Q3 2022 Roku Inc Earnings Call
Hello, Thank you for standing by and welcome to the third quarter 2020 to Roku earnings Conference call. At this time all participants are in a listen only mode. After the speaker presentation there'll be a question and answer session to ask a question. During the session you will need to press star one one on your telephone please be advised that todays call.
Prince maybe recorded I would now like to hand, the conference over to your Speaker today, Conrad Grodd, Vice President of Investor Relations. Please go ahead.
Thank you operator, good afternoon, and welcome to <unk> third quarter 2022 earnings call I'm joined today by Anthony Wood broker founder and CEO and Steve Louden our CFO .
Full details of our results and additional management commentary are available in our shareholder letter, which can be found on investor relations website at Roku Dot com ports slash investor.
Our comments and responses to your questions on this call reflect management's view as of today, only and we disclaim any obligation to update this information.
On this call, we'll be making forward looking statements.
Which are predictions projections or other statements about future events.
Neutral outlook, our investments our operating expenses, our business strategy future market conditions, and macro environment headwinds such as the economic uncertainty and inflationary pressures. 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 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 be against our results for the comparable period of 2021, now I'd like to hand, the call over to Anthony.
Thanks, Conrad and thank you all for joining us today.
I'd like to provide some high level thoughts on the macro environment brokers business model.
And our ongoing conviction and the streaming platform opportunity.
In Q3 advertisers pulled back on spending consumers were further pressured by inflation in.
And overall economic uncertainty remains high.
We expect these conditions will continue and are likely to worsen in Q4.
Although these factors are temporary and the end market is expected to bounce back.
We will continue to take steps to reduce our opex growth.
In addition, we are sharpening our spending focused on the projects that will drive the most growth and enhance our leadership position.
Our opportunity as a streaming TV platform is very large and remains intact. Despite the current AD pullback.
We are not idly waiting for the AD market to improve.
We added $2 3 million active accounts in Q3.
Which was above net adds in both 2019 and 2021.
And we grew seeming hours on the Roku channel by more than 90% year over year.
We're making good progress internationally demonstrated by our results in Mexico.
Last month, we launched the Roku channel in Mexico, a milestone that is the result of meaningful scale.
And engagement.
That we have built in there in the past three years.
We continue to build our market, leading competitive assets and to attract top industry talent.
As demonstrated by the recent addition of Charlie Collier as President of media and before that get on cats, our president of consumer experiences.
All of this positions us to return to stronger revenue growth when the AD market returns.
We continue to innovate and execute last month, we launched new smart home products to build new service revenue streams.
We believe every device in the home will be connected by software and services, but it is still early days.
For example, only about 20% of U S households have IP cameras.
Additionally, the existing smart home experiences fragmented and difficult to use.
As the number one selling smart TV OS in the U S.
We have the technology and expertise in hardware software and services.
To deliver smart home ecosystem that is simple powerful and the LIFO.
We launched in this category with strong retail distribution that Walmart America's number one retailer.
Roku is now the number one smartphone brand my shelf space and nearly 3500 Walmart locations as with our TV screening business model, we will build scale with our devices and monetize through smart home services, which we expect to become a very large market.
We have spent years building a business designed to benefit everyone in the TV streaming ecosystem.
We are extending our ecosystem and as we look ahead, we remain confident that our strategy and business model are the <unk>.
Best way to maximize the opportunity to deliver both growth and profitability to our investors.
Finally, we announced earlier today that after nearly eight years with Roku.
Loudoun leave in 2023.
After helping us recruit and transitioning his role to a successor.
You may recall that Steve previously decided to leave <unk> three years ago.
When he relocated to Seattle.
With the onset of the pandemic he decided to stay.
I'm grateful for his leadership and for building a world class team, which he will continue to lead until his departure.
And we all wish him well thank you Steve.
Thanks, Anthony I appreciate the kind words.
Roku continues to grow adding $2 3 million active accounts in Q3, which was above both 2019 and 2021 level ending the quarter with $65 4 million.
This growth was driven primarily by TV sales in both the U S and international markets.
Along with improved active account retention.
Meanwhile, Roku player unit sales remained above pre COVID-19 levels and the average selling price decreased 6% year over year as we continue to insulate consumers from higher cost to prioritize account acquisition.
Roku users streamed $21 9 billion hours in the quarter, an increase of 21% year over year as we continue to outperform viewing our growth of traditional TV.
In Q3 total net revenue increased 12% year over year to $761 million platform revenue was up 15% year over year to $670 million, representing 88% of total revenue.
While platform revenue came in above our expectations and was a positive given the difficult macro environment. The advertising business continues to grow more slowly than our beginning of year forecast due to the current weakness in the overall TV AD market in the scatter market in particular.
<unk> unit sales were down 2% year over year on a sell in basis, while player revenue was down 7% due to a mix shift toward lower priced units.
Total gross margin was 47% in the quarter.
Q3 platform gross margin of 56% was stable sequentially, but down nine points year over year. This reflects weakness in the scatter market and a greater mix of video advertising in Q3, 2022 compared to a year ago period.
