Q1 2022 Roku Inc Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the first quarter 2020 to Roku earnings Conference call.
I would now like to hand, the conference over to your host Conrad Grodd, Vice President of Investor Relations. Please go ahead.
Thank you operator, good afternoon, and welcome to <unk> first quarter 2022 earnings call.
Joe today by Anthony Wood, Roku, founder and CEO , Steve Louden, our CFO and Scott Rosenberg Senior Vice President General 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 letter, which can be found on our investor relations website at Roku Dot Com <unk> slash investor.
Our comments and responses to your questions on this call reflect management's views as of today, only and we disclaim any obligation to update this information.
On this call we will make forward looking statements, which are predictions projections or other statements about future events.
Such as statements regarding our financial outlook.
<unk> future market conditions, and macro environment headwinds such as global supply chain disruptions.
Mary pressures and geopolitical conflict. These statements are based on our current expectations forecasts and assumptions and involve risks and uncertainties.
Please refer to our shareholder letter and our periodic SEC filings for information on factors that could cause actual results to differ materially from these forward looking statements.
I'll 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.
Unless otherwise stated all comparisons on this call will be again, our results for the comparable period of 2021 now.
Now I'd like to hand, the call over to Anthony.
Roku had a solid first quarter with platform revenue up 39% year over year, driven by higher content distribution and advertising revenue.
This financial performance and our continued growth even in a challenging operating environment validates the strength of our business model.
From day, one the Roku platform has been built to operate at the center of TV streaming.
Meeting the needs of each participant in the ecosystem.
For consumers, we provide an excellent experience with trusted discovery tools that allow them to find and watch content the way they prefer.
Whether that's via AD supported or subscription services.
For content owners, we offer multiple ways to build and retain audiences and monetize content.
And for advertisers, we have data tools and technology that improves the return on every dollar spent.
<unk> supported streaming services are a huge and growing part of the streaming ecosystem demonstrated by the continued success of the Roku channel. It was a top five apps on our platform in the U S. By active account reached for the third quarter in a row and for the first time. It was a top five app on our platform in the U S by streaming hours.
Engagement.
The roku channels, expanding reach and engagement is being driven by the increased quality and diversity.
Our content portfolio and our unique ability to promote it as the platform owner.
As a leading platform in TV streaming we expect to continue to grow both active accounts and platform monetization for years to come.
This quarter, we launched new AD products, and we will present more AD product offerings and content to advertisers at Roku is first in person upfront event next week.
Today in the U S. Nielsen reports that audience has been 46% of their TV time screaming.
E. Marketer reports that advertisers spent just 18% of their TV AD budgets on streaming.
Both of these will become a 100%.
Eventually all TV and all TV advertising will be screened roku is a leader in TV streaming with an established track record of platform growth and technology innovation and we will continue to invest to capture the significant opportunities ahead of us.
And with that let me turn it over to Steve. Thanks.
Thanks Anthony.
Before taking your questions I'll walk through highlights and discuss our outlook given the current macro environment.
We continue to grow adding $1 1 million active accounts in Q1, and ending the quarter with $61 3 million.
As expected year over year active account net ads moderated.
The end of government stimulus payments that temporarily drove discretionary consumer spend in Q1 2021.
Additionally, ongoing supply chain disruptions increase U S TV prices in Q1 2022.
Resulting in industry wide TV unit sales that were below 2019 pre COVID-19 levels.
In the third quarter in a row.
Roku player unit sales decreased 12% year over year, but remained above pre COVID-19 levels and the average selling price decreased 9% year over year.
Engagement with high Roku users streamed 29 billion hours in the quarter, an increase of $1 4 billion from last quarter.
In Q1 total net revenue increased 28% year over year to $734 million platform revenue was up 39% year over year to $647 million benefiting from higher content distribution and robust growth in advertising revenue. Despite some continued <unk>.
Net in certain verticals Q1 player revenue declined 19% year over year, but was up 20% versus Q1 2019 pre COVID-19 .
In Q1 gross profit grew 12% year over year to $365 million platform gross margin was 59%, which was down roughly eight points year over year, reflecting a shift towards a greater mix of video advertising compared to a year ago period, which had significant growth of higher margin <unk>.
Danny and content distribution due to the launch of new services play.
Player margins continued to be pressured by supply chain challenges as we chose to prioritize the account acquisition and insulate consumers from higher cost.
Q1, adjusted EBITDA was $58 million and we ended the quarter with over $2 2 billion of cash and investments.
Looking to the second quarter, we anticipate total net revenue of $805 million up 25% year over year.
