on.
Optimize the outcomes.
And drive better results for our for our advertisers. It's also a way for us to add value.
In the transaction between an advertiser and publishers on our platform. So it's a way for us to work with advertisers not just when they're buying media from us, but when they are buying media from third parties, where that transaction would benefit from our data. It's not it's a significant new dimension in the way that we work on.
Advertisers and I'd just call out a brand like Lexis, who is using one who and our ACR data to optimize how they spend in screening in order to manage reach and frequency holistically across their whole traditional TV spend and OTT spend and that's it.
Exactly the kind of use case that we.
We brought one day into the equation for the second part of your question was about volume and CPM.
You know our product remains a premium product if anything we've added better data better targeting better measurement on newer AD products over time, and I think that that bodes well for continued for continuing to be able to command.
Premium CPM, but I will also call out to the earlier question from Ralph that streaming is increasingly also our performance media and the reason I call that out is because advertisers will increasingly be looking not just at the topline.
P M that day by immediate at but the effective cost per whatever cost per site visit cost per product purchase and what that means long term is that unlike traditional TV streaming cpm's arent, just going to be sort of a one price rules on them all type scenario, but.
But rather a whole spectrum of prices, where the the pricing into the auction is ultimately dictated by the tactic that the advertiser is executing on and the outcome that they're trying to drive Jason.
Jason I hope that answers your question.
Because it was a good one.
Very helpful.
Let me just add it was an interesting anecdote. This is Anthony I got an E mail a couple of days ago from one of our smaller.
Smaller content partners are.
And basically saying that they spend close to zero on advertising with us, but they were going to increase that up to $5 million because they can now buy on a CPA basis or cost per acquisition.
So it does it does open up the market to a lot of a lot of companies that otherwise wouldn't be spending with us.
Our next question is from Justin Patterson from Keybanc.
Great. Thank you very much on Roku channel you've made some nice progress on building its reach and adding originals cause more unique content comes to the Roku channel I'm curious how this is changing your conversations around attracting more advertisers licensing from content creators and on working with the Bdc's Dream.
<unk> companies. Thank you.
Yeah.
This is Anthony so Trc, yes, it's been doing really good for us.
It's you know it's it's on fire basically it's a it's there's this virtuous cycle, where more consumers coming into CRC more viewers is increasing our AD revenue, which is allowing us to spend more on content.
Now, which is driving that flywheel.
Some examples both both reach and engagement streaming hours.
Drew on grew more than twice as fast as the platform overall, which is growing fast it last quarter. So it's doing well.
And you know what I'd say about about our content strategy. You know we license today from almost 175 different companies that we license content from today.
And.
We're gonna continues to do that but as you know as our content budget growth and we're growing it commensurate with the revenue. So you know we're focused on maintaining a scalable business model.
It's growing content investment is growing commensurate with the revenue, but as those budgets grow as well as those licensing deals where we're doing more creative deals licensing original for example, or two.
Buying Quebec, which brought some original buying this old house.
And.
And I think that better quality content is just bringing in more viewers and so it's just part of a diversified content strategy.
We will continue.
Scott Scott can comment on the advertiser relationship, but advertisers are interested.
And higher quality content as well.
Scott do you want us down on that yes, yeah. It sounds good I'll hit that but also before I go there I will just also say that adjusted he asked about how this is changing potentially the conversation with our with our content owners.
I would say is.
Most of our channel partners, you've got an app on our platform are also working with us in the Roku channel. So it's not an either or proposition Ah.
<unk> zone are can be executing on a big.
Direct to consumer strategy, even while they have parts of their catalog that they want to monetize elsewhere that maybe doesn't fit into the strategy of the DTC effort.
No.
Or for example, they look at the Roku channel as a.
Place to help market their services and drive awareness.
Free cash.
Fear by which the surface their content. So in general the Roku channel has broadened and deepened our relationship with our channel partners our content partners.
And with regards to advertising the one of the core reasons, we launched the Roku channel.
Nearly four years ago was the opportunity to wholly own and innovate in the easier experience, but also the kinds of AD products that we could deliver to our clients in a way that's not possible. When we're serving ads into a third party channel and the way that manifests is for example.