Q3, 2021 was also a tough comp due to the launch of new streaming services, which drove significant growth of higher margin M&A and content distribution.
In Q3, 2022, we recognized a negative $6 six adjustment due to lower ethanol industry expectations. As a reminder, the 606 adjustments in Q2 was driven by our expectation for lower Roku TV and third unit sales due to the macro environment and both had a similar impact.
<unk> on our platform gross profit in their respective quarters.
Q3 player margin was negative, 19%, which was down roughly four points year over year as we continued to prioritize the account acquisition and insulate consumers from higher cost caused by supply chain disruptions and inflationary pressures.
The year over year compression and platform and player margins resulted in gross profit growth of negative 2% year over year versus the 12% year over year growth in total net revenue.
Q3, adjusted EBITDA was negative $34 million and we ended the quarter with more than $2 billion of cash.
Let me turn to our outlook for the fourth quarter.
Total net revenue of $800 million.
Gross profit of 325 million with gross margin of 41%.
And adjusted EBITDA of negative $135 million.
The holiday season is typically the strongest period for most companies, including Roku, but we expect this season can be different.
We believe that macro uncertainties and inflationary pressures, we will continue to negatively impact consumer discretionary spend and these pressures will further weigh on advertising budget.
Particularly the scatter market.
We expect these conditions to be temporary but it is difficult to predict when they will stabilize or rebound.
For our employer business, we anticipate lower sales year over year and margins that will be significantly lower sequentially, primarily due to traditional holiday promotional pricing.
Incredible journey and a privilege to be part of brokerage success from pre IPO to becoming a public company and a leading TV streaming platform.
Is Anthony noted I will be here until my successor is in place sometime next year.
In the meantime, I look forward to continuing to execute on our mission and working with our terrific team.
With that let's take questions.
At all.
Thank you as a reminder to ask a question you will need to press star one one.
Please stand by the compiler kunai roster.
Our first question comes from Justin Patterson was Qbank capital markets. You May proceed.
Great. Thank you very much too if I can Anthony I. Appreciate the comments you gave on smartphone calm however.
Crowded space at some large competitors.
Focus on this category versus investing deeper into <unk> international expansion and strengthening the <unk> what type of return D. S. D. From this investment and then for Steve It's been a pleasure working with you one.
One of the double click on some of your Opex comments I realize it's going to take time for that to flow through but how do we think it how are you thinking about the right level of Opex growed against a revenue growth in March and preservation.
Q for and into 2023, thank you.
Thanks for the question I will.
After the question on Smart home, and then turn it over to Steve for Opex.
So I think the way I think about you know the smart home.
Is it it's a natural extension of rookies ecosystem in a natural business for us to be in I mean.
Different reasons, let me just highlight some of them so first of all.
65 million active accounts consisting of smart Tv's.
Which is.
<unk> is a great smart device to build on in terms of expanding around the home with other smart devices.
So we have a we have on Earth. We have an early start we are probably one of if not.
The most popular smartphone device at home today.
And then also it's a big it's a big opportunity I mean.
You know, it's it's still early days.
Example, about 20 per cent of the U S homes have a smart camera.
But you know the whole smarthome experienced today as early and complicated cheapest.
Cheapest way too complicated and and it's got a lot more potential then.
The way the existing.
Competitors are thinking about it and so I just think it's it's it's an area you know making complicated things simple.
Something that rookie really excels at and that's another big opportunity for us.
To be successful here on the way for us to be successful. It also did.
Did you think about all the assets we have.
We have <unk> greatest software services will get a building.
Simple usable devices and services.
All of those things directly apply to the smartphone business. So we have our brand I mean, we just it's a very natural extension that we've already built a lot of the pieces we need.
And then.
Finally in terms of the opportunity there's gonna be a it's going to be a big market for smart home services.
And.
So it's at tab over the longterm, it's a way for us to build Avenue.
Martin service revenues.
And then you can forget it tactically you know our business, our our business at our business model level, our business model is to sell.
Devices smart devices that are low cost and great value for customers monetize O C service revenue streams and so this is just again a natural extension also.
You know.
Ending our ecosystem bye.
Allowing our customers had other devices to their account <expletive>.
<unk>. It will also have the benefit of increasing the retention of our existing customers as well as obviously building.
Certainly scream so.
And it's not a it's not a particularly big investment for us.
Cause we're leveraging a lot of what we've already done.
But it's that yet as an option on something could be very big in the very high or very high return.
And so.
So that's why I went into one of them. It's a great opportunity and then Steve did you Wanna talk about the <unk> question.
Sure.
Yeah, Hey, Justin.
I know you've been tracking is for awhile, but I think.
Taking a step back here on just the kind of trend over time.
Before the recent AD market downturn, we didn't for for me.
L consistent high revenue in gross profit growth and reinvest the Mac gross profit back into the business is Anthony talked about there.
Opportunity out there ahead of us and when the pandemic at what we did is we we've greatly curtailed that opex broken the uncertainty is that time and effectively deferred some investments we would have otherwise made when we thought that the business in the world with kind of moving out of the pandemic.