Gross profit of $395 million with a gross margin of 49%.
And breakeven adjusted EBITDA.
At a high level, we continue to navigate through a difficult near term macro environment, which includes impacts from and further uncertainties related to ongoing supply chain disruptions inflationary pressures and geopolitical conflicts.
That said, we believe roku is well positioned to continue to grow and we intend to invest in the huge opportunity in TV streaming and to maintain our leadership position.
I'd like to provide additional color on each of our estimates.
Total net revenue of $805 million reflects our expectation that the ongoing macro headwinds I, just mentioned have the potential to reduce or delay ad spend in certain verticals.
However, we continue to improve our ability to monetize across our business and we believe that this will be reflected in growing net revenue despite a very difficult comp.
Recall that platform revenue in Q2 of 2021 more than doubled year over year.
Gross profit of $395 million reflects our expectation that in our platform business. We will continue to grow the portion of video advertising, which has slightly lower margins than other revenue streams and.
And we expect that supply chain disruptions will continue to pressure the player business, resulting in a negative gross margin as we prioritized account acquisition and absorbed elevated costs.
We expect this will result in total gross margin of approximately 49% finally, our outlook for Q2 adjusted EBITDA is breakeven.
Primarily due to our strategic commitment to invest in our business and the significant opportunity ahead of us.
Recall that we curtailed spending during the early phases of Covid, and then began ramping spending mid last year.
And we therefore expect opex to increase approximately 90% year over year. We also continue to expect full year adjusted EBITDA of roughly $150 million.
As expected, we delivered solid performance in challenging operating environment to begin the year.
We believe that the near term headwinds are dwarfed by the long term opportunities in the secular shift TV streaming and TV OS consolidation.
Orbis value, we deliver to consumers content owners and advertisers will drive our growth and for the full year. We continue to expect total net revenue growth of approximately 35% year over year.
We believe that all audiences all content and Thats, all advertising will shift to TV streaming.
We will continue to enhance our OS our AD platform and drive the Roku channel flywheel with great new content.
And we will continue to provide content publishers with the audience and tools to grow successful streaming businesses.
Operator, we'll now open it up for questions.
Thank you and as a reminder to ask a question simply press star one on your telephone to withdraw your question press the pound or hash key once again to ask a question. Please press. The Star then one on your telephone keypad.
Question. Your first question is from Shyam Patel with <unk>. Please go ahead.
Hey, guys nice job on the on the results I had a couple of questions.
First one Anthony.
Can you talk a little bit about just your thoughts on Netflix introducing advertising and the potential opportunities for Roku and then second.
Can you guys talk about what gives you confidence in the second half growth acceleration. Thank you.
Okay.
Hey, Sam.
This is Anthony sure I'll take the I'll take the first question and then Steve can take the second one.
So I think if I think about well first of all I'll just say that.
I can't comment specifically.
Specifically on one Netflix may or may not do but except to say that they're a great partner, we've been working with them. Since we launched the first gaming player in 2008.
And then my thoughts generally on.
On advertising.
Is that advertising as a way to lower the cost of our subscription streaming service.
Which makes services streaming services more appealing to consumers I mean, as you lower the price of screaming people stream more and so generally advertising is good.
It lowers the cost of screaming increases consumer interest and shaming.
And then I guess, David another comment I would make is that.
Roku is a streaming platform, which is a different business model than a individual screening service and sometimes people confuse the two but our business model.
On the way, we make money is to connect consumers with content on with advertisers.
And so anything that causes more screaming to flow through the roku platform.
As good as good for us and good for our business.
More generally I think we believe that more Avon offerings will accelerate.
The movement of traditional TV budgets into screening.
To recap, where we are there the traditional TV advertising in the U S is a $60 billion opportunity.
Larger globally.
For the first time the reach of TV screening has surpassed legacy pay TV in the U S for adults 18 to 49.
Yes.
AD dollars for TV did not move to streaming yet.
Only 18% of AD dollars.
So theres no TV AD spend is screaming that almost half of all TV time is screaming and so it's going to be a 100% of AD budgets moving screening.
So anything that accelerates that trend was also very good for us good for our business model.
So just in generally I think.
And as part of our streaming services.
Good for consumers and is good for Roku as well.
And then Steve I just wanted to take the second question.
Yes sure yes, thanks for the question so.
In terms of how do we bridge from solid Q2 performance with revenue up 28%, our Q2 outlook, which is in the same ballpark and then.
Reaffirmation of our view that the full year will be kind of mid thirties revenue wise.