Sponsorships or integrations on now with the launch of our brand studio the ability to surface advertiser experiences advertiser underwritten experiences that we might not otherwise be able to create so it is a it is in addition to a way to serve our consumers and our cause.
<unk> partners is an important strategy for us in the service of our advertisers as well and it performs well as well.
Drive significant.
Factor like Taco Bell for example found that the Roku channel is five times more efficient.
At reaching adults 18, plus because of our ability to target and control frequency relative to a traditional linear TV investment.
Thanks, Justin for the question.
Our next question from Pam <unk>. Please go ahead.
Thanks, guys.
Congrats on a great quarter I had a couple of questions.
First on the Nielsen deal.
Can you talk a little bit about how this enhances your value proposition and feedback you've done so far.
On advertisers agencies and then the second question you guys alluded to this a little bit in your in your shareholder letter.
But with the upcoming privacy changes with Iowa's 14, and then upcoming Cookie deprecation, how do you think about that in terms of shifting dollars around do you think that C. G. D is gonna be a beneficiary do you think it could be a positive catalyst for roku to get.
Maybe more on a more of a budget shift than you might otherwise have done. Thank you.
Hey, let me I'll, just talk a little bit about the privacy privacy.
Changes and then Scott can add on to that and also when you talk about Nielsen So in terms of.
Some of the privacy.
Regulation as well as changes to applications and operating systems that we're seeing and what those changes are generally doing is.
Is making it more tenable to have a targeted ad business or <unk> or a data driven AD business. When you have a first party relationship with your customers like Roku does.
That relationship allows us to offer a lot of value to the viewers and allows you to get any kind of concern or often this needed.
With fairly high take rates when you don't have that direct.
A first party relationship it becomes very difficult actually to do targeted ads in the environment that we're seeing to shape up. So we think we're in a in a good position in that regard.
And then Scott I don't know if you want to add or talk about the Nielsen relationship.
Yeah, I think on the privacy points you hit it where we're uniquely positioned as a platform to leverage our identity and data to help advertisers reach our users and it is a more challenging environment for independent ad.
For example, with the deprecation or more difficult to access I should say to Ideate day on iOS in the pending changes around cookies. So because we have that relationship whether you're buying media from us directly or through one view.
We're able to deliver more scale and more precision than you'd be able to get if you were buying through a third party. So it is a core advantage interest shy on I'll go back to your your first question with regards to the Nielsen deal. The two reasons, we did that deal just closed.
In the last months first was to acquire the ACR or video fingerprinting technology that we've actually had embedded in our televisions for the last five years, we've had a longstanding relationship around around this tech with Nielsen. So now we see on the attack and the intellectual property around it as well.
Digital ad insertion or the ability to do.
Linear AD replacement on the fly.
That won't have a significant impact on 2021 revenues, but is it significant new development for us as a company on Roku Tvs. For example, while streaming is is growing significantly. There's still also a substantial amount of traditional linear TV consumption happening through the HDMI input or.
Over the air and so the ability to dynamically on the fly use our data.
In partnership with the program are to swapping add that's more relevant to the user to optimize it using all the data and technology, we use on the streaming side of our business.
Opens up a whole new classes inventory and additional reach that we can deliver to our clients in partnership with programmers. So it's a significant new adjacency for us in the AD business. The second reason we did the deal is we expanded our measurement partnership with Nielsen to.
To enable cross screen measurement.
This partnership will enable an advertiser to do holistic reach and frequency measurement across four screens traditional linear TV streaming desktop and mobile and to manage our reach frequency and audience measurement across those four screens and to do attribution across those screens so to run needs.
And be able to again holistically across those screens per.
<unk> and the effectiveness of that media at say driving a site visit or a product purchase.
It was a significant deal for us and a great opportunity is still early days, but we're excited about it I hope that answers your question Sean Thank you.
Okay.
This is Anthony let me just add one small thing, which is that day I know digital AD insertion is something that's really relevant to televisions that has to go on inside of T. D.
And our position as the number one TV software platform in the United States makes that makes it a especially valuable to us and there's really no. One else is well positioned we are to take advantage of it.