<unk> related disruptions we started to.
Go ahead, and invest again in a more substantial way try to get through some of those deferred investments that we've pushed off during the pandemic and so we ramped up head count hiring.
Which is the primary way we invest in an additional.
New innovation and work.
On our project roadmap when we saw the AD market downturn.
In queue too that was really kind of the the confluence of inflation.
Inflation.
Economic uncertainty geopolitical issues around energy and the Orange Crane. So we pulled back significantly immediately on the Opex growth that's.
Manifest itself in relative basically flat head count levels in Q3, and we're continuing to look at ways to.
Take steps to lower that opex growth, but but notably the opex year over year growth rate is so high but that's largely the result of that hiring.
Increases late last year and early this year. So we're focused on driving the sequential Opex procreate down and then we're making sure that we're focusing our remaining investment on the high potential projects that are going to lead to further growth and further bolster our leadership position.
Got it.
Yep.
And just <unk> I'll, just I'll just add that I.
I mean, these are tough times, especially in the AD market.
Certainly impacting us as well as others, but.
The transition to screaming in the creation of a small number of successful large scale streaming platform is a huge opportunity for us and it's not changed by the current.
Current economic cycle. So that's why we're you know we're being very disciplined about where we spend our money but.
But continuing to focus on strong account growth strong engagement Grove.
Positioning his wealth when the market turns around.
I think it would be a mistake, although we're being very disciplined or definitely.
Opex very carefully you know.
We don't want to pull back so much that we start impacting the key pillars that we're building out with a goal of becoming a very large and profitable company.
Thank you.
Thank you one moment for questions.
Our next question comes from Aaron Kessler with Raymond James You May proceed.
Great. Thank you.
Just in terms of the Q3 kind of upside to AD revenues, Keith discuss kind of worried upside came from maybe the linearity throughout the quarter as well I'm Gonna just any thoughts of my revenue by advil.
That you were seeing as well thank you.
Did you want to take the question on.
Two three performance.
Yeah sure. So I can talk about that.
Sure just just in terms of Q3 outperformance I mean, certainly started in queue to kind of made queue to.
Businesses react to the greater level of uncertainty back pulling back on off back in general and including the television ads gathered mercury with an impact that that's something that is by its nature.
Turn off and then turned back on when when things get better our businesses get more comfortable so b.
We are happy with Q3 performance you know given the headwinds but that outlook.
Place at a time, where that trend was just materializing so.
We feel like we've been performing well in terms of.
We looked at some external data from S. M. I showed us outperforming the traditional PV ad market as well.
At or slightly above the connected television AD market. So I think we continue to perform well despite all these headwind.
And that's really where we we've seen the.
The results come in relative to a pretty uncertain outlook at the time, we did last last earnings Paul.
That's.
August September or kind of better than when you were initially gave currents things on the July .
Yeah, we haven't really comment on the specific trends within the quarter certainly there's a lot of uncertainty and so there's there's been a lot of changes I think.
Especially you mentioned some of the questions are out the vertical.
We've seen the verdict, you know kind of the strength or weakness of certain vertical there's been a wide distribution of the impact I mean pretty much every vertical is down when you look at the <unk>, but they're down very different levels and so I think that it's been an ever shifting landscape by vertical and so it's really kind of hard to.
To make a global statement about you know the overall trends.
Yeah got it great. Thank you.
This is this is Anthony <unk>.
But we are seeing it it's like Steve said, there's a lot of uncertainty it's hard to.
Exactly what's gonna happen in queue for but we are seeing signs that keyboard is going to be worse in terms of add.
Market than Q3 was I mean, we're seeing.
Lots of big categories pullback Telecom insurance.
Seeing.
Toy marketers.
Planning on reducing their spending Q4.
I think I think traditionally Q4 is a very it's.
The holiday season is typically the strongest period for a lot of companies, including Roku, but.
Companies are.
Advertise are pulling back their AD budgets, because they're uncertain, if there'll be a recession or not so a lot of T. Four AD campaigns are being cancelled.
And.
So that's why you know so I think this this holiday season, given that unique set of an environment.
Environments and characteristics is probably going to be different than the typical holiday season.
Alright, thanks, so much.
Thank you one moment for questions.
Our next question comes from Schweitzer cause your area was Evercore you May proceed.
[noise] Hello can you hear me.
Yep go ahead.
Okay. So I have a degree.
Okay. Thanks, a lot I'm sorry, my questions have been asked that so let me try to please.
Steve could you talk about how much visibility you have and how that has changed over the course of the year. So as you said today how much.
Crossword revenue segments do you have from <unk> do you watch too many too content distribution and then Anthony how are you thinking about privatizing the different initiatives, whether it is that real quick channel to the AD platform to the operating system and enhancing user experience and also the international has your.
Thought process changed with the changing the macro environment in terms of how you're privatising. Thanks a lot.
Sure. It's D do you Wanna start.
Yeah sure. Thanks for the question is what are the.
Certainly with the increased amount of uncertainty out there both on the consumer side as well as on the business and that's advertising side visibility.
Clearly diminished.