Like we said last quarter one of the factors. That's involved here is that the year over year comps are easier in the back half of this year. So just as context from 2021, if you remember a revenue in the front half.
Grew roughly 80% in 2021 front half of 2021 versus in the back half of 2020 and it grew 40% so.
That plus.
The robust growth, we're seeing in the AD business and the relative growth in monetization relative to peers gives us confidence that.
We are reaffirming that full year guidance. The other thing that we look at is just on a sequential increase basis. Those are also in line with historical averages so, whereas we're obviously.
Transitioning through near term macro headwinds.
To work by the overall opportunity and so we're we feel good about the continued growth of Roku and the thesis around the shift to streaming remain intact.
Great. Thank you guys.
Thank you. Our next thanks. Your next question comes from Victoria, <unk> with D. A Davidson. Please go ahead.
Yeah.
Hi, Thanks for taking my question. Thanks.
Hi, Thanks for taking my question.
So we're getting a lot of questions from our from investors on the <unk>.
Following and we would appreciate your thoughts.
What's the difference today between the state of asphalt in Avon markets in the U S. When it comes to the level of consumer engagement for asphalt specifically like have we hit a saturation point when it comes to the number of subscribers for Epsilon to collectively.
And then I've got a follow up question after that.
Yes.
This is.
Hey, Victoria. Thanks for the question. This is Anthony I'll start and then.
Yeah, Scott has any anything to add.
No.
First of all I guess I would just say that.
I think it's too early to say anything about saturation of basketball screaming is screaming is.
There is more popular than ever is still growing.
It's a large global phenomenon.
That is still spreading around the world.
You have 60 million active accounts.
Thats still tiny compared to the 1 billion broadband households around the world.
They are all going to get their TV through screaming so.
There's still a lot of room to grow and a lot of room for services to continue to expand as the world transitions to screaming the dynamics are a little bit different in the U S versus globally in the U S. You've got this dynamic of pay TV.
Cord cutting.
Tumors moving to streaming and saving money there.
As well as having a better TV experience.
I think it's I think it's hard to say I don't think we know yet.
What's the level of spend that consumers will settle out with on the slot services in the U S.
We didn't know that.
Hey, Bob services are increasingly becoming popular in terms of integrating ads into echelon services, and giving consumers a choice of lower prices with ads versus higher prices AD free all the way and then all the way to services like the Roku channel, which are 100% free and completely AD supported.
Very popular with consumers as well the Roku channel is doing extremely well.
Top five channel on our platform by region now now it's the top clients.
Sorry, it's a top five app on the platform by reaching out the top five app on the platform by engagement as well.
It's doing incredibly well for us, but if you look globally about the role of asphalt services.
Think about it.
Screening has thawed services or R&D.
The global version of the pay TV pay TV is mostly was historically most of the U S phenomenon. Although there is some pay TV internationally, but just not not a lot and nothing close to in the U S.
But S. One streaming services are a way for the global market to quickly and easily access.
Great content selection akin to that of pay TV, but at a much lower price on a better experience and so I think actually there is a huge opportunity.
Sure.
Around the world.
As I think most regions will transition from 100% free television, which is the way it is in a lot of countries too.
A lot of consumers around the world, having at least one epsilon subscription and maybe more.
So.
And generally I think I think the.
Streaming is more popular than ever.
There is.
A large number of Tvs around the world that are going to become smart Tvs.
And.
We're not anywhere near saturation, but I don't know if Scott did you want to add something.
Yes, I'd just like to double down on that Victoria, We're nowhere near saturation. We mentioned the shareholder letter that we just crossed the point, where our streaming can deliver more reach than linear TV.
46% of TD times now on streaming.
On our platform, we see three eight hours out of a daily diet of almost eight hours per U S. Household everywhere you look we're nowhere near saturation in terms of consumers moving their TV time.
Two to streaming and I think then if you look at the business models of <unk> versus <unk>, but we're also not.
Saturating, yes, certainly there are more mature services, whose growth has slowed down so much younger services are still very much in acquisition mode and competing not just with each other but for the time that still spent in traditional linear TV, we do see that Avon has for many new.
Years now.
Avon I mean.
Slowly AD supported free like the Roku channel or add subsidized with the subscription that category or that has consistently been growing faster than <unk>.
Pure subscription services in part.
Because of the reasons Anthony mentioned earlier, which is that.
Free is a great price or subsidizes, a great price and so consumers are drawn to having more choice ultimately.
When they can be offered.
For it services.