Can I ask a question on from Matthew Thornton from <unk> Securities.
Hey, Yeah. Thanks, very good question and good afternoon, Anthony Steve and Scott.
Two quick ones for me just following up with the last question on our Nielsen Oh, I'm wondering if there's an opportunity to license that technology out to other platforms as well, especially expand the scope of that on that opportunity and also whether you've kind of gotten any initial feedback from from some of it from the networks and broadcasters.
And then just secondly, I'm wondering if you guys are thinking about workers on opportunity around almost sponsored TV guide. If you will on the landing page on something that could be almost like a sponsored listing type type model or feature that's always on on the landing page I'm just curious if theres any on any thoughts around that that opportunity. Thanks guys.
Yeah.
Let's see so.
In terms of licensing the attack Ah I mean, well I'll, let I'll, let Scott.
Talk about that on the second but but in general I mean in terms of obviously, we license our software the Roku TV operating system, we licensed the TV manufacturers and it includes it.
It includes this technology and the IP that we've built over over many years in business as well as what we purchased.
And Scott can talk more about that in terms of the program guide on the home screen. I mean, we do have we are live TV guide, it's something that we offer on streaming players and on on Smart Tvs.
That we'd been enhancing.
We've been adding features we just released though is 10.
Which added several new features to our live guide.
Our <unk> and will continues to be enhancing that including.
Adding sponsorships and that sort of thing.
But Scott you want to about licensing.
Yeah, Matt we remain open to licensing the attack to to third parties, but I will say, we're just we're generally focused on making the promise of <unk>.
The AI digital AD insertion and reality is that it.
It's a model.
It's been discussed for a long time in the business, but as Anthony said, we think we are uniquely positioned that we have the ingredients the scale.
The data the tech the number of Tvs in the field the depth of partnerships with programmers to deliver on the promise. So we're we're just.
Very focused on delivering against that promise.
And.
As I said earlier, we don't think it'll have a substantial effect in 2021, but it is a bigger long term opportunity that we're excited about the feedback from the programmers has been very positive they're all key while while linear TV consumption is progressively on the decline there is still a lot of it.
And they are keen to bring to that inventory.
Inventory at the same kinds of targeting and measurement and optimization that they now have in their streaming services and so it's an exciting prospect for them too.
Enrich that inventory demand at our CPM and ultimately deliver to their advertisers a better ad product.
Yeah.
Our next question is from David Duckworth from Durham per capital.
Yeah.
Hey, Thanks, a lot.
Two questions. The first is around media and.
Entertainment Ad growth, which.
I think you have really brought up for the first time in a meaningful way this quarter.
Curious if you can help enlighten us as to how that rate of growth this quarter as compared to prior because I would imagine that the dynamic here of direct to consumer apps and content competition will only grow going forward.
And then second question.
I'm curious how material one views third party business that is revenue per ads that are maybe placed outside of the roku platform on third party publishers.
Using our DSP on the Roku platform is that it is that becoming a material part of the business.
Or more material maybe than it was when you purchased it.
Yes.
So on on on direct to consumer apps, yes. That's obviously, that's that's a huge huge thing that's happening I mean during the pandemic. We saw all of the media companies that hadn't already launched the direct to consumer App launched those apps.
And I would say aggressively taking advantage of the tools that we've built into our platform to allow them to attracts consumers recruit viewers.
Were increasing.
The increase engagement reduce churn that sort of thing and and so we've seen you know these large media companies really make big changes reorient reorienting their business models around screaming.
You know even to the extent of taking you know.
Some some theatrical releases and releasing them directly the screening I mean that is this just kind of amazing that that transition is happening in the industry for industry for those of us that have been doing this for a while.
You know I remember when it was difficult just convince HBO go.
H B O S for HBO go which was that one of the original services. The kind of if you had a cable subscription you can also watch HBO on your on.
On your streaming device like just to add that service was a huge amount of effort and now we're seeing you know theatrical releases go straight to streaming so it's a huge transition in the industry for.
The business models of all the media companies and that's obviously, great for Roku and that's great for a stream viewers as well.