Out there in the economy, most pronounced as we talked about that briefly Diaz scatter market is by its nature is.
Uncommitted tends to be in quarters, Ben and so good example on that kind of before disruption happened before.
The AD pulled back we had a pretty good handle based on our experience over the years about what's the what's the pipeline what's the curve in terms of.
What percentage of bookings that we had a certain points before the quarter started during the quarter.
Those kind of historical pipeline curves are are sort of largely thrown out the window. These days, where there's tremendous uncertainty and as I mentioned on that prior question, there's there's a big shift in and verticals, especially depending on.
The level of uncertainty, whether there's continued supply chain disruptions all that and so the AD gathered isn't certainly the visibility has been the most impacted by that.
Obviously, we've made.
Changes to longer term things like in our six O six modeling around the market size expectations out there in the industry have shifted and we had that change in Q2 in in Q3, we've made some updates based on S fought industry expectations as well so you've got the <unk>.
Pronounce you got short term disability issues and then some other kind of let's call. It near term to modern term changes and expectations with given the way that the world's movie at this point.
And then.
What are your question on how how we think about priority is given the current macro environment I mean, you know our priorities.
Not really has not changed.
And so just to recap those.
You know.
<unk>.
The first pillar of our business is built on the scale of active accounts and there's still lots of room to grow active accounts.
Internationally of course, but also domestically and so.
So that's you know that's the first area of.
Continued investment for us so that would be things like.
<unk> television.
Program, which has been super expensive, sorry, Super effective not expensive Super effective you know, where the where the number one selling television operating system.
In the United States, you know built on the strength of our.
Purpose built.
T V operating system purpose built for TB competing platform.
And again just.
To recap for those who don't know our strategy here.
If you think about when <unk> when you're competing platforms emerge like happened with <unk> you get a lot of initial contenders or legacy businesses and and a they consolidates down to a handful of small handful of winter somebody saw that with windows and Mac on T. CS and then on felons. It was I O S and Android My T V's rookies the number one.
Screen TV O S platform. So so.
Continuing to drive that both domestically and internationally.
[noise] more partners entering new markets Crazy.
Creating more innovative products. So they broke a T V program is a big thing for us.
We made good progress in the corner active accounts grew $2.3 million.
Both both from T V's and players internationally and domestically.
So so growing active accounts throughout the T V program and then another big <unk>.
Area of investment for Us is.
Is is increasing the value of a customer.
So we have lots of customers, let me keep adding more customers, but we can also increase the value of those customers.
And that's the mission of our consumer experienced team will sleeping putting a finer finer focus on over the last year.
Led by get on Cats and.
You know what they're what they're investing in things that increases engagement and are you why.
So it gives them the platform overall and engagement in you eyes, as well and so making are making the user interface our platform user interface more effective in helping consumers find content to watch.
And more effective in terms of building out monetization options for us.
And just building this building the value of the customer bye bye using all the levers available because you know.
Control the platform you want and there's a lot of ways to do that and that's been going well.
A lot of progress there.
And then another area Oh, sorry, and then.
I'm active accounts you know international of course is a big continues to be a big area of focus for us and we're making good progress I mean, we highlighted.
Successes in Mexico, and our shareholder letter.
For the number two platform in Mexico, and we started with the number twos selling T D O S in Mexico now.
We continue to add more television partners. We you know we have a goal of passing Samsung. There is currently number one but I think we can pass them just like we did in the U S and other markets.
And you know because we thought we'd be making the progress in building scale in Mexico.
We have we launched the rookie channel, which is kind of one of the steps and monetizing our our platform in a market.
So continuing to focus.
Global expansion.
So active accounts.
The value of a customer increasing <unk> and then finally of course, there's monetization.
Across the platform and one of the key ways, we do that is through the rookie channel.
So they broke the channel continues to be a big success for us.
And an area that we continue to invest in.
[noise] and then content.
Content is an area of focus for us and we're getting.
Obviously, becoming a bigger player in the content industry in terms of licensing Rev share originals, but that that spend has all been commensurate with the scale and the size of the rookie channel Unappropriate to that business model.
So I think so that some of the areas that we're focused on so it's basically.
Wrong scale the platform increase in the value of a customer.
And just <unk>.
Innovation and competitiveness overall.
Okay. Thank you Anthony Thanks, Steve.
Thank you one moment for questions.
Our next question comes from a a silly curious off with Cannibal Research you May proceed.
Thank you.
Can I ask you to unpack the platform revenue growth by component. Please maybe tell us how much monetize Adam <unk> come to court or used to give out the matrix and then give EM a <expletive>.
Good distribution rubbing and grow maybe.
<unk> <unk> if possible.
<unk> Yep.
After they give you some more color, we obviously don't disaggregate that platform segments.
Six tickets disaggregation issue.
But what we saw that order obviously, we talked about the ads scatter market is is challenge and so that's been a significant driver of the slowing growth and platform overall.
<unk>, we have this tough comp compared to last year, where we had some services that had launched.
Mid to late last year, but <unk> continues to grow.
<unk> margin and from.
From a distribute content distribution standpoint, you know that that is driven.
