Q3 2021 Roku Inc Earnings Call
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Grodd, Vice President Investor Relations. Please go ahead.
Thank you operator, good afternoon, and welcome to brokers third quarter 2021 earnings call I'm joined today by entity would brokers founder and CEO, Steve Louden, our CFO and Scott Rosenberg.
The senior Vice President Joe manager of our platform business, who will be available for Q&A.
Full details of our results and additional management commentary are available in our shareholder which can be found on our investor Relations website at Roku dotcom for slashed investor our comments and responses to your questions on this call reflect management's views as of today, only and we disclaim any obligations to update this information.
On this call, we'll make forward looking statements, which are predictions projections or other statements about future events, such as statements regarding our financial outlook future market conditions, and our expectations regarding the continued impact of COVID-19 on our business and industry.
These statements are based on our current expectations forecasts and assumptions and involve risks and uncertainties.
Please refer to our shareholder and our periodic SEC filings for information on factors that could cause our actual results to differ materially from these forward looking statements.
We will also discuss certain non-GAAP financial measures on today's call reconciliations to the most comparable GAAP financial measures are provided in our shareholder letter.
Finally, unless otherwise stated all comparisons on this call will begin our results for the comparable period of 2020, now I'd like to hand, the call over to Anthony.
Thanks, Sean and thanks to everyone for joining today's call.
In Q3, we delivered another quarter of strong revenue growth.
The monetization side of our business continued to make tremendous progress with our two surpassing the milestone of $40.
I'd now like to highlight three major themes.
First consumers advertisers and content publishers continue this shift dish TV streaming.
Brokers role at the center of the ecosystem to bring these stakeholders together on a common platform is more important than ever.
Second Roku is the best platform for content publishers to want to grow successful streaming business.
With a very effective and efficient set of tools for promoting content services, whether that's signing up new customers, increasing customer engagement or reducing attrition.
We put a lot of definitely into building these capabilities and our concept partners are taking advantage of the tools and products we offer.
And third there is still a significant gap as advertisers have been slow to follow viewers to T V screaming.
Our scale technology and first party customer relationships, we are uniquely positioned to benefit as this gap begins to close.
The investments we have made and continue to make in our operating system that is purpose built for TV as well as our strong brand and large scale continued to position us well for the long term.
And with that let me turn it over to Steve.
Thanks Anthony.
Before we take your questions I'll walk through operational and financial highlights and discuss our viewpoint looking forward.
We grew active accounts by $1 3 million in Q3, ending the quarter with $56 4 million.
While we continue to scale the platform, we believe that the slowdown inactive account growth rate. This quarter was in large part attributable to global supply chain disruptions that have impacted the overall U S TV market.
Specifically overall U S television sales in Q3 fell below pre Covid 2019 levels.
We believe this was largely a function of lower inventory and higher component costs being passed along to consumers as overall U S. T V prices increased 42% year over year.
We believe that some of our TV OEM partners were hit, particularly hard with these inventory challenges.
Meanwhile, Roku player unit sales remained above pre COVID-19 levels and the average selling price decreased 7% year over year as we chose to insulate consumers from higher costs.
Roku users streamed 18 billion hours in the quarter, an increase of 21% year over year.
As we continue to outperform viewing our growth rates of both traditional TV and other TV streaming platforms.
Total Q3 revenue increased 51% year over year to $680 million.
Platform segment revenue was up 82% year over year to $582 5 million, representing 86% of total revenue.
Platform monetization accelerated with <unk> of $40 10.
On a trailing 12 month basis up nearly 50% year over year player.
Player revenue and player unit sales were both down 26% year over year. Following the pandemic related demand Spike in Q3, 2020, but remained above pre COVID-19 levels in Q3 2019.
Gross profit our key financial metrics grew 69% year over year in Q3 to $363 9 million, resulting in gross margin of 54%.
Platform gross margin of 65% was consistent with Q2 levels and was more than expected due to a favorable mix toward higher margin media and entertainment spend by content publishers as.
As mentioned earlier, we chose to insulate our consumers from increased component and logistics costs, resulting in player gross margin decreasing to negative 15% in Q3.
Our strong revenue and gross profit performance allowed us to deliver a record adjusted EBITDA of $130 1 million in Q3, while still investing in the business with Opex spend of $295 1 million up 45% year over year.
We ended Q3 with approximately $2 2 billion of cash cash equivalents restricted cash and short term investments.
As we look ahead, our business fundamentals remained strong overall, but.
Our global supply chain disruptions will likely impact the overall holiday season in terms of shipping delays product availability issues and product price increases.
We expect the U S TV market to continue to be significantly impacted by these issues.
Additionally, certain advertising verticals could reduce spend in Q4 due to limited product availability.
Year to date, we are pleased with the performance of the business. Despite continued pandemic related obstacles and we achieved continued progress as the secular shift to TV streaming proceeds.
Our Q4 outlook is for robust growth with total net revenue of $893 million at the midpoint up 37% year over year, despite macro headwinds and copying strong performance last Q4 from a rebounding AD business as well as the introduction of new <unk> services that drove.
Distribution value and M&A spend.
