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 Roku third quarter 2022 earnings call I'm joined today by Anthony Wood, <unk>, 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 web site 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.
And you'll 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.
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 todays 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 would like to hand, the call over to Anthony.
Thanks, Sandra and thank you all for joining us today.
I'd like to provide some high level thoughts on the macro environment, where because the business model and our ongoing conviction and the streaming platform opportunity.
In Q3 advertisers pulled back on spending consumers were further pressured by inflation.
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 screening 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.
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.
To deliver smart home ecosystem that is simple powerful and delightful.
We launched in this category with strong retail distribution at Walmart.
America's number one retailer.
Roku is now the number one smartphone brand by shelf space and nearly 3500, Walmart locations as with our TV streaming 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 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.
Steve Louden leave in 2023.
After helping us recruit and transition his role to a successor.
You may recall that the 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 and the AD scatter market in particular.
Clear 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 606 adjustments due to lower ethanol industry expectations as a reminder, the <unk>.
To fix adjustment in Q2 was driven by our expectation for lower Roku TV and third unit sales due to the macro environment and both have a similar impact 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 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 to 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.
And an incredible journey and a privilege to be part of broke his 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 question.
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 Keybanc capital markets. You May proceed.
Great. Thank you very much too if I can Anthony I. Appreciate the comments you gave on smartphone calm.
[noise] crowded space, but some large competitors like.
Focus on this category.
Deeper into <unk> international expansion.
And strengthening the AD pack.
What type of return D. S. D from this investment and then for Steve.
Been a pleasure working with you.
One of the double click on some of your Opex comments I realized it's gonna take time for that to flow through but how do we think how are you thinking about the right level of opex growth against a revenue growth in March and preservation.
Q for and into 2023, thank you.
Thanks for the question I will ask.
So the question on Smart home, and then turn it over to Steve for Opex.
I think the way I think about you know the smart home.
Business is that it's a natural extension of rookies ecosystem in a natural business for us to begin I mean.
For a few different reasons, let me just highlight some of them. So first of all.
Broker has 65 million.
Accounts.
Consisting of Smart Tv's.
Which is you know, it's a great smart device to build on in terms of expanding around the home with other smart devices.
So we have.
And 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.
Apple about 20 per cent of the U S homes have a smart camera.
But you know the whole smartphone experience today is is early and complicated cheapest.
Cheapest way too complicated and and it's got a lot more potential then.
You know 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 is something that rookie really excels at and that's another big opportunity for us.
To be successful here under the way for us to be successful. It also.
Think about all the assets we have.
We have <unk> greatest software services would get a building very simple usable devices and services and all of those things directly apply to the smart home 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.
To be a big market for smart home services.
And you know so it's it's kind of over the longterm, it's a way for us to build Avenue.
Martin service revenues.
And then if you can get it at school you know our business, our our business at a business model level, our business model is to sell.
Devices smart devices that are low cost and great value for customers.
And the amount of ties O C service revenue streams and so this is just again a natural extension also.
You know.
Sending our ecosystem by allowing our customers had other devices to their account.
<unk>. It will also have the benefit of increasing the retention of our existing customers as well as obviously building service revenue streams. So.
And it's not a it's not a particularly big investment for us.
Because we're leveraging a lot of what we've already done.
So, but it's but yet it's an option on something could be very big in the very high or very high return.
And so.
So that's why we're going for a it's a great opportunity and then.
<unk> did you want to talk about the <unk> question.
Sure.
Yeah, Hey, Justin.
I know you've been tracking this 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 at that time and effectively deferred some investments we would've otherwise made when we thought that the business in the world with kind of moving out of the pandemic.
Related to disruption 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 headcount eire.
Which is the primary way, we invest in an additional new.
A 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 war in Ukraine. So we pulled back significantly immediately on the Opex grow.
F 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.
I just.
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.
Physician as well for in the market turns around.
I think it would be a mistake.
We're being very disciplined are definitely looking opex very carefully.
We don't Wanna pull back so much that we started 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 upset.
<unk> came from maybe the linearity throughout the quarter as well.
And they just any thoughts of my revenue by adverse that you were seeing as well. Thank you.
Did you want to take the question on.
Q3 performance.
Yeah sure. So I can talk about that.
Sure just just in terms of Q3 outperformance I mean, certainly you know starting in Q2 kind of made Q2, we saw.
Businesses react to the greater level of uncertainty by pulling back on Opex in general and including the television at Catamarca was impacted that's something days by nature.
Turn off and then turn 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 10 was just materializing so.
We feel like we've been performing well in terms of the.
We looked at some external data from S. M. I just showed us outperforming the traditional P. B AD market as well as being 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 results come in relative to a pretty uncertain outlook at the time, we did last last time you saw.