Driven by the active account growth and streaming our growth so notwithstanding some of our expectations in the future based on.
Industry changing expectations and some consumer behavior that that is held up as well. So the main story here on the platform segment and its growth trends is largely driven by b.
Scatter market again reminder, that.
Front commitments have been strong this year over $1 billion with that in general each year, our exposure to the mix of the upfront to add scatter has been been moving toward upfront and so there's kind of a short term long term.
Disconnect here, the short term certainly very challenged with the ads scatter market pullback pulling back significantly for the industry, but at the same time.
Good trend on the upfront commit as well as.
Things like Emma E performing well.
Okay. Thank you very much.
Sure.
Let me let me just add.
You know <unk> was brought up by you know Eminem isn't it which is media and entertainment for.
For those that don't know that that's our business.
Helping drive.
Yeah.
Descriptions and an engagement viewership with content across our platform and we're very good at it you know it's an area that we built a lot of expertise around I'm actually built out our purpose spill platform for T. V. It's an area that we've invested a lot in in terms of building the right capabilities and tools into the platform.
And you know of course, we understand.
Very well the business of television advertising and.
The tools needed to drive that.
So we built all that into our business and it's an area that I think has a lot of opportunity I mean, obviously, there's a lot of streaming services that are still trying to build accounts trying to reduce churn and grow engagement, but we're also seeing you know big new services like Netflix and Disney get into the business.
Are starting to add advertising to their some tears of their services and for those companies you know.
As soon as they have ads engagement becomes even more important for them because obviously the more people watch.
Concentre more as they can watch and the more money that can be made and so.
You know using our tools to drive engagement.
On our services a little third party services is that something that we're very good at and I think those companies.
No that we can help them a lot in that area. So.
And also I talked about and get on working on our consumer experience.
A big part of that is is also related to driving or <unk> business, which is around how can we become more relevant to our consumers to our viewers in helping them decide what to watch I mean, we're trusted partner for our viewers when they use things like universal search more ways to watch or feature free.
And our user interface, but you know as the owner of the plan you are that's our core advantages using that platform.
Why in ways to help pregnancy immersed find content is something that we can do exclusively and then integrating that into our M any business that.
To drive engagement viewership some subscriptions.
Wait for that we can help our partners and.
Generate a profit for both our revenue for both us and our partners.
[noise]. Thank you.
[noise]. Thank you one moment for questions.
Our next question comes from Jason Holstein was Oppenheimer and you May proceed. Thanks, Anthony kind of Big picture question with a few parts. So from what I can tell the majority of your shareholders stinker, making a strategic mistake by refusing to let third party dsp's bid.
<unk> on T. R C and other inventory. So one do you still think this is the right decision.
Two why do you think this is the right decision and three watch Charlie's view on this given his position in the business and is it possible you changed the position now that he is running advertising. Thanks.
Hey, Jason Thanks for that question on D. S D.
So well like <unk>.
Oh I'll come to Charlie in a second but let me just to kind of touch on D. C. So first of all we have our own D. S. T. One view, which is highly optimized for TB streaming and a rookie platform. That's the best way to.
By inventory across our platform I'm, taking advantage of our of our data in technology, we built into the platform. So that's obviously a big focus for us.
In terms of.
First flying our our revenue streams one of the one of the ways. We've been doing that is focusing on the upfront. So you know we started out with no no revenue coming from the upfront.
This last year, we passed a billion dollars.
In our upfront commitments switch and so every year the mix of dollars that comes on.
On the platform that comes through the Upfronts has been growing and that's becoming increasingly important for us.
But in terms of you know actual dsp's I mean first of all we have we do work with third party Dsp's. We work, we work with dozens of buy and sell side platforms.
You know, we've long works with marketing Adaptec partners, including you know for example, the shopper program, we do with Kroger or the broken measurement partner program with 20 plus measuring companies.
And are there other ways, we could work with <unk> to generate incremental revenue there might be and that's you know we're definitely looking at.
Ways to to work with partners to increase our revenue streams. So that's something that we're looking at.
Ms of Charlie I don't know what Charlie.
Thinks about D S D but.
He's got a lot of experience working with advertisers. Both you know traditionally through I OS and also.
<unk> D. S. P platforms, you know, which is something that T V does at Fox, where he was before O. Two so you know, we'll see but but I think the big the turnaround Charlie is just that.
You know he's a very senior media executive with a lot of experience.
And advertising and content and programming and the strategy of running a media company.
And we built the you know our media business Big business, So very large business.
But it's got so much more potential and it can be a lot bigger and that's you know that's why we repeat a charlie to help us take us to the next level. So I'm sure he'll bring some new insights and strategies and ways of thinking that we weren't thinking before and want to see what what happens, but I'm looking forward to working with them to grow the media business.
I appreciate the car.
Thank you one moment for questions.
Our next question comes from Ralph Schuchard with William Blair and you May proceed.
Great. Thanks for taking the question maybe can you give us some perspective of what you're seeing quarter to date on the AD pullback.