Q4 estimated gross profit of $385 million at the midpoint up 26% year over year has been impacted by our decision to absorb increasing supply chain related costs in our player business as we optimize for account growth versus player gross profit.
We anticipate that the ongoing investments, we are making as we grow and expand our business will increase operating expenses on a sequential basis and as a result, we expect Q4 adjusted EBITDA to be $70 million at the midpoint.
Please note that adjusted EBITDA includes stock based comp of $57 million and $30 million of depreciation and amortization and net other income in the quarter.
We are pleased with the resilience of our business in the face of macro headwinds and continue to have confidence in the long term vision of all TV moving to streaming that has driven roku is extraordinary growth since inception.
We therefore continue to invest in our technology tools and platform to maintain and grow our leading position in the television ecosystem.
With that let's turn the call over for questions operator.
Thank you to ask a question you will need to press Star then one of your telephone to withdraw your question. Please press the pound key please standby, while we compile the Q&A roster.
Our first question comes from the line of Mark.
<unk> with Rosenblatt Securities. Your line is now open.
Thanks, So much Steve I was hoping maybe you could flush out the revenue guide a bit both revenue and gross margin that is in terms of player versus platform.
And then as you are.
Called out product pricing.
And AD spend on the product pricing front are you anticipating raising prices.
Then on the AD spend call out is there a specific direction youre getting from AD buyers right now.
Points to.
That call it as well.
Just if you could flush a few of those details out that'd be great. Thanks.
Yeah, Hey, Mark.
Yeah in terms of the Q4 revenue the outlook calls for robust growth.
37% year over year at the midpoint.
$893 million on the revenue side, there are a couple of factors impacting the year over year growth rate.
I'll walk you through.
So first one is a tough comps from last year, so, especially on the platform side, we delivered exceptional performance in Q4 of 2020, largely driven by very strong media and entertainment spending by content.
Strong results on the content distribution side that was the time when you had a couple.
Mark key services for unseen or building up in terms of HBO, Max and discovery plus launching and so those are a couple of factors that make year over year comp pretty tough on.
You kind of mentioned that the supply chain disruptions.
We talked about for Q3 in terms of and this is really a macro industry or macro trend that's impacting a lot of industries, where you've got component cost increases you have inventory availability challenges you have shipping delays in shipping cost increases those are really we believe those will continue.
<unk> into Q4 and into sometime in 2021, sorry 2022.
So those are factored into the the outlook color Q4.
And then we are there is a lot of uncertainties around the holiday season.
And we are also tracking some of the knock on effects that we've seen that.
There are certain verticals, especially on the advertising side, they're seeing their own supply chain challenges impacting there.
The availability and Thats some of them are slowing down their advertising spend so we saw a bit of that in Q3, and we anticipate like a lot of other folks.
That would be persistent in Q4 as well.
Okay, maybe a quick follow up Steve just as I look at the <unk> print.
Player revenue was.
Obviously weak and platform actually performed quite well so if I think about for Q player versus platform.
Is it fair to say that more of a guide pertains to the player side of the business.
And acknowledging that there are tough comps and player, but maybe if you could just flesh that out just a bit more.
I appreciate it thanks.
Yeah sure Mark so.
On the one.
Just as context on that and really just.
And this week.
The fact on the T V E T.
TV market with U S television sales so the supply chain disruption that I mentioned.
Are impacting a lot of industries, they're impacting.
U S. TV sales that are down the market is down 31% year over year.
In part because pricing on <unk> Tvs on average is up 42% and the U S. TV market is actually down below.
Pre COVID-19 levels in.
In the corresponding period in 2019, when you look at the Roku player result, as you mentioned Roku revenue Roku player revenues and Rep units are down year over year based on our extraordinary demand spike in the pandemic in Q3 2020, but player unit.
And player revenue or actually in Q3 above 2019 level. So there the TV side of the <unk> definitely got hit harder than the Roku players part of that has to do with we've chosen to insulate consumers in terms of the pricing.
While not passing along the component cost increases and we mentioned that we plan to do that in Q4 as well.
So I think you know I think there is some uncertainty impacting the macroeconomic environment, even consumer sentiment.
But certainly from the industry perspective, we think these trends will happen but.
We're going to continue with our our successful strategy on the player side of focusing on <unk>.
Driving account growth as opposed to trying to trying to focus on the player gross margin.
Hey, Mark. This is Scott go ahead, Anthony right now go ahead Scott.
Mark I was just going to say that certainly there are some AD verticals like auto and TPG that are facing their own supply chain issues, and that's causing some advertisers to slow their spending.
It will bounce back as they work through the supply chain issues.
Also important to note that there are a lot the AD categories that are not affected by supply chain issues financial services or <unk> segment. These are services businesses that arent affected in the same way and so it's a it's a modest effect on some parts of the business, but not not across the whole AD is sorry, Anthony you wanted to chat a little something.
Okay.
I was going to say that.
But also I think I can give you.
If you just think about.
The drivers of our AD business, because some of that some of your questions were about our AD business.
The biggest driver business is not does not these kinds of details is the fact that if you look at <unk> time in the U S. Today adults 18 to 49 spent 42% other TV time streaming.
But if you look at the amount of AD spend on streaming versus traditional TV is only 20% is moved to streaming. So there's this big gap still and that.
