Q1 2023 Roku Inc Earnings Call
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Speaker 5: Hello, and thank you for standing by and welcome to Roku Q1 2023 earnings conference call.
Speaker 5: Hello, and thank you for standing by, and welcome to ROWQ Q1 2023 Earnings Conference Call. At this time, all participants are in listen-only mode.
Speaker 5: After the speaker's presentation, there will be a question and answer session.
Speaker 5: To ask the question during this session, you will need to press star 1 1 on your telephone.
Speaker 5: To withdraw your question, please press star one one again.
Speaker 5: I will now like to hand the conference over to Conrad Gras, Vice President and Vester Relations. Sir, you may begin.
Speaker 6: Thank you, operator. Good afternoon and welcome to Roku's first quarter 2023 earnings call. I'm joined today by Anthony Wood, Roku's founder and CEO , and Steve Loudon, our CFO . Also on today's call for Q&A are Charlie Collier, President Roku Media, Mustafa Ozgen, President Hammond, and scaled Infinite Devices.
Speaker 6: and Gidon Katz, President and Consumer Experience.
Speaker 6: Full details of our results in additional management commentary are available in our Cheryl Letter, which can be found on our Investor Relations website at rocue.com-investor.
Speaker 6: Our comments and responses to your questions on this call reflect management's views as of today only, and we disclaim any obligation to update this information.
Speaker 6: On this call, we'll make forward-looking statements, which are predictions, projections, or other statements about future events, such as statements regarding our financial outlook, our investments, future market conditions, and our expectations regarding the impact of macroeconomic headwinds on our business and industry.
Speaker 6: These statements are based on our current expectations, forecasts, and assumptions, and involve risks and uncertainties.
Speaker 6: Please refer to our Cheryl Letter and our periodic SEC filings for information on factors that could cause our actual results to defer materially from these four-looking statements.
Speaker 6: We'll also discuss non-GAAP financial measures on today's call. Reconciliation is the most comparable GAAP financial measures are provided in our shareable letter.
Speaker 6: Thanks, Conrad. Roku delivered solid first quarter results in a challenging economic environment.
Speaker 7: We grew both our active accounts and streaming hours.
Speaker 7: Rothe's TV operating system was once again the number one selling TVOS in the US, achieving a record high TV unit share of 43%, which is more than the next three operating systems combined.
Speaker 7: We achieved share gains across the full range of TV screen sizes, particularly in the larger screen segment.
Speaker 7: In March, we launched the first ever Roku branded TVs exclusively at Best Buy and they are receiving great reviews.
Speaker 7: consumers now spend more TV time streaming than watching cable and all major media companies have shifted focus to streaming.
Speaker 7: With the amount of entertainment available on TV streaming continuing to grow, consumers are spending more and more time looking for something to watch across our platform.
Speaker 7: Streaming services and brand advertisers want to reach these viewers increasingly before the viewer decides what to watch.
Speaker 7: on TV streaming platform in the US, Canada, and Mexico to simultaneously benefit consumers, content partners, and advertisers while growing monetization opportunities.
Speaker 7: You can see this with features like our sports experience, live TV guide, and continue watching. We will continue to expand existing content discovery experiences and build new ones that entertain and inform viewers and help them discover what to watch next.
Speaker 7: These experiences are increasingly creating opportunities for brand advertising, M&E promotion.
Speaker 7: and integration with the Roku's own that operated content and services.
Speaker 7: As we noted in our letter, streaming hours that originated from our home screen then you doubled year over year.
Speaker 7: I am more excited than ever about the future of Roku's business.
Speaker 7: We are working to create new areas of customer engagement and monetization.
Speaker 7: as well as improve operational efficiencies. We're committed to delivering positive adjusted EBIDA for the full year 2024 with continued improvements after that.
Speaker 7: Now, I'll turn it over to Steve to discuss our results.
Speaker 7: Thanks Anthony.
Speaker 7: We enter the quarter with 71.6 million active accounts globally.
Speaker 7: sequential med ads of 1.6 million were above net ads in Q1 2022
Speaker 7: Overall, Smart TV unit sales in the US were up in Q1, driven in part by lower TV panel prices and freight costs.