Definitively say, we're nowhere near saturation in terms of consumer appetite for streaming.
This is yes. This is Anthony again.
I think it's also important just as you start if youre thinking about Rockies business remember that brokerage business as well.
We are a platform that connects content consumers and advertisers, but we're not we're not an individual streaming service, but we are seeing across our entire platform engagement continuing to grow.
And as well as of course, the reach of the platform continuing to grow.
The opportunity is.
Is huge because just like in just like we saw with phones, where they consolidated around a couple of platforms. The way we saw it before that with Pce's consolidating around a couple of platforms.
Same thing is happening with smart Tvs smart TV platforms like Roku are consolidating to a small number of TV platforms, I think it'll end up being two or three.
Roku is the number one TV streaming platform in the U S. We are.
Now the number one team and screening platform in Canada. We're now the number one TV streaming platform in Mexico.
And if you think about that in the future a world where everyone is everyone is using a smart TV smart TV, just consolidated to two or three platforms and hundreds of millions of dollars in subscription and advertising revenue flow through those platforms.
That's a great business and it's a different business than ours.
A single streaming service.
Thank you for the color on that and then if I can just sneak in one more quick question.
Do you have any color on your current thoughts on the importance of both live.
Live sports and live news as it relates to Roku.
I'll, let Scott do you want to take that.
Yes, I'll take it.
And in sports is certainly a key driver for a number of the services on our platform. The key way that some of these services, whether it's Paramount Peacock twofold with the Olympics.
It's an essential install.
Instrument.
Content type that these services are using to draw viewers industry, meaning and and in some ways.
Sports is the and the last pillar holding the traditional pay TV bundled together so as we see that on Npls more more sports become available through streaming services will see continued acceleration of consumers out of traditional pay TV and linear viewership in the industry.
No New news has moved more readily we've got some great news offerings in the Roku Channel for example, ABC news NBC.
Writers that we have a ton of offerings that they do very well.
And and then they are Standalone services as well I think I think news has already moved and started to innovate and streaming sports is more of a mixed bag with obviously some content still locked up behind more traditional linear services.
This is Anthony.
Sports actually is a great example of how roku the platform.
Can be valuable to our customers in the sense that.
<unk>.
Rights are incredibly spread out across many different services and one of the important roles. We play for our customers is to help.
Help them find and discover content across the platform as opposed to like going into every app and looking at what's in that App. So we have tools today like universal search where things called zones, we have sports zone.
And those kinds of tools, we're expanding to make it even easier for consumers to find out.
Where the game they want to watch is playing right now across the.
Thousands of services are available on Roku streaming platform.
Thank you and your next question comes from Barton Crockett with Rossum glad Securities. Your question. Please.
Okay, great. Thanks for taking the question and thanks for.
Having me on the call here with you I wanted to ask.
A follow up on the discussion about the environment and then an unrelated question.
In terms of.
Just to dive into this.
Netflix obviously, it's the dominant streamer and the area, where you're dominate they've hit a wall there they are losing some.
Subscribers you guys are still growing accounts growing hours.
Where is the incremental usage coming from it's not going into Netflix I was wondering if you can talk about is that going into a bot or new subscription services or just some color about what youre seeing there would be helpful.
Sure.
This is Anthony I'll start and then.
Probably could add.
Generally what we're seeing if you look at.
You look at brokers as a platform does.
Theres lots of different services to consumers can select the scheme.
Streaming has never been more popular.
Viewers have just a tremendous number of options.
And.
And so that's causing overall engagement across our platform to grow.
Any particular service might be going up or down or whatever it has some specific dynamics, but in aggregate, we're seeing screaming grow.
We've talked about the stat that if you look at the number of hours you bought typical household in the U S.
Which is about eight and compare that to royalties hours, where about half of that.
And thats because consumers are.
Using other other ways of watching TV, Besides just screaming.
Switching more and more and more of their time, the screaming and so thats, causing streaming hours overall to grow as far as different kinds of categories.
AD supported content is a fast growing category on our platform. The Roku channel is doing extremely well.
Because it's free and quality.
Quality of the content is getting better and better.
Everything from back catalog content.
All the way up to Roku originals and everything in between we did our output deal with.
Lionsgate recently for movies.
We signed a deal recently, where they need to access some of their content. So.
AD supported content is growing.
So thats why comps were strong as well, there's just lots of Where's the lab services.
So I don't know Scott did you do you have anything you want to add.
No.
Yes.
Yes, just simply the offer keeps getting better for consumers, we just see such substantial investment in the services and the content that's built into them.
That.