But it's still early days you know I think I think youre right that theres going to be increasing competition for for for the fixed number of viewers and.
And the debt and we offer some great tools to do that and that although streaming is mainstream is still still has a long way to go until all TV screens. So.
So we expect that business to continue to grow.
And then Scott I don't know if you want to talk about one view on kind of the mix of that business, how that's progressing.
Yeah.
A day, one thing I'll add to Anthonys comments on the M&A side of the business as.
We've seen such good growth in that segment of the advertising business not just because of this surge in consumer interest in streaming through.
Through the pandemic, but also because of the launch of these services and because we keep getting better at the promotional products to drive the adoption of these services. So you know not just the format like our full screen Disney Soul theming of.
Her background and other new AD products, but also the plumbing behind it so that we can deliver guaranteed outcomes.
For those services I mean, that's the key.
Tractor for them is that they can buy on a cost per trial start cost per incremental subscriber basis.
So the outcomes and they are a way for them to our guaranteed and strong and what better place to promote their services than on the screen, where the consumer is actually going to end up watching the service that those those are the factors that account for the significant growth there and we're excited about the continued growth in terms of your question about <unk>.
<unk>.
<unk> overall, the growth has accelerated significantly well more than doubled and that's across all media non.
Not just media on Roku, but third party media I will say that the use of <unk> to buy media on Roku, whether that media. We're selling for example, a video AD that runs in the Roku channel.
Or an AD bought from a publisher on Roku is through one that segment is growing even faster because of course, we have data and identity and optimization capabilities.
Hugh.
To help them do that better than where they to buy through a third party DSP, but we also have really strong cross screen use cases that we can service for example, using ACR data.
To retarget, a user on desktop and mobile based on what content on advertising they're interested in.
Or Conversely, using <unk>.
Site visitation information to inform.
But ads are run on the large screen those cross screen use cases or some of our most robust cross screen or omni channel use cases and are part of what is driving the growth.
The growth in spending through one view on media off of the Roku platform. Thanks, Dave I hope that answers your question.
Very much.
I will just kind of on quickly I think that's on another sort of underappreciated fact is that a big driver of our business in general as well, obviously, the M&A our media and entertainment portion is our commitment to machine learning on AI, we've been investing heavily in building out that capability.
We have a strong internal commitment to world class best in class machine learning algorithms that it helps us.
Correctly target and as well and allocate.
Our limited display inventory most effectively.
Yeah.
Our next question is from Michael Morris from Guggenheim.
Thanks, guys. Good afternoon I have two questions. My first one is on on the platform gross margin expansion you've seen there pretty consistently we look back historically and you look at 2019, you did see that gross margin contract and I think the explanation was the shift of more of the growth coming from the Roku channel.
<unk> now I'm looking at five consecutive quarters of expansion and so I'm curious if you can share what's driving that expansion whether it's on.
On that.
Profitability of better margins at the Roku channel and if so why or whether it's kind of mixed shift maybe to more audience development or other third party.
And my second is just a follow up on privacy privacy question I'm trying to understand a little bit in layman's terms, you say that roku possesses deep direct relationship with consumers. It doesn't rely on third party identifiers or cookies I.
I guess my question is I understand I'm watching you know.
Music consumer watching something on Roku.
And then your advertising back to me so that's all on platform.
I guess my question is how are you getting the information too.
Make your targeting so robust if it's not coming from third party sources, maybe help me with that and how that progresses from here. Thanks.
So.
This is Anthony let me, let me take the privacy question and then I'll turn it over to Steve for gross margins.
I'll just give you a simple example of how how having a first party relationship.
Wood with the consumer helps in the world of increased privacy regulation. So often the way the regulation manifests itself is requiring that you get often permission from consumers before you are tracking their day that our target them.
And.
So for example, we have a feature they have ACR in our Tvs.
Automatic content recognition and that's an example of a feature where we felt like low gave you should really get.
The the regulation is a little unclear, but we felt like we should have consumers opt in.
That feature before we start collecting ACR data and so we we ask them we ask our consumers the first time.
They start using the product do you want to opt in for US tracking tracking your June data with ACR, because you'll get more relevant ads, but also will enable a feature called more ways to watch.