Speaker 7: Roku player unit sales remained above pre-COVID levels and the average selling price was relatively flat year over year. Roku user streamed 25.1 billion hours in the quarter and increased of 20% year over year.
Speaker 7: Average streaming hours per active account per day reached a record high of 3.9 hours, which is roughly half of the average US household TV viewing.
Speaker 7: leading significant opportunity for future growth.
Speaker 7: In Q1, total net revenue increased 1% year over year to $741 million.
Speaker 7: Platform revenue was down 1% year over year to 635 million. While ads spend on the Roku platform in verticals including financial services and median entertainment remained pressured, verticals such as travel and health and wellness improved.
Speaker 7: Q1 devices revenue increased 18% year over year, driven by the launch of our Roku branded TV's.
Speaker 7: Smart home products and the recognition of a one-time catch-up of $10 million related to a licensing arrangement with the service operator.
Speaker 7: In Q1, Gross Profit declined 7% year-over-year to $338 million.
Speaker 7: Platform growth margin was 53%, which was down three points sequentially.
Speaker 7: This reflects weakness in the ad scatter market along with a greater mix away from M&E in Q1 2023 compared to a year ago period.
Speaker 7: Device margin was 3%, which benefited from a one-time 10 million service operator licensing catch-up previously mentioned.
Speaker 7: Excluding this one-time item, the VICES margin would have been negative 6%, a nine-point improvement from a year ago period driven by normalizing supply chains.
Speaker 7: The eighth percentage point difference between the year-of-year growth rates of total net revenue and total growth profit was caused by a year-over-year compression of platform margins along with a lower portion of platform revenue within total net revenue. Q1, Adjusted EBITDA was negative $69 million.
Speaker 7: which was $41 million above our outlook.
Speaker 7: The better than expected performance was driven by our platform segment
Speaker 7: Recognition of the one-time catch-up in devices revenue.
Speaker 7: and improvements in our operating expense profile. Please note that a one-time charge of 31 million primarily related to workforce reductions and real estate impairments have been excluded from Adjusted EVA DOC.
Speaker 7: We enter the quarter with approximately 1.7 billion of cash, cash equivalents, and restricted cash.
Speaker 7: Now looking to the second quarter, we anticipate that total net revenue of $770 million up 1% year over year gross profit of $335 million with a gross margin of 44%
Speaker 7: and adjusted EBIDA of negative 75 million.
Speaker 7: We continue to expect the macro trends that a pressured consumer and advertiser spend to remain throughout 2023. Accordingly, we expect the advertising market in Q2 to look much the same as it did in Q1. With that spend, inserting verticals, improving such as travel and health and wellness. We continue to expect the advertising market in Q2 to look much the same as it did in Q2.
Speaker 7: while other verticals remain pressured, such as M&E and financial services. For total net revenue, we anticipate a sequential increase of roughly 4% in line with Q2 2022.
Speaker 7: Within the platform segment, we expect continued pressure on M&E spend in the near term. This will result in platform margin remaining at Q1 2023 levels.
Speaker 7: On the device's side, we expect margins to improve from negative 20% in Q2 last year to negative mid teams.
Speaker 7: Our outlook for this year-over-year improvement reflects supply chains continuing to normalize.
Speaker 7: year-over-year OPEX growth. We anticipate Q2 OPEX year-over-year growth in the mid-teens, a nearly 30-point sequential improvement, and we continue to expect further deceleration to single digits year-over-year growth by Q4. Given our ongoing work to improve operational efficiencies.
Speaker 7: and re-accelerate revenue growth, we remain committed to delivering positive adjusted EBITDAF to the full year 2024. W quero expensive.
Speaker 7: With that, let's take questions. Operator? Thank you.
Speaker 5: Ladies and gentlemen, as a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced.
Speaker 5: To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Cory Coppinger with JP Morgan. Your line is open.
Speaker 7: Thanks for the questions. I had one on profit and one on revenue. On profit, just given the uncertainty in the macro environment that you guys discussed, you know, what gives you the confidence in your path to profitability in 2024 and what are some of the steps that you may still need to take to get there?
Speaker 7: And then on revenue, in the letter you mentioned, quote, creating new monetization opportunities to re-accelerate revenue growth. Helping you to expand a bit on some of the initiatives that you think could be most impactful, especially on the programmatic side. Thank you. Thank you.