The appeal of what you can get.
Streaming this continues to get better and better.
And with advertising and opens up more price points and more accessibility to more consumers. That's ultimately Barton the thing that's driving incremental streaming consumption.
Yes, I mean, just.
For our viewers the Golden age of television.
So many different options so much competition, but it didn't happen before.
Between content providers for viewers and so.
You always have lots of options is getting better all the time for them.
And then for services.
For Roku is the platform that competition is good for our business because we provide.
A lot of tools that allow viewers to find content I was talking about like searching across the platform but.
And year on those.
Those kinds of user interfaces provide opportunities for us to put promotional pressure.
<unk>, our ads, which we which we make.
We make money on.
And then we have lots of tools to allow content providers to build audience to everything from billing to.
Promotion.
Okay.
Just other ways for them to build audience.
Our business the competition, that's happening and screaming.
Is good and for viewers is good as well.
Okay, and then just one other kind of topic that I wanted to address quickly if I could.
<unk>.
Of services, So obviously front.
Top of mind with Warner Brothers Discovery.
And I'm, just curious about what happens what's where.
If you could talk about the contractual circumstances of consolidation.
To the extent that if one big services following buying a smaller services like we see in television where the smaller service gets on the bigger services more favorable economics.
If two networks are combined is that just the loss of revenue from one of the networks or is there something different in your model.
I was wondering if you could discuss.
Scott can take that question.
Yes, Barton what I'd say is that.
Back to Anthony's earlier point, our role as a platform is to help these services get in front of consumers and drive consumption and so in general we're in favor of any development, whether it's the launch of new AD supported business models or or the merger of companies that ensures that the companies can continue to bring bigger.
And better services to our consumers I won't comment specifically on our deals or relationships with Warner before the merger or discovery, except to say we.
We have deep enduring relationship with both parties are expected to continue afterwards, we've just launched this that request inside the grocery channel very excited about the potential there to deliver for our consumers a great experience and extend the audience that Warner brothers in February can reach with that request through the Roku channel.
We've got a robust relationship with both sides of the house in terms of marketing their content and services to our users. So.
Generally robust competitive.
Ecosystem is good for us as a platform.
Yes, and I would say I'd just add to that.
The number of content services in the amount of content available through screening is growing whats happen I think the consolidation that's happening is around existing media companies consolidating to build better screening services, but those are generally new streaming services that didn't exist before.
Thank you and your next question comes from <unk> <unk> with Evercore ISI.
Okay. Thank you very much let me try a few things one can you. Please comment on the supply chain headwinds currently and Randy. Thank you.
You can see.
The headwinds dissipate at perhaps are you seeing that already where are you right now versus what you saw earlier in the year. That's question one.
Second is possible to comment on the overall AD environment, the demand trends that youre seeing right now.
It's been conflicting calls there hasnt been conflicting commentary from some of the other companies that are.
That have already reported on brand spend and perhaps potential weakness in brand spend but you are reiterating your full year guidance for <unk>.
Top line growth. So just talk to the demand trends that youre seeing for brands, it's been especially and then finally, if you could talk about gross margin for platform revenue platform segment as we think about the rest of the year that'd be great. Thanks, a lot.
So Steve Steve can take the first question on supply chain, Scott will take the second question on the overall environment.
And then.
I guess, Steve can also take the gross margin question.
Yes, correct.
Yes.
I'll talk about the supply chain impact mainly on the account acquisition side and we can talk about Scott can chime in with some commentary on the monetization side.
This is the situation.
Similar to last couple of quarters. So if you remember starting in Q3 Q4 and now into Q1, we've had.
Dealing with similar situations, where we've got continue.
Continued elevated pricing in terms of component.
As well as some availability challenges and then.
The kind of shipping and logistics costs and delays there.
Some of those portions have come off their all time highs that we've seen but in general costs remain elevated.
We are.
The Roku team is doing a great job of being nimble in terms of alternate sourcing and doing some reworking to make sure that we have availability on the player side, but.
But in general.
Situation is fairly similar in terms of the impact of the TV industry, and then how that impact.
Kind of our unit sale. So on the TV side similar to last couple of quarters. We can we can see that these elevated pricing of new Tvs is causing the overall size of the market in terms of unit sold to be down and they are still down below 2019 pre COVID-19 level.
So that is definitely a headwind for the industry as well as our TV partners.
And the good news is that our market share has actually gone up sequentially. So.
As we have inventory availability.
That's good with our partners that has gone well, we're still the number one.
TV pass out there in North America.
And.