And that gap.
Starting to close but has a long way to go in that that the rate of that closure because they will catch up eventually and the rate of all.
Viewers moving to streaming those are the biggest drivers.
Of our AD business, which is a $60 billion opportunity.
Our next question comes from the line of sweater could urea with Evercore ISI. Your line is now open.
Okay. Thank you let me try your partnership and negotiations with Youtube. Please how should we think about the impact on streaming hours going forward and it and is there any other.
Negotiation, we theres media coverage on that.
Potential conversations with Prime video could you. Please comment on both of those and then second could you. Please help us.
Understand the active account.
Growth.
Do they do they extend that you can contribution from perhaps international markets not only in the fourth quarter, but how we should think about it going forward. Thank you.
I'm just trying to this is Scott I'll take I'll take the first part of your question I think Steve will take the second part.
So on Youtube I don't have new info for you I would point you at our recent blog post for our perspectives on the topic, but one thing I will say is as we said before it's not about the money, it's about our ability to create the best possible experience for our customers. We're working to resolve this matter. We don't have an update and our goal is to land it in a way that's paused.
Live for Roku and for our customers as far as the your Amazon question. You know, we have renewal discussions with hundreds of partners. Each year. It's normal course of business. Our goal in these discussions as always to reach an agreement that is good for our partner and good for our customers and delivers a great user experience. Despite what you may have read.
Our Amazon agreement is not up for renewal or in negotiations at this time.
Steve you want to take the second part of my question.
Yeah sure Hi, yes.
Yes in terms of active account growth.
We haven't broken out the specific.
International but.
The majority of the active account base is is in the U S.
International has been growing faster than the U S and so over time that will continue to grow in mix and we're really excited that not.
Not only were making good progress in existing international markets.
In terms of having scale and market share.
In existing countries, but we're continuing to increase the footprint. So we just announced entering.
Germany with player starting with players here.
Just happen we.
Once we can Sam Tvs in Brazil, and we're expanding the Roku TV footprint in Latin America, also adding Peru, and Chile later in the year.
So over overtime international will become a greater share of the active accounts.
Okay. Thank you Steve.
Thanks.
Okay.
Our next question comes from the line of Michael Morris with Guggenheim. Your line is now open.
Hey, Thanks for taking the question a couple for me.
First you guys did cite pricing of Tvs.
As part of the challenge on the account growth side.
All of your competitors seem to be taking more control of their TV manufacturing distribution process as opposed to just licensing operating system. So I'm curious as to whether you would consider.
<unk>.
Your positioning there to having your own Tvs. In addition to licensing the OS what are kind of the pros and cons, there or how much you get into that.
And second Steve.
I'd like to try to understand a little better.
Sort of the tough comp year over year, especially when it comes to the new streaming services and I feel like you've been pretty clear that you feel like there will be ongoing spend by those by those our publishing partners to continue to drive engagement with their services. So can you help us at all anymore with kind of how how unique last.
Fourth quarter was in and what are maybe a more normalized behavior might look like.
Okay.
Hey, Mike This is Anthony I'll take the first part on T.
<unk> sales in our brand and so forth and Steve Obviously will take the second part just in terms of the way the TV business works is.
You know, there's there's different roles different different companies take in the supply chain.
And the results of all of that if you were to dig into it is the brand new cellular TV under does not affect the price is not a it's not a factor in the price.
The main factors in prices is things like component costs and shipping costs. If you look at what happened in the quarter TV prices were up 42%.
You know on average, which is a pretty big increase and also the inventory was down by T. V's, we're just not available.
And that was driven in particular, especially Chinese manufacturers.
The supply chain issues around shipping and getting products out of China into the U S.
We're particularly bad and it just was either impossible or very expensive to ship products and that you know so that's just a factor of effects anyone's shifting products in the U S from overseas.
And then you know panel shortages and chip shortages and all of that stuff also so you know whether the brand you sell it under it doesn't it doesn't come into play there.
You know you have companies like <unk> that have a have a model where they manage they they source products from factories.
Perceive and then they get them and then they trend.
For the product to a retailer and they almost don't take possession of the inventory so.
You know I would just say in summary, we're happy with the way we run our Roku TV program, we work with a lot of top brands and they're very successful selling roku Tvs, we work with the entire ecosystem and work with retailers directly we work with TV brands, we work with the factories correctly.
We do the engineering.
I mean, a lot of companies don't realize a lot of people don't realize it but roku is actually one of the few TV companies in the world in the sense that we have all the technologies to build a TV, we know how to bring up manufacturing.
We have the retailer I mean, we do everything except we don't put our brand on that we work with partners.
And specifically in the TV business and that that works well for us.
Then Steve.
This is Scott I'll take the M&A question, a median entertainment question for you Mike Thanks for that.
Yeah last before it was a very robust quarter. It had a couple of big New service launches. It was in the middle of the pandemic, but any category continues to perform very well and I think there are a lot of reasons to remain bullish on it.
We are a first stop for anyone in the streaming services business, because we have an effective promotions platform our scale our data our tools make it cheaper ultimately for the streaming services to acquire and retain users than all their other options where they might spend so there are many category in Q3.