Speaker 7: Hey, Cory, thanks. This is Anthony. So I'd start by just saying we had a solid Q1 going both active accounts and streaming hours.
Speaker 6: We're executing on our plan to achieve positive adjusted EBITF 2024 both through both the revenue and also offering this.
Speaker 7: He's been a little bit more about the details. Yeah, Cory. Again, they said we're continuing to take adjustments to both the operations that we've got and the overall op-x space, which is allowing us to manage through these challenging macro environments that we're facing. We expected op-x sightening that we've been doing.
Speaker 7: to continue to improve the year-over-year op-X growth rates. As part of the outlook in Q2, we talked about year-over-year op-X growth in the mid-teens. That's a 30-point sequential improvement. We saw similar improvement on the year-over-year growth rates from Q4 to Q1 as well, as you might have noticed before. And then we...
Speaker 7: We're sort of reaffirming that single digit off-axe year of year growth like 2-4. So given all the work we're doing, we remain committed to that path to deliver positive adjust to the BIDA for full year 24. And this is answered again. You know, we're in a great position with our unmatched scale and engagement. History
Speaker 7: And we are working on the monthlyization opportunities as well that
Speaker 7: that will reaccelerate revenue growth as the ad market recovers. And maybe to talk a little bit more about some of those monetization opportunities that need to remember….
Speaker 7: then get on and add that. Great. Well, thanks for the question, Corey. This is Charlie. Charlie.
Speaker 7: I think to go right at your question about DSTs, I always start by noting that the best place to buy Roku is still Roku. From our first party data to original content and UI integrations.
Speaker 7: We're so focused on helping clients maximize Roku and so many partners across the industry are enjoying those results. Now, Erin, your question obviously has remained true that incremental demand sources are a focus of ours. And of course, managing third party relationships toward that incremental demand. And...
Speaker 7: and incremental revenue has been a priority of mine from day one. So to take best advantage, you know, I have been moving us toward third parties and B2B partnerships of all kinds that help us meet partners where they transact and doing that, not just DSCs, by the way, but retailers, distributors of all kinds. So we're focused on demand diversification. I see an opportunity to...
Speaker 7: and innovation and creating new monetization opportunities. And so, as you asked, we are working with more third party DSPs to tap into that incremental demand. Thanks, Charlie. Tony, thanks for the question. I brought you, we're obviously...
Speaker 8: I have two key revenue streams, first the subscription and then second the advertiser. Well, our goal when we think about those revenue streams and about creating new monetization opportunities is to help.
Speaker 8: consumers discover great content, help content partners engage with consumers and help advertisers organically, authentically.
Speaker 8: help content partners engage with consumers and help advertisers organically, authentically comp that value exchange."
Speaker 8: What we've been doing at ROCOM over the last couple of years is really investing in the tools to enable that symbiotic relationship.
Speaker 8: And that's what's enabled us to achieve these fantastic engagement results.
Speaker 8: I mean 3.9 hours per consumer of accounts per day is huge engagement and that's been driven by the investment we started making a few years ago.
Speaker 8: We started to invest in live, initially launched it within the ROPU channel in 2020 and then in 2022 we out of it for Left Hand Mouth.
Speaker 8: Similarly, last year, we launched What to Watch and we launched the sports out. Within What to Watch, we enabled customers to discover right content.
Speaker 8: And to remember the content they're already watched.
Speaker 8: A lot of our customers, 50% of our customers on the research, have forgotten what they're watching. So integrating, continue watching into their home speed helps them come back.
Speaker 8: our customers or 50% of our customers on the research, for bottom what they're watching. So integrating, continue watching into their home speed helps them come back. And
Speaker 8: and this drives our advertising revenue, but it also drives diversity of content peering, which drives our subscription revenue.
Speaker 8: you see that, you know, premium subscriptions.
Speaker 8: which is growing at three times the speed of the ad subscriptions on the platform.
Speaker 8: We see ourselves continuously continuing to invest in these surface areas, continuing to drive more engagement above the current engagement levels and continuing to create this authentic and organic symbiosis.
Speaker 8: between content farmers, advertisers, and our consumers.