We continued to compete well on that despite the headwinds on the TV side on the player side similar to last couple of quarters as well what we've been doing is using our scale our relationships and the flexibility to go ahead and absorb the price increases.
Our increase in <unk> gives us more flexibility and like I said, the supply chain and operations teams done a good job of keeping that so the player unit sales while they are down.
Year over year in part due to a tough comp based on the stimulus payments last year.
What <unk> seen is that they remain above.
2019, pre COVID-19 level. So that's kind of the impact in terms of how long that will continue we think that situation will be similar to what we talked about it in our outlook for Q2 at least in the short term those conditions will persist and certainly there's a lot of uncertainty out there not only around the supply chain, but continued pandemic.
<unk>.
In China as well as knock on effects from the war in Ukraine.
Scott maybe turn it over to you on the outside.
Yes.
On the AD side.
Yes, absolutely there is still some.
Certainty out there there are certain verticals that are more affected by supply chain and others, but we're still putting up very robust growth for the AD business and that that's largely because we're still early in the movement of budgets industry, meaning in the shareholder letter. We cited 46% of time spent in stream, but only 18%.
Scent of AD budgets being spent.
For us that translates into hey are we going to be able to grow this account, a 100% year over year, or 40% and 50% year over year or per account spending is up 50% year over year and we see significant.
Increased commitments across every one of our segments, our large customer segment, our growth performance segment, our <unk> segment.
So.
The uncertainty does affect us, but but the magnitude of the shift is still very substantial we'll still we're still putting up very substantial growth figures and we are going into the upfront next week.
Our first live upfront, we're excited about it rolling out a bunch of great new content offerings, great New AD product innovation, and we're bullish about our ability to drive yet further substantial commitments.
For the AD business.
Yes, and then on the.
Sort of on the gross margin for platform. So in the quarter platform gross margin was about 59% that was down roughly eight points year over year relative to Q1 2021.
The primary difference there is it reflects the shift toward the.
The advertising video advertising if you remember in Q1 of 2021, we had extremely strong performance from M&A and content distribution sides of the business related to new or recently, new streaming services. So that was the higher mix and those are very high margin parts of them.
Monetization so that that change reflects.
The overall move towards video.
Video advertising and then we mentioned as part of our outlook kind of a similar overall company.
<unk>.
Gross margin to what we had this quarter and that that reflects that that kind of continued mix of video advertising.
Okay. Thanks, Steve Thanks, Scott.
Thank you.
Thank you. Your next question comes from Ralph <unk> with William Blair. Your question. Please.
Great. Thanks for taking the question I was cutting Anthony a couple of times you've referenced in this call and others about the 18% of AD budgets that are shipped to the streaming.
On this call, we're talking about 46% of consumers streaming time occurring in the streaming environment I know the macro is tough, but what are the conditions do you think that you would need let's say, we finally get through this macro tunnel to sort of accelerate that shift.
And maybe another question asked is if you're not allocating larger budgets are streaming today. What is the holdup is it just that TV sort of.
Establish it has more predictable measurement capabilities, but just sort of provide some color along that question would be helpful. Thank you.
Hey, Ralph this is Anthony.
I'll take it from my point of view and that I think <unk>, probably have a better answer but.
I just think the big issue is just people will take a while to change behaviors.
TV buyer AD buyers have been buying adds a certain way for a long time they understand it.
And the percent of <unk>.
TV AD budgets that we're still shipping I mean, not long ago was a lot smaller.
GAAP was even bigger so the gap is starting to close I think really what it is is just time.
<unk>.
The other thing to kind of accelerate will accelerate things or it has in the past is anytime there is.
Macro macroeconomic stresses on businesses then they start to get more serious about how they should be efficiently spending their money.
But I think this is just something we've seen before and other industries.
In addition of AD dollars to mobile for example.
So it took a lot longer than it took for viewers to shift to mobile, but eventually it catches up.
Scott did you have anything else to add.
It's happening it's just it's just the inertia as Anthony said, it's a big industry with a lot of players a lot of strategies.
It's happening in the CTV AD segment is the fastest growing segment among all media all advertising segments.
I think we'll continue to see acceleration just because of the sheer amount of money is still locked up in linear television.
And if you think about AD growth generally from Rochas business point of view.
There is a shift of traditional TV AD dollars to screaming in the United States.
In the rest of the markets around the World Roku is much more focused at this point in the lifecycle on building active accounts and we barely started monetization. We just recently in Mexico launched.
AD sales, but almost.
Almost no AD monetization and the rest of the World that's also going to be.