<unk> grew faster substantially faster than the overall platform and the ads business. The growth is still strong although it is moderating it's more normalizing as we come off of the pandemic.
We mentioned in the shareholder letter this paw patrol execution by Paramount plus its just the funding sample of the one of many different ways that brands can invest with us to drive awareness and ultimately trials subscriptions to their services.
There's also a pretty long runway in our view around the M&A business is not ultimately just about user acquisition, but as these services get bigger they also need to drive engagement and retention of those users that they have acquired we've been building out the tool set so that our partners can promote not just on that that big home screen unit that you see when you.
Starting to Roku up but in the channel store through video ads on and off the platform. We've also made a lot of progress on our optimization technology. So that we can deliver to the partner.
New users at their target customer acquisition costs. So overall, although that business is.
Normalizing as it comes off as we come off of the pandemic. The business continues to grow and I think is.
Ultimately a tool a service that is going to be a great.
Asset for our partners going forward.
Yeah.
Great. Thank you both.
Yeah.
Our next question comes from the line of Vasily <unk> with Cannonball Research. Your line is now open.
Thank you good afternoon wanted to ask.
A question about the.
The deceleration in the video advertising revenue.
You said, it's monetized impressions almost doubled and I think outside of the pandemic quarters. That's the slowest commvault for growth. We have seen so I was wondering if you could give us some color on what's going on there and can we expect a reacceleration back to 100 plus person there.
Uh huh.
<unk> question is.
Do you mind, telling us how the three different components of the platform revenue grew this quarter versus last quarter on my man video that we're now than distribution.
Made their promotional spending.
And what drives those variances quarter to quarter.
Scott will take the AD question then Steve.
I can take the second question.
Looks like you.
Neither Scott.
Oh I wasn't needed to many new buttons on this ed Thanks Maselli.
I'll, just say that the the video AD business roughly doubled.
It wasn't a substantial deceleration we are coming off of.
A couple of quarters, where.
What we're comping over as is it is a challenging comp relatively speaking so in general we still view that category of advertising is robust very robust.
The other categories that we're seeing Rover.
Robust growth out of we just discussed and the knee business, while seeing great strength in our performance or growth advertising, saying that these are advertisers that are driven primarily by optimizing to outcomes that segment roughly tripled year over year and I think it is indicative of our ability to attract a new.
Classic digital or social first advertisers, who are less interested in reaching a demographic and more interested in optimizing for a site visit or a product purchase.
Steve you want to take the second part of the serious question.
Yeah, sure Hey facility, Yes, we don't break out the components within the.
The platform segment, but.
Well, we did talk about this.
This quarter, we had significant contributions from both the content distribution side and the advertising activities.
So those are notable pieces of the puzzle in terms of.
Growing relatively fast.
The other thing that's important to note but.
And we talked about on prior earnings calls is in the back half of this year, we just have tougher comps.
Especially on the platform monetization side. So if you remember in the pandemic last year Q2.
When a lot of advertisers hit the emergency brake.
Had a relatively easy comp.
For that quarter, and then as we went into Q3, the our advertising business rapidly.
Kind of Reaccelerate and went back to a more normalized state in Q3 and Q4.
And we talked a little bit about how the M&A business has been doing extremely well, but it has had a banner kind of laughs.
12 months, so as you've had a lot of the media companies either come on with new services or shift their focus towards that so we're.
Very happy with the continued progress.
Despite these top year over year comps.
Thank you.
Okay.
Yeah.
Our next question comes from the line of Ben Swinburne with Morgan Stanley. Your line is now open.
Thanks, Good afternoon, I have two questions probably for Scott Scott.
But curious on you know theres been some obviously a lot of talk about ideas, saying mobile headwinds this quarter and sort of getting into the holidays is that helping real quick are you finding advertisers move.
Moving towards connected TV, just given some of the.
Challenges, particularly on their performance Dr front.
And then you guys announced a really interesting partnership with Shopify I don't think that's been discussed on this call.
The comment in the letter about Smbs and building our products for them I'm. Just wondering if there's an update you could provide for us on how sort of substantial that business is for you yet and if you think this partnership translates into sort of real revenue kind of as we look out into 2022. Thanks.
Yeah.
Alright, Thanks, Ben for the questions are the two questions I should say yeah, you know as you alluded to in the way you framed up the question B.
The the disruption and the noise around the loss of cookies and device Ids like apples idea Fe in general is a net benefit to roku really for two reasons first independent AD Tech is very challenged in an environment, where these identifiers or getting more scarce because they don't have.
Have these identifiers they don't have a direct consumer relationship, whereas roku does and so we're always working on our platform with our own first party data and it's a fundamental advantage for us and ultimately bringing brands to us. The second is a more general statement, which is that these changes are forcing marketers to step back and read.
Evaluate their full add investment portfolio, how they're spending on social platforms. For example, as these identifiers disappear their costs.
Of acquiring users or whatever action. They are chasing are going up because of the ability to measure it is.
The new velocities identifiers and Roku is a beneficiary there in the sense that brands are generally underinvested still in streaming relative to our scale and our capabilities and we've got user identifiers and data just like some of these big platform. So in general we come out ahead as brands.
Step back and reevaluate their digital and social investments.