<unk> August September or kind of better than when you're finished with your current things I'm not 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.
Especially you mentioned some of the questions around the vertical we've seen the verdict kind of the strength or weakness of certain vertical there's been a wide distribution at 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 the overall trends.
Yeah got it great. Thank you.
This is this is Anthony we you know, 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.
<unk> Q3 was I mean, we're seeing.
Lots of big categories pullback Telecom insurance.
Even seeing.
Toy marketers.
Planning on reducing their spending Q4.
You know I think I think traditionally Q4 is a very hot.
A 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 and so a lot of T. Four AD campaigns are being cancelled and.
And so that's why you know so I think this this holiday season, given the unique set of an environment has 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.
Question comes from Sweat could you area was Evercore you May proceed.
[noise] Hello can you hear me.
Yep go ahead.
Okay. So I have a degree.
Thanks, a lot I'm sorry, my questions have been asked that so let me try to please.
One escaped because 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.
Visibility crossword revenue segments do you have from <unk> video ads to emanate 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 international has.
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 whether 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 you know.
Uncommitted tends to be in quarters, Ben and so good example on that kind of before disruption happened before.
Add pullback, we had a pretty good handle based on our experience over the years about what's the what's the pipeline with 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 the prior question, there's there's a big shift in vertical, especially depending on.
The level of uncertainty, whether there's continued supply chain disruptions all that and so the AD scattered isn't certainly the visibility has been the most impacted by that.
Though obviously we've made <unk>.
Changes to longer term things like in our sixth to fix modeling around the market size expectations out there in the industry have shifted and we add that changes.
You too and and Q3, we made some updates based on S fought industry expectations as well so you've got the most pronounced you got short term disability issues and then some other kind of let's call. It near term to modern term changes and expectations just given the way that the world's movie at this point.
And that's 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 have not changed.
And so just to recap those.
You know.
The first pillar of our business is built on the scale of active accounts.
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>.
<unk> T V.
<unk>, 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 built on the strength of our purpose Bill <unk>.
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 winters and we saw that with windows and Mac and P. C. S. And then on felons It was Iowa.
An Android my T V's rookies the number one.
Screen TV O S platform so.
So continuing to drive that both domestically and internationally.
Adding up more partners entering new markets create.
Creating more innovative products. So they broke a T V program is a big thing for us.
We made good progress on 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> 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.
Putting a finer finer focus on over the last year.
Led by get on Cats, and there you know what they're what they're investing in things that increases engagement and R. U y.
So it gives them a platform overall and engagement in the U I S as well and so making are making the user interface our platform user interface more effective in helping consumers sign 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 we.
We 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 of Oh, sorry, and then.
An act of 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. B O S Mexico now.
We continue to add more television partners. We you know we have a goal of passing Samsung. There currently number one but I think we can pass them just like we did.
And the U S and other markets.
And because we thought we'd be making the progress in building scale of Mexico. We've <unk>. We have we launched the rookie channel, which is kind of one of the steps monetizing our our platform in a market.
So continuing to focus.
Global expansion.
So active accounts.
The value of a customer increasing engagement 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.
You know content as 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.
That spend is all done commensurate with the scale and the size of the rookie channel an appropriate to that business model.
So I think so that some of the areas that we're focused on so it's basically.
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 <unk> yourself with Cannibal Research you May proceed.
Thank you.
Steve can I ask you to unpack the platform revenue growth by component. Please tell us how much.
Monetize <unk> quarter used to give out the matrix and then give them a <expletive> and good distribution rubbing and grow maybe <unk>.
<unk> <unk>, so if possible.
<unk> Yep.
Give you some more color, we obviously don't disaggregate that platform segments.
Six O six tickets disaggregation issue.
But what we saw this quarter, obviously, we've talked about the AD scatter market is is challenge and so that's been.
Significant driver of the slowing growth and platform overall.
Emily and we had a tough comp compared to last year, where we had some services that had launched.
Mid to late last year, but <unk> continues to grow.
And as high margin and from.
From a distribute content distribution standpoint that that is.
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. The 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 our mix of the upfront to add scanner has been been moving toward upfront and so there's kind of a short term long term.
Disconnect here are the short term certainly very challenged with the AD scatter market pullback pulling back significantly for the industry.
But at the same time, you know a good trend.
Upfront commit as well as.
Things like Emily performing well.
Okay. Thank you very much.
Sure.
Let me let me just add.
And he was brought up I, you know Eminem isn't it which is medium entertainment for.
For those who don't know that that's our business.
Helping drive.
Descriptions and 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 built 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 and the tools needed to drive that until.
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 turn and growing khaisman. So we're also seeing you know big news services like Netflix and Disney get into the business.
I was trying to add advertising to their some tears of their services and for those companies you know.