Which is a feature where.
Based on these.
Let's say you're watching a rerun of the Rockford files and our on line on linear TV and we might say Oh you can you can also watch all the back episodes in the Roku Channel for example.
And so that's a feature that has had a direct and direct impact on our on a viewer and makes their experience better and so they're more likely to opt them because they get they get access to features as well as data tracking and so and so the ACR for example, opt in rates are very high on Roku Tvs because.
<unk> of the way, we do that kind of.
You know the way we.
The way, we create a consumer centric features as well as not just we're going on track your data. So that there's lots of examples like that like that's why having that direct relationship with consumers.
Allows you to build trust with consumers and allows you to make it in their interest and beneficial for them to participate in data tracking and targeting.
So that's an example, I don't know Scott if you have anything to add.
Yeah, I mean, I would just highlight another example.
These insights about <unk>.
Consumer tastes profiles aren't on our platform just for advertising. They also drive things like recommendations in the Roku channel.
And that's pretty significant and we've shown we've made huge gains.
And in our ability to put the right trials in front of consumers on that top row in the Roku channel to drive increased engagement. So as Anthony said, it's a it's a mutual value exchange and getting relevant ads in front of the consumer is important too.
The whole business is going to move to a lighter AD load and for the math to work for consumers to still get free content, but marketers still be able to reach consumers and content providers they'll be able to make enough money. He adds has got to get more relevant.
And consumers have regularly shown that they're willing to experience as debt are more relevant.
And that that's a better user experience. So all around we think it's a good proposition and roku.
As the holder of this direct relationship with the consumer is in a unique position to achieve.
Achieve that value expense.
Yeah, that's right I mean, it's just a combination on building trust with your consumers because you interact with them regularly through the user interface and.
And offering them value, making it worth their while to participate and targeting.
Anyway, Steve would you like to.
On to skate on gross margins for a few minutes.
I would love to Anthony Thank you.
Yeah, Hey, Michael in terms of platform gross margin Yeah. We just talked about we had very strong platform gross margins in Q1 at roughly 67%.
Just as a reminder, the platform segment has a number of different businesses.
Some of which are higher margin lower margin in part due to the accounting treatment, whether theyre gross or net and then Q1, what we pointed out was that the combination of.
These new direct to consumer services strong media and entertainment spend that we talked about earlier.
They're high margin activities along with six.
It takes a fixed deal model increases the lifetime value of the deal.
For several of our content distribution yield also pushed the mix of that business up in that the high margin business. So a lot of times the the margin trending in any given quarter has to do more with the mix and how the relative growth is working within different parts of the platform.
And then in terms of the kind of looking forward on that front, we did say that we thought the.
Gross margin for the platform segment in Q2, and the back half of the year would be more in line with 2020.
We see you see that outperformance and the content distribution activity in Q1 normalizing throughout the rest of the year.
And our next question is from Jason Bazinet from Citi.
Thanks.
So you guys had really good financials, but the one area that at least you missed our numbers was sort of just active accounts on the quarter and I'm. Just I'm just wondering if if 2019 might be sort of a better sort of net add cadence versus 2020, given COVID-19 or maybe given the chip shortages or both any any sort of comment on that front would be helpful.
Steve you want to take that.
Yes sure.
Yes, so youre absolutely right. We recently started comping over the initial.
Stay at home Lockdown orders in the U S wood <expletive> in mid March.
So that's certainly.
Makes for some volatile year over year comps on them.
Not only for the key operating metrics, but for other types of.
Other parts of the business as well throughout the rest of 2021 as well as into 2022 in terms of the active account and streaming our key operating metrics.
Those initial parts of the pandemic.
Show very elevated growth in the active account year over year numbers, and as well as streaming hours and particularly in the streaming hours. There is a significant spike in Q2, so whereas the year over year growth numbers are down a bit from.
Q1 from Q4 sequentially.
What we said is that the growth rate prior to hitting those comps were actually tracking above the Q4 level and I think you're right. It's probably more apt to look at the active account and streaming our metrics on the net change.