And it accrues to our benefit you mentioned the Shopify partnership. This is a relatively new partnership we were excited it was we have a beta program running with them were basically a merchant on the shopify platform.
<unk> up.
Through their platform to purchase advertising on Roku, and we've got a whole host of brands <unk> Moon pod birth date Ali pop in that data working with us through that Shopify connection.
It's still early days, but the program was oversubscribed on the first day and I think it is indicative of a broader strategy on our part to really widen the funnel.
Set of advertisers that we work with on our platform, we are able because of our data our scale our optimization capabilities to work with brands that have traditionally invested in social and digital in the Shopify partnership is it a dimension angle.
Whats the diversify into that client base, you'll see other things like that from us going forward.
Thanks Scott.
Oh go ahead, sorry. This is Anthony I, just thought I'd add a couple of points. So you know in our letters a lot on these calls we talk a lot about the TV AD business to $60 billion, just moving from traditional TV to streaming.
And how customers or dealers are moving from traditional TV to streaming.
And the AD dollars are lagging, but following and it's a big market and you know our goal is to capture it.
A big part of that market and B, we think theres multiple winners could be one of the winners in that transition, but you know when you talk about TV advertising, but if you look at our TV ads the way with the TV advertising at our TV AD technology stack I mean, there's nothing like a traditional TV advertising right.
Built entirely on our digital big data targeted platform. It's got all the characteristics of a typical digital AD platform and so we don't usually talk about that much but that market that uses those kinds of tools is just the biggest the TV AD market. So it's a you know.
Obviously, our goal is to go after both of those markets and it's they're both big opportunities for us.
Thank you.
Our next question comes from the line of Laura Martin with Needham Your line is open.
Hi, there I'm, Scott I'd like to follow up on <unk> question about.
The bottom of funnel Smbs I know you've been growing that in talking about that a lot about what we're hearing from like Facebook and snap and other places that the SMB a challenge I'm wondering how is it that you are small and medium sized business categories growing and performance that's growing so robustly and an environment, where other people are saying.
Kinds of advertisers are really pulled back because of lack of feedback.
Yes, Thanks Laura.
Yeah look I think it's partly it's the result of this being a new medium for most of these brands.
These brands did not grow up investing in TV. They grew up investing in Facebook and then in snap and more recently in other platforms and in some cases theyre being priced out of their activity on those platforms and especially as the identifier.
[laughter] landscape is changing it is making their spending look more expensive because they are less able to prove the effectiveness. We are brand new to the category. We offer an opportunity for the not just as Anthony said optimize the outcomes, but also having them have a branding.
<unk> is running.
15% or 32nd spot on the biggest screen in the household so.
It was something of a new kid on the block, but I think our appeal is quite broad we're still early in the business and it depends on how you want to talk about and think about the business. There's there's smbs, there's direct to consumer brands that have grown up nationally all these brands tend to it.
Approach their AD spend with a performance goal in mind and we've got the tools to compete for it so from where we sit we see very very significant upside going forward.
We're in a different place.
And then some of the other parcel that you've mentioned.
Super Helpful. And then Anthony I have a pricing question for you I must be thinking about this wrong, but I think there is a consensus on wall Street that Tvs are going to sell out because of the supply chain issues. So it would seem to me that's really good for your dongles.
You can fill up of one aircraft carrier basically supply America, but if you're going to sell out of those anyway, because tvs or find out why would you cut price why wouldn't you double price and still fell out and just yet and still as many subs, but at a higher price because you've got Donaldson stock when all the Tvs Smart Tvs are running out.
Inventory at the retail level.
So I just make sure I understand the question you were talking about why now why do we lower the price on the players.
Yeah are you going to sell out so why lower the price.
Well, we tried hard not to sell out right I mean, it's obviously forecasting is a huge issue in our business and.
You know getting the forecast right is important and you.
There are too many.
Devices, then you end up with extra inventory. If you don't have enough you sell out of the lease sale so that.
You know the supply chain in the case of players.
We're not our goal is to not sell out. We are you know we are we are paying more for expedited shipping for to get chips get in front of the line for chips. So the results of all of that as our costs are going up.
But we havent sold out yet.
You know, we've just been paying for air shipping you know, we've been spending money to insulate.
The retailer and the end customer from pricing issues and supply issues. So so far we've been doing that a relatively effectively.
In the case of Tvs, It's just a completely we don't obviously, we don't set the price of Tvs offset by the TV Oems and the retailers and TV costs, so much more that.
And the lead times are longer it's just you know it's.
It's not practical in many cases to.
Absorb the cost increases with TV. So Tvs are going to be in short supply as a result, and the players you know hopefully we won't run out of stock, but we'll see how the quarter goes.
You also have more options on players like you can pull things in from Q1, where they're shipping it looks like youre selling more than you expected.
Things like that you can't ship, you cannot airship Tvs as a backup plan because they're just too heavy.
So it seems like that would be a net beneficiary of you on the dongle side.
Yes.
Yeah, we have we are managing the supply issues better than the TV manufacturer can manage TD supply issue. So that is true that is helping you know that's the reason.
You didn't see player sales drop.
At the same amount of the TV sales dropped relative to the.
Last quarter, I mean player sales were up over 2019 pre COVID-19.