Anthony Thank you talked about big categories, pullback like telecom, but any way to sort of quantify it or maybe talk to the I'm guessing more acceleration in the pullback system perspective, given you know so what what we're seeing in the queue for God, Steve I just wanted to clarify something I think you said that I think he said platform revenue will be down sequentially and cute.
Four if you could confirm that's correct. Thank you.
Yeah, I mean, I can say a few words about about what we're saying yeah business, but and then may be Steve has something with some comments on that as well in our guidance I mean, our outlook. So.
So I think.
Like I said before this is not this is not a normal holiday season, you know, there's a lot of uncertainty.
And the economy, when there's uncertainty around that there's going to be a recession or consumers are pulling back on spending and how much would that will continue when it when will it turn around level the third.
[noise] raising interest rates I mean, all these things bring tremendous amount of uncertainty and so this is not a normal holiday season, and we are seeing them and one of the first things companies do in the face of such uncertainty as they cancel their AD budgets <unk>.
And so that's.
The court driver of why the AD market is down it's very hard to predict because.
A lot of our business comes into the second half of the quarter in queue for.
So, but you know the trends the Transway, we're seeing are that big advertisers that we traditionally get spend frommer not spending this quarter.
Not spending with anyone does not just depend not spending with us.
But you know the best information, we have we put in our we put in our outlook.
And like I said before it's definitely a temporary as soon as as.
As soon as it doesn't the economy doesn't even have to turn around what needs to happen is there has to be more certainty in people's minds about where the economy is heading and that will cause people to come back in the market and start spending again.
Did you want to add anything.
Yeah sure Ralph So yeah, just on your specific question. So we we did mentioned in the remarks that are contemplated in the queue for outlook is that.
The revenue will be down sequentially as well as year over year, and specifically because of the significant pullback in VA N b as scatter market driving that.
Platform revenue down sequentially.
Effectively.
Basically counteracting the traditional sequential pop that we would get because of the holiday season.
That the forces that are sort of against that.
Weighing on the economy, and consumers and advertisers enough to make that a sequential decline.
Okay, Thanks, Dave things happening.
Thank you one moment for questions.
Our next question comes from Jason <unk>, What city you May proceed.
I I have a question about the the next recession actually.
Do you think that the the sort of dramatic sort of retrenchment that we've seen in your advertising revenue.
Lee a function of this upfront scatter mix or.
Do you think it's about plus some sort of.
I dunno lack of sophistication or habit on the part of the advertisers where they still view connected T. P physics mental and therefore, it sort of the first thing that they cut.
When they're faced with a period of uncertainty in other words.
The next recession do you think you'll see the same sort of.
Dynamics in terms of the pullback look more like traditional television that's the basic question.
Hey, Jason. Thank you that's a interesting question I I think that.
Well first of all I think that there's nothing unique about rookie a situation that we believe that were.
You know based on what we've seen that other connected T V companies are experiencing.
Similar pullbacks to us.
We think we're overindex and slightly <unk> versus the connect the television market in terms of getting our fair share. So we're doing a little bit better, but but roughly in line. We think with other connected T V platforms.
And it's certainly true that.
Most of that dollar still flunked or should it through traditional.
The traditional T V companies.
Mmm.
And I you know I believe that this the environment. We're in now will is causing is causing.
People to look more seriously about how they spend their money and traditionally.
Similar situations in the past you've seen situations like we're seeing now accelerate the transition so.
My expectation is this will accelerate the transition of dollars from traditional television to connect the T. V. I think we're seeing that and I think.
You know the mixer session hopefully, it's a long way away and when that happens by that point I think all advertising will be to connect the TV streaming.
Okay. Thank you.
Thank you one moment for questions.
Our next question comes from Rich grief Greenfield with my partner.
[noise] Thanks for taking my question.
Anthony I guess, if we sort of sort of about the overall business.
The ability of your business I'd love to try to get how you were thinking about the shift you know.
Mmm.
Wondering if they want to think about the meta challenges, it's because they're being forced to spend more on their business to sort of keep up with tictoc and so the profitability from they're AI investment is hurting the margins structure of the company. When you think of that sort of <unk>.
Current sort of.
Smart T V landscape.
Is the content simply to drive an incremental revenue stream, where do you see content spend increasingly it's something you need to do to differentiate versus the other players out there meaning.
Sort of a <unk> an increasingly important part of the part of the business that you have to invest in in order to drive player sales and sort of maintain player market share that would be great just to kind of get your kind of high level view on that and then separately, we listened to Lachlan Murdoch early in the week talking about <unk> and talk about sort of 30 per cent.
Growth accelerating the 40 per cent growth in queue for and I think the streets, having a lot of hard time reconciling that those comments relative to what you and Steve just said as well as what we've heard from most of the other companies who have been far more sort of pessimistic about Q for and I'm. Just curious if there's any reason why not all players would surely be seeing the same <unk>.
<unk>. Thanks.
Hey, rich that was a.
Complicated question, let me see if I can.
Of course it out so the first part of it was.
[noise] around I think it was around.
Art.
T V operating system strategy in that we see.
Okay.
Is there a parallel with meta in terms of increased competition.