Soon as they have ads engagement becomes even more important to 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.
So that we can help them a lot in that area. So.
And also I talked about and get on working on our consumer experience you know a big part of that is is also related to driving or how many 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 a trusted partner for our viewers when they use things like Universal search tomorrow.
Our user interface, but you know as the owner of the plan on your White, that's our core advantage of using that platform.
Find ways to help our consumers find content is something that we can do it exclusively and then integrating that into our <unk> business that.
To drive engagement viewership some subscriptions.
Big way for that we can help our partners and.
Generate a profit for both our revenue for both us and our partners.
[noise]. Thank you.
Thank you one moment for questions.
Our next question comes from Jason Haustein was Oppenheimer. You May proceed. Thanks, I'm 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.
Using to a third party dsp's bid 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.
What's 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 what like.
I'll <unk> I'll come to Charlie in a second but let me just kind of touch on dispute. So first of all we have.
D. S. T. One view, which is highly optimized for T V streaming and a real good platform. That's the best way to buy inventory across our platform taking advantage of our of our data in technology, we built into the platform. So that's obviously a big focus for us.
Ah.
In terms of.
Diversifying our our revenue streams.
One of the one of the ways, we've been doing that is focusing on the upfront. So we started out with no no revenue coming from the upfront.
This last year, we passed $1 billion.
And are upfront commitments switch and so every year the mix of dollars that comes 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 and AD Tech partners, including you know for example, the shopper program, we do with Kroger or the broken measurement partner program with 20 plus measurement companies.
And are there other ways, we can work with with the S. D 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 in terms of Charlie I don't know what Charlie.
Thinks about Dsp's, but [noise].
He's got a lot of experience working with advertisers. Both you know traditionally through I OS and also.
<unk> D. S. P platforms, which is something that to be does at Fox, where he was before O. Two so we'll see but but I think the big picture around 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.
Thanks appreciate it.
Thank you one moment for questions.
Our next question comes from Ralph Checkered with William Blair You might proceed.
Great. Thanks for taking my question, maybe can you give us some perspective of what you seem quarter to date on the AD pullback.
Thank you talked about the 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 just some 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 in queue for.
If you could confirm that's correct. Thank you.
Yeah, I mean, I can say if he works 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 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 and when there's uncertainty around that there's going to be a recession or consumers are pulling back on spending how much would that will continue when when will it turn around level the third.
Raising interest rates I mean, all these things putting 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 kind of 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 sperm from or not spending this quarter.
Not spending with anyone does not to spend I spend 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.
Steve 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 the in the App 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 is enough to make that a sequential decline.
Okay, Thanks, David things happening.
[noise]. Thank you one.
A moment for questions.
Our next question comes from Jason bathroom with 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 if it's simply a function of this upfront scatter mix or.
Do you think it's about plus some sort of.
I don't know 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.
And the next recession do you think you'll see the same sort of.
Dynamics in terms of the pullback over look more like traditional T V. That's the basic question.
Hey, Jason.
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 <unk>.
You know based on what we've seen that other connected television companies are experiencing.
Similar pullbacks to us.
We think we're over indexing slightly limit 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 dollars are still slogged 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 in 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 and hopefully, it's a long way away and when that happens by that point I think all advertising will be connected.
Connect the T V's screaming.
Okay. Thank you.
Thank you one moment for questions.
Our next question comes from Rich grief, Greenfield with light shed partners [noise].
[noise] Thanks for taking my question.
I guess, if we sort of sort of about the overall business.
And the profitability of your business I'd like to try to get.
You were thinking about the shift you know.
The.
And then when I 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 contents man simply to drive an incremental revenue stream or do you see content spend increasingly 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 play ourselves and sort of maintain player market share that would be great just to get a hit 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 <unk>.
Sent growth accelerating to 40 per cent growth in queue for and I think the street, 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 certainly be seeing the same.
<unk>. Thanks.
Hey, rich that was a <unk>.
Complicated question, let me see if I can.
Parse it out so the first part of it was.
Around I think it was around.
R. T V operating system strategy in that we see.
You know, let's see.
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.
Market is playing out.
Is that.
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.
[noise] 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 Fire T V, which is a variation of Android.
Yeah.
And you know the the.
All three of those operating systems are gaining accounts and they're getting them at the expense of.
Cumbent.
The income of T V providers.
Which have 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.
You know I think so to summarize and the C V operating system business Rookie has the only proprietary based <unk> 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.
It gives us fundamental advantages as the reason we're the number one operating system in the U S and growing rapidly in the markets we enter.
And we expect active accounts and adoption of the operating system to continue to grow.
And we expect to maintain marsh aren't maintain a leadership position, there's no new competitors coming into the market is that markets too far ahead, and it's not it's just different you know, it's 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 requires that you'd be successful in monetization.