Levels TV sales were not up because of the reasons, we just discussed.
Okay. Thanks, Anthony Thanks, Scott Thanks, Scott appreciate it.
Yeah.
Our next question comes from the line of Thomas Forte with D. A Davidson your line is now open.
Great. Thanks for taking my question. So wanted to ask about viewership trends of the Roku channel off of brokers hardware.
People watching Roku channel that don't have a roku smart TV that don't have a dongle and then the second question I had was how should we think about your proprietary content.
You acquired from <unk> and this old house, how that's performing and your appetite to potentially acquire more.
So this is Anthony I'll I'll take that and then I'm.
I am sure Scott might jump in with some extra detail or at some thoughts so in terms of.
You know viewership trends the Roku channel offer the Roku platform I mean, we don't break that out, but we said previously and it's still true that our primary focus is on roku.
Where we that's where we have a full set of assets available to help promote the.
The offerings and so that's where we spend most of our effort. We do make it available off Roku would you know for example, if you have a premium subscription you sign up for Showtime on in the Roku channel sometimes.
Sometimes you want to build a wash that on your phone. So that so we made that available when we do get incremental reach in viewing off roku, but it's not our it's not our primary focus.
Primary focus is on the road.
On the Roku platform, whereas the Roku channel has become a very important asset for us very.
Very successful and continues to do well and we pray this virtuous cycle, where we can invest more in content that brings in more viewers that brings in more advertisers that provides more dollars to spend on content that you just get this cycle, that's really working well for us and then kind of injections that cycle. The fact that as our platform beyond the home screen, we can promote the con.
We can promote our original very effectively in all of that that's just sort of the perfect storm of everything working well for us and so that's what we focus on in terms of content.
<unk> of our content.
We have a mix we have a portfolio approach of content for the Roku channel obviously as the portfolio is getting just getting deeper and wider as we're able to spend more money as the scaled rose spend more money on content. So just an overall strategy.
We license we licensed a lot of content for the Roku channel I think we're out of about 200 different companies that we license content from them.
And of course.
We're producing original so we got into the original business.
When we bought the equity content as you mentioned.
But since then we've greenlit renewals with some of those shows the green the new shows like those extraordinary Christmas.
And that's because the original as are working for us.
As part of the portfolio, they're they're not a huge portion of the portfolio because.
Like I said, we have over 200 content partners. We also have lots of linear channels. We just added 17 linear channels. So we now have over 200, plus linear channels to keep growing our kids and family content.
So we're just growing content across the platform and the original as a part of that portfolio. When they work they work great for us in a few different ways. They obviously drive a lot of young because theyre exclusive but they also bring in new viewers.
Bring in new viewers, the Roku channel experience and so that's important that's an important role for original is for US and then also advertisers really like originals, because there's something unique and exclusive and so it helps drive our ad business.
So for all those reasons, we're going to keep doing originals, but again as you know in the disc.
One way and this is a part of our portfolio.
Thanks for taking my question Anthony.
Thank you.
Our next question comes from the line of Tim Nolan with Macquarie. Your line is now open.
Hi, Thanks for taking the question and Im sorry, I was late joining this call from another call. So I hope I haven't missed this but.
I'm curious about your international expansion.
My question is you know I hope this isn't also clouded by the supply chain issues at the moment, but my question is you laid out a strategy where your international expansion is basically predicated on your players if I understand right kind of leading the way into these markets my understanding those international consumers and you know a lot of markets are often just buying a new smart T V rather than buying them.
Player. So I'm curious if you could talk about the growth of your dongle sales your player sales versus your growth in smart to be operating system sales are you advantaged or disadvantaged in any way on either side. Thanks.
Hey, Tim This is Anthony I'll, just start by saying that that is not true.
We're a player first internationally we.
We view, we view the international opportunity is a big opportunity streaming is a global phenomenon the shift to streaming around the world continues our overall strategy is to basically copy what has worked for us in the U S and use that internationally. So that's basically build scale through both Tvs and player.
So that's you know that's how we've done it in the U S and that's what we're doing internationally.
<unk> engagement and then you know and then as scale builds develop monetization techniques.
So that's the overall strategy as we enter new international markets.
Seeing the consumers like our products.
They use them a lot and you know our market share grows in those countries as we enter the country. So it's our international strategy is working for us.
Uh huh.
We do enter.
We do enter markets, sometimes with Tv's first sometimes those players first but our goal is to have both of them available on every market from multiple vendors in multiple skus. So for example, when we entered the Brazilian market.
We entered with Tvs, We just entered the German market. We ended first with players, but in all markets. We eventually have players and Tvs.
Usually it doesn't take that long so.
You know a couple of other things that have happened recently in our international efforts.
Launched players in Germany, and so now we have more than 2000 channels on the German channel store platform.
In terms of Roku Tvs, we just introduced a brand new lineup of step model Roku Tvs in Brazil, <unk> is a popular Brazilian brand for Tvs, and we're working with Tcl to expand to bring Roku Tvs to Brazil. Later later this year.
We're expanding our presence in Latin America with Roku TV models later this year in Chile and Peru.
We're also shifting players in Latin America U K and other countries. So.