I mean, the whole world is going to switch to streaming and all average TV advertising switch to streaming and other big.
Pool of AD dollars that I think is not fully tapped into yet is performance based advertising.
Are the kinds of AD dollars that are spent on digital advertising.
The traditional TV advertising.
It was Nielsen demographics it was.
There is no way to directly measure how effective your Abbott add is in the case of connected TV and in case of Roku, specifically, we've invested a lot in our AD stack over over the years and we have a very high quality high Tech Big data targeted measurement performance based ads advertising stack and so.
We are starting to see performance based advertisers in digital advertisers starting to move to.
To our platform and there is a lot of room to grow that as well.
Okay. Thanks, Anthony Thanks, Scott.
Thank you. Your next question comes from Steven <unk> with Wells Fargo. Your question. Please.
Thanks, maybe first I think that platform <unk> in the quarter was up around 20%.
The hours per account were down a little bit I know, it's a really tough comp as there is still some lockdowns going on last year, but nonetheless I was wondering if you could just maybe help us deconstruct that are a little bit. So it seems like either you got really good pricing or maybe you had some content sales or other boundaries that you might have had in the quarter. So I'd love to get a little more color on.
Just <unk>.
And then Anthony I got a quick quick follow up for you.
Okay, well actually RP was $43 in the quarter up 34% year over year, but Steve I don't know if you want to.
And any more color to that.
Yes, Yes, you are right yes.
Trailing 12 months roughly $43 up.
Up 34% year over year, we continue to see great progress on monetization.
That's obviously the three big parts of that are the advertising business the content distribution revenue shares as well as the media and entertainment spend and so.
From a year ago.
<unk> seen a shift more to the video AD business, but all three aspects that have been making good progress and we continue to innovate on the AD side.
We have our upfront coming up next week, we'll where we will announce even more and then we continue to see good progress.
Partnering with content publishers on content distribution revenues and media and entertainment so.
Does that that <unk> is not necessarily directly correlated with the streaming hours as you mentioned streaming hours.
On a active account per.
Per day streaming hours per day is.
Is a little bit down year over year, but that still is a bit of a difficult comp just given where we were in the COVID-19 and markdown cycle a year ago, we feel pretty good about.
How that's been growing over time minus some of the demand blips.
In the Lockdown phases, but just a reminder, that's still roughly half of the average U S. TV households in terms of their total time viewing so there's a lot more opportunity on both the engagement side with streaming hours as well as on the <unk> potential.
Thanks for that color and then Anthony I mean, you seem really convicted on this notion of operating systems consolidating down to just a couple of players yesterday. There was the announcement by Comcast and charter that theyre going into this market in a little more aggressive way than they had been in the past. So I guess, how do you kind of think about the risks of that market.
<unk> takes quite a long time, it's obviously baked into a lot of your investment guidance for the year. So when do you think we might be coming through to that rationalization, where you might enjoy stronger economics. Thanks.
Okay.
Well I think so.
Think about.
Competition for it.
For a second.
Ah.
We've got over 60 million active accounts and growing fast we're the number one TV selling operating system in the United States.
In a.
A few years ago, Roku TV didn't even exist now.
We're the number one selling TV OS in the country and.
We gained we gained our growth in TV program gained market share sequentially quarter over quarter in the latest quarter. So.
No.
Sure.
Every reason we compete in active accounts are growing.
And we've been competing effectively against.
Big strong companies for years.
Compete with Google compete with Amazon and we compete effectively.
And the reason we win in these markets is because.
Where we built the only purpose built operating system for TV.
We're incredibly focused on streaming it's all we do.
And we've got a great team.
<unk> comes to work every day to build the best screening products and business.
The way we grow active accounts.
We sell screaming players and.
And we sell.
When we license we sell licenses.
<unk> Tvs or we don't sell them, but theyre Roku Tvs are in the market, which which we license.
And both of those are both television and streaming players are critical.
Critical strategic assets for us in terms of growing our active accounts if you look at our competitors.
There's competitors the only new Tvs among those competitors that.
Do both players and Tvs, but they're really strong and only only one or the other whereas.
One of the key things about Roku successes.
Strong in both streaming players and.
Smart Tvs.
Both of those assets are doing well for us so.
I think if you just in terms of.
Why why is it going to continue to consolidate because the amount of money the amount of money that goes into building a competitive TV streaming platform is very large and growing.
Bundling all a big chunk of our gross profit.
Back into building the strength of our platform.
It's very hard for.