I I think it is completely different I mean, I think that the the way the way the operating system for television strategy.
Our market is playing out is that we're.
We're not seeing new competitors.
If you if you think like I do that all T. V's are gonna be sold with a licensed operating system and we're seeing that trend playing out over time, there's three license operating systems in the market that have any any.
You know momentum and then that's Roku, we're number one in the U S.
Google T V or Android T V whatever you Wanna call it and Amazon.
T V, which is a variation of Android.
Yeah.
And.
The the.
All three of those operating systems are gaining accounts on their game them at the expense of.
<unk>.
The income of T V providers, which had proprietary operating systems and those are all transitioning to the license operating systems, you know with various degrees of speed, depending on the company and the.
Uhm.
So <unk> you.
I think so to summarize and the C V operating system business Rookie has the only proprietary based operating system sorry, sorry, we have the only purpose built operating system for T V. It's not an operating system that was designed for mobile phones imported.
It gives us a fundamental advantages as the reason we're the number one operating system in U S and drawing rapidly in the markets we enter.
And we expect active accounts and adoption of that operating system to continue to grow.
And we expect to maintain maintain a leadership position, there's no new competitors coming into the market as the markets too far ahead, and it's not it's just different you know.
Just a different market than social media platforms, I mean, it's a television business. It's hardware you know it's.
It requires a lot of scale to to be in the business at this point because there's so much R&D required and it requires that you be successful in monetization.
To participate in the in the <unk>.
Business successfully so.
Fund the R&D that goes along with it.
So I don't think there's really any analogy to.
<unk>.
And I think there's lots of reasons to think that the hardest part of our business in terms of actual accounts was behind us there's still a very competitive obviously, but you know we're doing well in terms of that.
In terms of content.
You know our content strategy is not about.
Differentiating.
Our product.
Our platform.
I mean, it might have some benefits there, but that's not the primary reason so it's I mean, it's like if you look at verses say you know.
That's spot service the biggest one service like Disney or Netflix or Hulu.
<unk>.
They have to convince people to keep paying a subscription fee every month and they do that by.
Producing a lot of original listen to some of them become hits and some of them cause people to want to sign up or or retained their subscription.
Our business with different our businesses, we we build active accounts by licensing.
Licensing our T V O S selling screaming players and.
Then we focus on engagement across the entire platform on a customer has those.
Because we.
You know controlled user interface for the platform and we have our own free Avon service called the rookie channel one of the things. We do is we integrate the rookie channel into the platform you I was drives engagement at the rookie channel does.
So it's not being driven and of course some of that engagement promote content and we promote original isn't original role is actually is to drive engagement among other things.
But.
It's all about it's all it's all it's all in service of creating a good business around the rookie channel you know and getting customers come into wrote the channel and watch content.
And so it's not it's not it's not about getting people to pick rookie with the retailer because you know we have weird al Yankovic.
[noise].
So anyway, so fresh content.
The original is all part of a portfolio strategy designed to have a portfolio of content for the rookie channel that the cheese or any of our business model.
<unk>.
So then to the third part of your question and then just lastly on.
Sort of the yeah.
T V.
You know I don't know they don't break out the specifics of T V. I feel confident that the rookie channel is highly competitive you know <unk> you know Pluto didn't have the numbers that T. B had allegedly I I just can't really comment I don't really know the specifics of the.
Of the Fox T V situation I do know that on our platform. The rookie channels doing extremely well I mean, we grew engagement in the rookie channel, 90% a year over year, which is a huge amount of growth.
It's a very successful product for us it's at the top five app, both in terms of reach and engagement.
<unk> ranked number one in Avon fast services in the U S and Canada.
We've got a broad portfolio of compelling content everything from original to.
License product Spanish language products.
Exclusive content like the weird weird al Yankovic.
Which premiered.
Premier's, especially on the wrote the channel November 4th would just at the premiere last night with Daniel Ratcliffe and Weird Allen.
A lot of buzz around that show is gonna be a great show, but it's not you know, it's and it'll be very successful for us, but it's not like people are buying local players they're buying regulators cause it's got a great user experience for screaming.
Other content. This exclusive wrote the channel cause it includes the rich Eisen show.
Integrating the more and more a slot services instead of rookie channel.
Which has the benefit of driving.
A lot of incremental engagement for those that slot services because the rookie channel is integrated into our platform you I could.
Channels and it's been great for us.
And it's a great asset for us.
Okay branches, you just just to add the.
Yeah, what Andrew was talking about I don't have any it's better to be but what one thing just to remind folks is.
For a lot of media companies that have traditional sort of network cable and connected properties.
With the declining rabies.
And a lot of the traditional business.
A lot of time, those those add spelled R be fulfilled over on the the connected T V properties and so they're actually ship he kind.
Kind of a broad base sale disproportionally over to their their connected T. V property. So again I don't know what's driving through these info.
But that's one thing that is the general phenomenon in the industry.
Thank you and our last question.
Question one moment please.
My last question will be from <unk> pardon Crockett with Rosenblatt Securities You May proceed.
Okay. Thanks for getting me and and I guess, two things I wanted to just check the time.