So it's it's just to summarize I mean, we in terms of building active accounts. It's the same strategy. We have in the U S, which is focused on players and MTV.
That's great color. Thanks Anthony.
Yeah.
Our next question comes from the line of Ralph <unk> with William Blair. Your line is now open.
Good afternoon two questions.
First more shirts short term related.
Scott Steve in the letter you talked about headwinds that May impact Q4 guide several factors, but one of which you talked about is advertising spend obviously, there's some concerns with product availability et cetera, but are you starting to see any advertisers sort of have your discussions about pulling back spend for Q4 or half day or is that just more sort of.
Or what could potentially happen as the first question and second question is just longer term Anthony.
You talked about $60 billion opportunity in the spread or the gap.
Close between time spent and AD spend and if you know if you think about mobile or desktop advertising that was certainly true through time, but any factors you could sort of point to that could speed up the that gap closing other than just time any sort of market movements or acceleration you can talk to or any perspective.
On perhaps when you think that gap may actually close be great. Thank you.
Sure Steve do you want to go first.
Yeah, sure, Hey, Hey, Ralph just in terms of the.
Q4 outlook color on that that we didn't we did mention <unk>.
Certainly in Q4 and into 2022 were related to pandemic are supply chain disruptions and in the AD business is kind of a secondary effect.
Certain companies or verticals.
At their own a challenge as they they might soften up there they're advertising spend we've seen some evidence of that it's been widely reported across other whether advertising focused companies and industries that there is some evidence of that.
Kind of unknown exactly how that will play out in the rest of Q4 here.
So it's something that we're watching but it but it is it is a factor that we accounted for as part of our Q4 outlook ranges.
And then.
In terms of the gap.
Time is probably the biggest factor, but other the other the other thing that affects it I think is anything that causes advertisers to reevaluate their spend so COVID-19 I think for example has been and it has been.
Helpful factor in that.
When the average when everyone pulled back their advertising when Covid first hit.
And then they will start spending again, I think that they looked harder at how to spend that money more effectively and I think they realized that they were underspent stream. Just so I think that's helped.
Yeah.
I think.
Yes.
I think Scott talked a little bit about the identity issues around cookies and such I think that problem is also causing advertisers to reevaluate where and how they spend their dollars. So those kinds of things will I think cause people to reevaluate and those are good for us I mean, if you just look at the numbers. It is the gas is starting to close.
You know it was a pretty.
I mean, the gap has closed some since we last discussed the stats, but it still has a ways to go.
Okay, great. Thanks Anthony.
Okay.
Okay.
Our next question comes from the line of Matthew Thornton with Truest Securities. Your line is now open.
Hey, good afternoon, guys, maybe maybe two if I could first just coming back to Tvs for a second obviously there is some some new kind of incremental competition in in market between Google Tcl.
Amazon fire TD branded Tvs.
And then kind of a Comcast is doing.
It remains to be seen how successful they'll be but I guess the question is that that narrative is there and I'm curious.
What you guys think about to kind of offset that that narrative and I guess, one lever to pull when we think about international supply chain. Aside I guess, if we think about the next couple of years I know you guys have been investing pretty aggressively can we see.
Faster.
Launches in penetration and ramp internationally than maybe we've seen kind of looking backwards over the last couple of years I guess the other lever I'm curious is OEM opportunities are there other Oems, perhaps that youre not working with that.
Without getting into any names, where you feel like there is there is real opportunity for roku.
That's the first question on TV and the second question is around.
The different levers within the television advertising business as we start to look forward here I think you guys have held AD load pretty pretty constant if I'm not mistaken.
I would assume that's probably been under some pretty nice upward pressure and so I'm just curious where you think you are in terms of.
Inventory and sell through is there any kind of ceiling, we're hitting their CPM is there any feeling that we're getting there and I guess is there any change to AD load versus kind of what you've been targeting in the past thanks guys.
This is Anthony I'll take the TV.
TV questions and scuttle I seem to take the questions because that's what he does.
Let's see so.
And so your competition. So just in general if you think about competition I mean, we're in a very competitive industry, but.
But we've been competing very successfully with large companies all the companies you mentioned since the beginning and then if you look at where we are we are in terms of that competition.
We've gone from no market share in Tvs to the number one license TV brand in the U S.
With about a third of all TV sold now running the Roku operating system, we built an incredibly strong brands around screaming, we've achieved large scale with lots of slots I believe lots of scale growth to continue in front of US most of our growth is in front of us.
So we've been competing very effectively we take competition very seriously I don't see any particular.
No.
Dramatic change in the competitive landscape.
With all the stuff that's going on it's just more of the same and we will continue to compete in the market share I think we'll continue to grow although there'll be puts and takes as you move along that path. We continue to innovate you know what we built the world's only purpose built operating system for TV is the REIT is one of the primary reasons.
We're so successful our competitors all take.
Generally take mobile operating systems important than the TV and that just versus brokers approaches from the ground up build the best possible operating system, just for TV and keep innovating and being maniacally focused on that so that's how we compete we hire great talent.
We stay focused we built a purposeful operating system for TV, we focus on innovation that matters in Super easy to use lots of content being a partner for the center ecosystem. So that strategy works well for US if you look at.