Certainly for a new player like it's hard for me to imagine how theyre going to be successful given the long number of years, we've invested in our platform and our competitors have as well.
But also just you have to amortize that cost across a larger and larger install base to be competitive scale is super important.
It's exact same phenomenon and Pcs or you see lots of different PC operating system and foundries with lots of different phone software stack now there's there's only a couple of the same thing is happening Tvs.
Thank you.
Thank you our last question comes from Vasili cost card Ics with Cannonballs. Please go ahead.
Well. Thank you I have a quick one and then a more substantial one quick one can you. Please tell us how.
How fast the monetized.
Add the impressions grew in the quarter I am sorry, if I missed it in the letter and then my second question is about your relationships with major apps that were launched in recent years and how they evolve over time. So if I look at their disclosure they showed that spending by your biggest platform customer grew 39%.
Sam.
Last year after a significant growth in 2020, so all bear fruit relationship grows grow in years. After an app launches. So can you give us some color on how the revenue mix changes over time.
Between distribution revenue on M&A, and then speaking of them I mean, how do you see the revenue dynamic change as I map goes from the initial subscriber acquisition phase two trunk control and subscriber retention. Thank you very much.
Steve.
Okay.
You need it.
Hey facility.
Just in terms of Roku monetized video AD impression, we didnt to note a specific number on that.
The AD business continues to grow and as the as we said we're mixing more into the video AD business.
In terms of.
You know kind of the revenue mix between.
Content distribution and me I'll give some thoughts and then khaki or color on the dynamics there.
But what we see over time, it's certainly we've talked about the shift from last year into video advertising.
So that's becoming a bigger mix of the platform overall, but when you think about.
The kind of revenue specific to the content publishers.
We obviously had a situation.
Late 'twenty 2020, early 2021, where you had a lot of new services, a lot of especially legacy media companies. We're pivoting their focus towards streaming that was very helpful. In terms of short term.
Revenues related to the launch of those services, but what you really see is that.
We have the most engaged audience, we have significant reach with our 60 million active accounts and we have industry, leading tools to help them grow their business and then increasingly what's important is that they will need to drive engagement and retention of those account basis and so.
The shift that Youre seeing in terms of spending specifically on the M&A side. So we've been we've been sort of moving that business for a long time, even before some of the players that have reoriented that way, but thats, all going they're going to have large basis.
My analogy they need many of them need to start thinking Mike scale.
Scale wireless carriers in terms of folks seeing just as much on the engagement and retention as a historically focused on building new subscribers basis.
Got it.
Uh huh.
And Afghan spend more in the second year after launch with you have them on board.
When the launch.
Essentially this is Scott. This is Scott here I mean, what I'd say is that our generally our relationship with these app partners deepens over time, and it's not just a function of their their marketing their M&A spend with us it's multifaceted.
Its buttons revenue shares from their subscription services with collaboration on advertising. It's it's.
Marketing trades between the companies, but we keep getting bigger as a platform.
We keep improving our tool set and partners look to us, especially after they get live and they see the performance.
Of our platform in terms of.
The ratio of new subscribers and engagement that we can drive relative to other other platforms. They tend to lean in and engage more deeply with us not just monetarily, but strategically we just announced.
That is linear ad.
Data work that we're doing with the discovery Paramount AMC Crown there'll be more to come. This is an example of where there is yet another.
Lane to collaborate with these big partners on.
I think Youre also probing the M&A category.
Itself.
And yes, generally partners do increase their spend over time.
And.
It's it's not just for user acquisition, even as partners hit.
Quote saturation and very few of our partners actually have.
They need to keep driving engagement driving retention.
There's clear precedent from the traditional television world we're.
Up to about a quarter of all airtime all advertising time is used to cross promote shows and obviously linear TV is not not growing and so the importance of the services.
Selling and marketing in collaborating with us to feature their content organically and paid for them and in our experience.
It doesn't diminish over time, they've got to key.
Competing for consumer attention driving tune in which drives loyalty and engagement and this is even more important in a streaming world where the traditional tactics cross promoting across different properties and content is harder than it was traditionally they they look to us as a platform to help <unk>.
Driving driving tune it.
So.
So I hope that answers your question.
Yes, thank you very much.
Thank you and that ends our Q&A session for today.
Turn it back to Anthony Wood for his closing remarks.
Thanks, I want to thank our employees customers and partners for a solid quarter we.
We have built the best TV screening platform for audiences content publishers and advertisers alike.
We're focused on continuing to be the innovation leader among streaming platforms.
Thank you. This concludes today's program and you may now disconnect. Thank you.
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