To participate in the in the business successfully so and to fund the R&D that goes along with it so.
So I don't think there's really any analogy.
<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 they're still very competitive obviously, but you know we're doing well in terms of that [noise].
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, a big <expletive> without service like Disney or Netflix or Hulu.
<unk>.
They have to convince people to keep paying.
Christian fee every month and they do that by.
Producing a lot of original lives and some of them become hits and some of them cause people to sign.
Sign up or or retain their subscription.
Our business is different our businesses, we we build active accounts by licensing.
Licensing our T V O S selling streaming players.
Then we focus on engagement across the entire platform on a customer has those.
And 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 rotary channel does not being driven and of course some of that engagement Scooby promote content.
Motor original isn't original role is actually is to drive engagement among other things.
But it's.
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.
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.
And the original is is all part of a portfolio strategy designed to have a portfolio of content for the rookie channel.
<unk>, the cheese or any of our business model overall.
And then 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.
It is you know.
<unk> 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.
Channel is doing extremely well I mean, we grew engagement in the rookie channel, 90% a year over year, which is a huge amount of growth.
You know, it's a very successful product for us it's at the top five app, both in terms of reach and engagement.
Ranked number one in Avon fast services in the U S and Canada.
You know, we've got a broad portfolio of compelling content and everything from original to.
License product Spanish language products.
Exclusive content like so weird weird al Yankovic.
Premier.
Especially on the road the channel November 4th would just at the premiere last night with Daniel Ratcliffe and Weird Allen.
A lot of buzz around the show is going to be a great show, but it's not you know, it's and it'll be very successful for us but [noise].
Why people are buying local players they're buying regular players because it's got a great user experience for screaming.
Other content exclusive wrote the channel cause it includes the rich Eisen show.
Integrating more and more S lot services instead of rookie channel.
Which has the benefit of driving.
A lot of incremental engagement for those that slot services because they wrote the channel is integrated into our platform you why so they'll get channels and it's been great for us.
And it's a great asset for us.
Okay branches, you just just to add to.
What Andrew was talking about I do not have any insight on T V, but what one thing just to remind folks is for.
For a lot of media companies that have traditional through network cable and connected properties.
With the declining rabies.
And a lot of the traditional business.
A lot of time those those add cells are being fulfilled over on the the connected T V properties and so they're actually shift he kind.
Kind of a broad based sale.
Suddenly over to their their connected television property. So again I don't know what's driving through these info.
But that's one thing that is a general phenomenon in the industry.
Thank you and our last question.
Question one moment please.
Our last question will be from bar pardon Crockett was Rosenblatt Securities you May proceed.
Okay. Thanks for getting me and and I guess, two things I wanted to just get.
Some color on one is.
When you talk about the upfront, which was a billion with a pick increments.
For example believe that was kind of started 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 was.
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.
Is there anything kind of unusual that drove that.
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 television sales Rookie T V program was a particularly big contributor.
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>.
Parts of that grade, you've got screaming players Tvs and you've got domestic and international.
T V's did.
Did well and you know maybe a little bit overindex in there and an international also did well.
We also saw retention rate you know accounts come in and out depending on this ah consumers using them as you know, it's not like S lot service, where they cancel it where they don't cancel it in the case of our accounts if.
If they use the account and Scream 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 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 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.
The upfront timid.
Start in queue for and they go through the end of Q3 the following year.
So the the deal that we're talking about and the billion, but 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.
Ah spam at 12 month period, and so the applicant.
Ability 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 the AD scatter market, that's where most of the advertisers are being conservative in the short term and the upfront Smiths or are still positive.
<unk> for the long term you know leaning in suit Roku and screaming.
Okay. Yeah. So just thought maybe another way to just just to add on that you know basically yes upfront some incoming are becoming a bigger and bigger per cent of our at at.
Plan and getting bigger, but when you see such a large dramatic reduction in the scatter market you know it just.
Definitely impacts growth.
And what did you talk to scatter market, you're not talking kind of the the the smaller digital players as much as you are the big traditional.
Advertisers what you see on T V is that what you're saying in terms of who's coming back.
Yeah, well, we Gotta Martin scatter.
Go ahead empty.
Scattered let me say scattered 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 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.
[noise] [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 kinda Mitchell 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.
[noise] [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], okay, the onslaught of humor.
[noise] I couldn't believe how much I laugh [noise].
Okay. So crazy <unk>, how I guess, all I Gotta do is sit back and wait to become famous.
[noise] [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 kind of meat you.
Hilarious.
[noise], an onslaught of humor.
Yeah.
I couldn't believe how much I laugh.
At 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 going to remember your name Powell Yankovic.
Critics are going wild for weird everyone's kinda Mitchell it's hilarious.
[noise] okay.
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