On quarter over quarter or year over year, and we said that we think those will continue to grow nicely, but closer to pre COVID-19 levels. Just as an example, if you look at the.
You know Q1 19, we added roughly 2 million active accounts in Q1 of this year, we added $2 4 million active accounts.
The other thing we noted just more of a color on the outlook as we do we do see aside from just robust growth on.
On active accounts and streaming hours.
We did see we do anticipate.
Engagement continuing to increase over time. So we we said that streaming hours per account in 2021, we believe will be greater than 2020 and against this backdrop I think it's important to note debt.
Debt.
Obviously the.
COVID-19 related impact.
Sure.
Significant for us and the rest of the industry, but really we're still very much early any and we do think that the long term shift to streaming is very durable and have more proof points that that will continue on our position as the number one streaming TV platform in the U S gives us a good position to continue to capture that.
The value of that shift over.
That's quite helpful. Thank you.
Thanks.
Yeah.
Our next question on from Laura Martin from Needham.
Hi, there could we now have three forms of advertising growth, we have brand advertising coming from TV performance advertising, we have a content studio.
So if you guys could talk about that mix do you see that changing over the next three years that would be one and then the other one on interested in it when you guys license.
When you licensed content and you said that this new show sniper was number one is that because youre using data in order to make your decisioning around licensing content or is that because you actually as you say here I put it on page, one and youre getting better promoting content that's exclusive to okay. Okay.
Yeah.
Hey, Laura it's great to hear from you again this.
Hi al.
Hi.
I'll I'll take the second question and then Scott can talk about that.
So yeah, I think you know.
For sure we use our knowledge of our viewers on the data we have to help inform what's going to perform well.
On our you know in the Roku channel and we also use that data to.
Target promotions the appropriate content promotion based on user I mean, we use all the tools we built in for our partners, we use them for ourselves as well and we use them and that's certainly something like cipher helps.
For sure it helps drive viewing of that.
I would say that.
But on the other thing that.
The other thing that we've seen is that as we as we as our scale growth. We can we can buy more expensive content, which usually means better you know.
More brand name actors on the more recent.
And that on a on a cost per hour streamed hours basis. It can end up being cheaper if we pick the right content because I guess you had by more people.
Because maybe its just more appealing or maybe it.
Hasn't been seen before so on the cases cipher you know that's a relatively unknown completely unknown title no one has ever heard of it but we use our promotions to target people that were interested in those kinds of shows.
And on the fact that they've never seen it before you know it was something new was also helpful. So those are the kinds of things.
So so yeah in summary, we use our data and we use our promotional capabilities both to inform what we license, but also how to promote particular content on how much to pay as well.
And Scott do you want to talk about the different types of ads you have mix.
Yeah, Hi, Laura.
Thanks for the question.
I think you're right there.
<unk> is the traditional linear TV AD budget that we've talked a lot about through the history of the company that we're uniquely positioned to compete for.
As advertisers follow consumers.
The debt you know the brand studio that we've launched is really an elevation of our sponsorships and AD innovations capability, we've been incubating for a long time and represent our efforts to help advertisers reach consumers beyond the.
32nd spot the 15 32nd spot.
And it's an exciting dimension because many advertisers are investing significantly there.
Storage those budgets have not gone into TV as much as they've gone into interactive media.
Social digital online because that's where those brand experiences can be manifested. So we think connected Tvs uniquely positioned to compete there and then as we've been discussing in the last couple of quarters earnings calls.
Streaming is uniquely positioned to both compete as a branding media, but as well as the performance media.
You're asking.
What's the mix of those over time, I'd say, you know frankly, we're not sure but we are sure that those.
Those segments are quite substantial each of them on their own and I'd also add to the list of the three that you gave us other very significant closely related AD opportunities, but linear AD replacement D. AI as we've been discussing on this call the opportunity to serve.
Small and medium business that advertisers through self service tools local advertising and commerce related enhancements to advertising. So there are many significant adjacent categories to the businesses that we're executing on and I think it.
This point.
Bullish on the size of those opportunities, but uncertain as to the long term mix of them I. Appreciate the question, though Laura thanks.
Yes.
And our last one on one last question is from quite the contrary.
Are you ready from Evercore.