Speaker 6: This is Anthony again. So I guess just in summary, we're looking at new ways to sell ad during criminal such ESP.
Speaker 6: A man of content on the platform grows significantly.
Speaker 9: both in terms of the numbers, opinion, and the depth of
Speaker 9: of the offerings of those services and that's causing consumers to spend more time looking for something to watch which is something that we're leaning into, expanding our experience to help users find something to watch in a way that's entertaining.
Speaker 9: and formative and we're creating new ad opportunities in those experiences. So those are some examples. I mean there's other examples too like creating unique advertising in this like shopable ads that sort of.
Speaker 10: Thank you. Thank you.
Speaker 5: Thank you all. Thank you. Please stand by for our next question.
Speaker 5: Our next question comes from the line of Vasily with Cannonball Research. Yelena is open.
Speaker 5: Our next question comes from the line of Vasily with Cannonball Research. Your line is open. Do you have questions foræ one hand but the other hand?
Speaker 11: Thank you, good afternoon. Steve, I wanted to ask you about licensed content amortization and produced content amortization costs. So if I look at your disclosures in the 10K, I can see a couple of things that I wanted to ask you about. First, the produced content amortization expenses are small compared to the licensed content amortization. Second, the produced content amortization expenses are small compared to the licensed content amortization expenses are small compared to the licensed content amortization expenses
Speaker 11: and then licensed cost, cost of licensed content.
Speaker 11: really spiked in 2022 compared to 21 and then expected demotization in 23 drops off significantly. Can you explain the reason for such volatility is the increased due to short contracts or what's driving that?
Speaker 11: And if you expect they produce content and demotization costs to remain at relatively low level, the way it is now. Thank you.
Speaker 9: Thanks for the question. I will talk about that. If Charlie has any color from the overall content strategy, he can chime in there if I missed anything. If you have any questions, please feel free to contact me.
Speaker 9: So, you know, just a reminder for the road control, you know, our overall approach is to try to, you know, grow the content spend kind of commencing with these scale and the growth trajectory for the road control and obviously the factor in the macro environment into those expectations.
Speaker 9: The predominant model that we have is still focused around license content, whether that's rev shares, whether that's fixed license fees. And then certainly, you know, Troy, that's done a little bit. The Brokue original side of things is, is exciting new piece of content to get its exclusivity.
Speaker 9: for viewers and that advertisers are interested in that exclusivity as well. So the overall strategy hasn't changed on that. We are producing more Roku originals, but again, the overall majority of the content spend is licensed.
Speaker 9: When we look at the fixed license fee, because the rev-shares basically don't show up on the balance sheet, they're kind of matched in the payouts, kind of hit the P&L directly, if you will. So we have a wide range of fixed licenses. Some of them are...
Speaker 9: short-term and that's really when we started our approach there and then we have gotten into more longer-term contracts, you know, especially when you talk about TV series being licensed, so tend to be essentially multi-year, especially for the bigger or more well-known TV series and so there's likely a mixed effect on that piece.
Speaker 9: Certainly, we've been adjusting our content spend based on the microeconomic conditions, and so that can change the mix overall between both short-term and long-term fixed license contract as well as the mix for road-go originals.
Speaker 7: Charlie, the foundation of our content spend will continue to be rev share and fixed licensing. I should step back and talk about Roku originals for a sec. They create content that is absolutely sold out by.
Speaker 7: the viewers and the advertisers, adding value to both. So we just premiered Die Harder, starring Kevin Hart, and then last weekend's slip with Zoe Lister-Jones. And each of these has been supported by some of our biggest clients, Progressive Insurance, Verizon, T-Mobile, and a lot more. And so,
Speaker 7: We'll continue to grow our investments in Roku, regional to create exclusivity for users and advertisers. I have to get the letter we highlighted Emerald and broad support from Copacola and Marcus Gardens and her inter-world relationship with Scott's lawn care. We'll do that, but we'll do it with focus and responsibility. I get asked.
Speaker 7: every year, not by a long shot. I think certainly my history, the great team I work with here, our history is programming a seconded show that we can be targeted and successful. So with the data platform that we have, and I'm using all the benefits of rope and passes to work parties and advertisers, I believe, again, fueled by this great team that rope can continue to deliver.