Some color on one is.
When you talk about the upfront, which was a billion was it they can connect.
That was kind of start to flow in the fourth quarter.
So I'm just wondering if that in fact is happening or.
Have people exercise cancellation options or push their committed Spence back to later in the year.
And then the other question I was wondering about what's on.
In terms of the the strong growth you've had an accounts are active accounts hours.
This quarter a bit of a kick in the peace there.
Was there anything kind of unusual that drove that.
Or does that feel like just a manifestation of the broad trend and just for that reason maybe every reason to think it can continue in the near term.
Let's see this is Anthony I'll start with the active account question and then.
In terms of the upfront and how much of that.
Is it related to the queue for maybe Steve can take that one.
So active account. So you know active accounts were up 2.3 million net net new ads and it was driven by.
You know the the normal thing so we sell screaming players. The T V sales rookie television program was a particularly big contributors.
For active accounts I'd also international was it was a good contributor as well.
So you know I would say if you look at the kind of for <unk>.
So that grade you've got screaming players Tvs and you've got domestic and international.
T V's did did.
Did did well and you know maybe.
Overindex in there and an international also did well.
We.
We also saw retention rate you know a couch.
<unk> come in and out depending on if consumers using them as you know, it's not like the escalade service, where they cancel it or they don't cancel it in the case of our accounts if.
If they use the account and the stream then that's an active account and so and there's always you know accounts that have a screen in the last 30 days until they drop out and sometimes they come back a lot of time, usually they come back so but anyway all of that adds up to.
Our retention rate that has been has been doing well for us for a little bit of two quarters. Now. So you know I don't think there's anything specific that was particularly.
Unusual.
Unusual in the corner that was just going to be a one time thing I think those are that was sort of our normal normal <unk> things are going for us in terms of accounts.
And then Steve I don't know if you have anything to add about the upfront.
Yeah in terms of the upfront.
Be upfront limit.
Starting to queue for and they go through the end of Q3, the following year. So.
So the the deals that we're talking about and the billion plus darkness.
That we just got done last earnings call start as of October we haven't seen significant cancel right. You know just a reminder, that unless the advertiser wants to specify.
And thank you for this the upfront commitment level.
Van expand that 12 month period.
And so they have flexibility to kind of think of what their plan is in and changed around in general, but the main focus for the advertising pullback drugs has been b at scatter market, that's where most of the advertisers are being conservative in the short term and the upfront to Miss her.
Are still a positive indicators for the long term you know leaning in to rescue and screaming.
Okay. Yeah. So just thought maybe another way to just add on that you know basically yes upfront some incoming are becoming a bigger and bigger per cent of our at at.
Plan, and they're getting bigger, but when you see such a large dramatic reduction in the scatter market you know.
Definitely impacts growth.
And when you talk scatter market, you're not talking kind of the the the smaller digital players as much as you are the big traditional.
Advertisers will see on T V is that what you're saying in terms of who's coming back.
Yeah, well, we gotta Marquez scatter.
Go ahead and empty.
Scattered let me say scatter, we mean anything that's not in the upfront. So it's big Big T V advertisers.
You know some of their budget, Cindy upfront, but not all of it.
Okay.
Alright, thank you.
Thank you.
I would now like to turn the call back over to Anthony Wood for any further remarks.
I just wanna, Thank our employees customers and partners for their focus and commitment and a very difficult operating environment.
You know, we expect to emerge from the current advertising downturn stronger in in a better position than ever.
Thank you.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
[noise] what did you think you've completely changed the game here I'm going to remember your name Powell Yankovic.
Critics are going wild for weird everyone's kind of meat you it's hilarious.
So.
<unk> [noise].
[noise].
I couldn't believe how much I laugh.
The craziest biopic ever me now I guess, all I Gotta do is sit back and wait to become famous weird.
[noise] what did you think you have completely changed the came here I'm Gonna remember your name Powell Yankovic.
Critics are going wild for weird everyone's kind of meat you it's hilarious.
[noise] <unk> [noise].
[noise].
I couldn't believe how much I laugh.
The craziest biopic ever me now I guess, all I Gotta do is sit back and wait to become famous weird.
[noise] what did you think you have completely changed the came here I'm Gonna remember your name Powell Yankovic.
Critics are going wild for weird everyone's kind of meat you it's hilarious.
[noise] <unk> [noise].
Yeah.
I couldn't believe how much I laugh.
The craziest biopic ever me, how I guess, all I Gotta do is sit back and wait to become famous weird.
[noise] what did you think you've completely changed the came here I'm going to remember your name Powell Yankovic.
Critics are going wild for weird everyone's kinda meet you it's hilarious.
So.
An onslaught of humor.
[noise] I couldn't believe how much I laugh.
At the craziest biopic ever made how I guess, all I Gotta do is sit back and wait to become famous.
[noise] [noise] what did you think you have completely changed the came here I'm going to remember your name Powell Yankovic.
Critics are going wild for weird everyone's kinda Mitchell it's hilarious.
[noise] <unk> [noise].
Yeah.
I couldn't believe how much I laugh.
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