Okay. Thanks, Let me try a couple of days one how meaningful is international today and can you help us think about how you measure success in international markets, maybe this year and that there are some sort of some color on how we should think about day materiality of international that's first and then the second is.
Steve you know in your last share a letter.
This one but the last one you had said operating expense growth for the full year to be comparable with 2019 levels. Just as we think about full year EBITDA does that still hold thank you.
This is Anthony I'll take the International question then Steve.
Can you talk about our opex.
International is one of our key investment areas, we've outlined in the past that we have four key investment areas International.
Roku TV, the Roku channel and advertising.
And you.
Obviously streaming of the global phenomena, and we will transform the way content is distributed.
Monetize around the globe.
We've also found on our strategy basically is to take the Formula that's worked well for us in the U S. You know that our strategy our products.
You know our relationships.
And which are often with global companies.
And use those same use that same strategy.
International markets and focus on.
You know kind of one market at a time on adding more markets and that that's working well for us on where death.
We are seeing good progress you know the first market, we entered was Canada.
And we're now the number one TV OS in Canada, one in three smart Tvs sold in Canada are Roku Tvs now.
You know a market that came on.
After Canada was Mexico, Mexico, We're also doing well we're the number two.
Licensed I'm, sorry, with a member to smart TV platform in Mexico to number one is still Samsung.
But we're making good progress there.
Brazil is a market that we entered not too long ago first wood or Tvs streaming players and then recently another T V OEM, making good progress, but still early days.
We are in the U K as well so on.
It does.
Other thing we've done in the U S that we're doing internationally as we start by focusing on scale of active accounts.
And all of those metrics I really just talks about are really active account indicators.
So first focusing on building up scale of active accounts and engagement and then monetization and so success for US is becoming number one in a market for TV sales in which it's going to result, eventually and that's being number one in active accounts and so.
And then follow on that on with monetization. So we're starting to do that in some markets. For example, we are now selling ads in Canada, we have the Roku channel in Canada, We launched the Roku channel in the U K.
And so in general.
So long way to go, but we're making we're making good progress in international markets.
Steve do you want to.
I'll take the second question yes.
Can you can you repeat that last part I'm not sure I followed that last part of your question about something around EBITDA in Q4, what we said in Q4.
Well so in your Q4 shareholder letter you said that you expect operating expense growth rate can be comparable to 2019 levels.
For the full year.
Are you reiterating that still for the full year.
And I'm on mute.
It would impact full year EBITDA the way, we think about it.
Yeah, I mean, we haven't provided formal guidance for for the back half of the year, but this time, we mainly talked about from an opex perspective.
That was part of what we discussed on the shareholder letter and in my prepared remarks about the ear of a comp year over year comps are pretty variable in different parts of the business in terms of Opex, we proactively trying to bend down the cost growth curve and Capex starting in Q2 of last year. So we anticipate the.
The year over year growth of Opex to go up.
Starting in Q2, as we lap those actions.
But in terms of overall opex level, we continue to I think sort of a pre COVID-19 comp is still a good comp in general and we're continuing to to invest in the business.
Especially now that we've got some better.
Better line of sight on how we've been performing the momentum has been been strong to date and so we're continuing to invest in our traditional growth vectors around things like international with Anthony you just talked about the advertising business of course, Roku TV. The Roku channel has been doing extremely well for us. So we'll continue to push forward on.
On on these key on its strategic investment Brian.
Okay. Thank you Andy so on the other thing I'll just mention on that is yeah. The other thing I'll just mention on that is just a reminder.
Done.
We've done a few different acts.
Acquisitions, and so we did mention that part of the sequential growth that Youll see from Q1 to Q2 include the the opex from from those acquisitions as well.
Okay makes sense okay. Thank you.
Thank you I'll now turn the call back over to Anthony Wood for closing remarks.
Yes.
I want to end the call by thanking our employees customers and partners for an excellent quarter the share.
The streaming will be global and will transform the way content is distributed and monetized and we're excited about the road ahead.
Can you for joining today's call.
Thank you, ladies and gentlemen that concludes today's call. Thank you for participating and you may now disconnect.
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