And then you would have heard about U S versus international I mean, obviously, we are in U.
U S is a bit more mature market, but there's still lots of room to grow where you know like I said about a third of Tvs sold in U S.
We have a TV sold in U S are still running.
Proprietary proprietary homegrown operating systems not a licensed operating system and I personally am we said before we don't think that's sustainable and you see that in the market share generally declining.
<unk>.
For these legacy TV companies as as companies like Roku license, our OS and gained share and so in the U S. I think youre going to see a lot of our share growth come from decline in share from the usual big.
You know tier one TV companies, which has been happening and will continue to happen there was a bit of a bump if you look into the details.
It was a little a little bit of a.
You know.
Reversal of that trend slightly recently due to the supply chain issues, because it was easier to get Tvs out of non Korean sorry out of non Chinese companies countries.
Hard to get TV shipped and built out of China, and our partners are primarily Chinese so that impacted us more but thats temporary.
And I think that general trend that the world will move entirely to a licensed OS.
Is this.
We will continue to happen and that will be a source of growth in the U S internationally.
We're just we're just newer to the market there and so every time, we enter a country.
We are displacing.
Existing TV companies and.
And like I said before consumers like our products and our market share continues to grow it starts growing immediately once we enter a country and we're seeing good results.
You know, we're kind of continue to push on international and domestic expansion of accounts, there's lots of ways to keep growing it and that's what we're going to keep doing I mean, if you think about the big picture. We believe all TD is gonna be screamed that means theres, a 1 billion broadband households around the world, they're going to get all their TV some screaming.
So pretty small percent of those are actually doing that today.
Hey, I'll take the second part of your question, which I think amount to do.
Do we see any near term.
Links or limitations in our ability to keep scaling the AD business and I'd say, that's generally not a concern of ours.
First of all as Anthony has pointed out a few times on this call that there's still a pretty significant gap between user engagement and AD investments. So there's a lot of headroom. There. We're also as fast as we're growing we're still we still sell a minority of the ads on our own platform. So there's a lot of inventory flowing through the royalty platform.
For us to both sell as well as through our <unk> AD platform to add value. So even if the if the transaction is in our own media sale, even if it's a publisher on our platform. We can apply the same identity data optimization capabilities through our <unk> AD platform that our advertisers have come to expect when they are buying.
Media from us directly.
You talked about AD load, which I heard is like would we float the AD load, we're pretty passionate about the easier experience here and not not floating AD load up but there are lots of other opportunities in the roku experience to create consumer friendly touch points for brands and this is part of why.
We invested in the Rocky brand studio.
Is it gives brands and opportunity to author content with us put together experiences content first content led experiences that are brought to you by that brand. So that's that's a particularly interesting.
Dimension for us to keep growing the AD business in beyond 15, and 32nd in stream spots and we've got a lot of interesting executions. We're doing there. We also keep getting better at optimizing for outcomes, whether that's driving a consumer to a visitor and advertisers' website or buy a product.
And that gives us pretty good leverage too because the better we get at that optimization and especially as our as our clientele mixes over time to what we think will be a more heavy heavy focus on outcomes our ability to keep optimizing means our inventory will work harder both for roku and for our advertisers.
All to say that I think there are a lot of dimensions of continued growth for the AD business going forward.
Yeah.
Thank you.
Our last question comes from the line of Jeffrey Rand with Deutsche Bank. Your line is now open.
Hi, Thanks for taking my question when talking about TV sales being below pre COVID-19 levels. How do you think about the impact of higher pricing and the lack of inventory versus people, who might've pulled into T V purchase when they were stuck at home during the earlier days of the pandemic.
Hey, Jeff This is Anthony it well I think TV sales are actually below the pre pandemic level and I think it's primarily priced Tvs Tvs also inventory visit Theres no Tvs in stock then you can't buy one and that was definitely a factor but.
TV prices are up almost.
42% on average.
And that's a huge Tvs are an incredibly price sensitive business.
And so higher prices caused people to defer their purchases until they can get a better deal all the way from black Friday or whatever they're going to do.
Alright.
If you look at the overall.
Just the TV history generally is very cyclical and it goes through these cycles of pricing pricing changes and sales go up sales come down.
Uh huh.
That's the history of Tvs and I don't think there's I don't think there's anything to be there's nothing systematic or fundamental. It's just this is where we are in terms of TV sales and they're going to come back up.
Great. Thank you.
Thank you. This concludes today's question and answer session I will now turn the call back to Anthony Wood for closing remarks.
Yes.
Okay.
Thanks, I want to thank our employees customers and partners for a strong quarter, we build the best <unk> platform form for audiences content publishers and advertisers alike, and we remain well positioned for the long term. Thanks, everyone.
Hey, Wayne.
How are you getting streaming on this roku.
Or is it plug that turn the T V wave where are you in.
Right.
Well it can't all be in there so no stick thing no honey, where the extra winters there aren't any it's around.
Oh, okay.
I knew that they can't Qantas Martini with American think extremely Milton Okay really does that.
Okay.
Is that yes. The channel is that the Roku channel what he says kind of to another channel free for how long.
Forever.
Oh very good decision wont railcar regionals and hundreds of live channels for free Okay Roku does that.
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