Speaker 7: differentiated product at a price that doesn't put us anywhere near the streaming wars.
Speaker 7: Which probably is the heart of your question. You know, I've said it before, and I say it with pride, Roku's not in the streaming wars. The streaming wars are being played out on our platform.
Speaker 6: Thank you both. Thank you again. I'll just wrap up by saying that the content that we just discussed, the license content, broker-virtuals, that can be found on the Roku channel, which is just doing extremely well and continues to grow. But I hope that everything that comes in shall be finished today.
Speaker 6: Engagement was up. Streaming hours were up 65% zero here on the road to the channel. And if it's a top five channel by reach and engagement.
Speaker 6: engagement was up, streaming hours were up 65% here on the rugby channel, and it's a top five channel by reach and engagement on the rugby platform.
Speaker 5: Thank you. Please stand by for our next question.
Speaker 5: Next question comes from the line of Shia Amplitio with Seth Kulhano. Yalana's open.
Speaker 12: Hey guys, nice job on the quarter. I had a couple of questions.
Speaker 12: Can you talk about just kind of how you're thinking about M&E and financial services?
Speaker 12: as well as kind of the scatter market overall over the near to intermediate term. I know you're not guiding beyond two key pushes, you can talk about how you expect to see the bottoming and then maybe the improvement in those areas. And then second question, the Roku channel, you know, is a...
Speaker 12: opportunity for you guys in terms of monetization. You guys have talked about engagement and viewership. I was just wondering, how are you guys thinking about fill rates and the time frame for improving the fill rates to where you might want them to be over time? Thank you. The only thing I can add is we're trying to Okay, we should rest assured that we're
Speaker 6: Let's see, so, Emani, I'll start with that, then we can talk about scatter markets. You know, I think Emani…
Speaker 6: at the highest level, like I mentioned before, consumers are spending more time trying to figure out what they want to watch. And it's an area that we're really leaning into, like we really think we can be, especially on our platform, be their best guide to providing ways to help them find something to watch. And we think we can do that in ways that are branded, create advertising opportunities, better off.
Speaker 6: to create more UI experiences that will create more opportunities for advertisements for band advertisers as well.
Speaker 6: I'm going to need, you know, is the number one streaming platform.
Speaker 6: With on that scale and engagement we're in a great position to do that. You know advertising is
Speaker 6: definitely a bit of a lull, but it's a cyclical business. It will bounce back. And as it bounces back, these experiences that we're building will create a lot more opportunities for us to monetize.
Speaker 6: to get a bit of a law, but it's a cyclical business, it will bounce back. It has it bounce back. These experiences that we're building will create a lot more opportunity for us to monetize. So, you know, the county for promises in class was agreed to a resolution of one- Measure, just take a check into the spectrum.
Speaker 6: We're leveraging that unmatched scale and innovation to create new monetization opportunities around our experience. So, in terms of the kind of market speed.
Speaker 6: Let me just talk about our overall thoughts on the environment that impacts the scatter market. Probably can dive into some of the more...
Speaker 9: So, similar to last quarter, we expect the macro uncertainty to persist through 2023. That really results in an environment where consumers are remaining pressured and their discretionary spend is likely to remain muted as a result. And so, we talked about as part of our outlook that we expect the ad market and Q2 to look good.
Speaker 7: Similar to key one. So I love the question. I mean, we believe the environment will drive a flight to a technicalness and a focus on engagement for advertisers. And that shifts Flatters Roku. Roku is the best way to drive engagement for M&E clients because Roku is where the streaming journey begins for nearly half of American broadband households.
Speaker 7: So if you were to see the ad on the Roku platform and literally watch the show that was advertised, then they're watching it here as well, so they couldn't be closer to the content. So even as some partners manage their budgets down, Roku's poised to take a larger share of the marketing investment by proving, as we do, that Roku is a highly effective and efficient way to spend marketing dollars.
Speaker 7: Actually, I'll give you a specific example because it really highlights how sophisticated and impact-driving a partner Roku is. Actually, HBO Max was looking to increase streaming engagement on Roku, and they decided to target Roku streamers that had stopped engaging after major tentpole releases. And so it's a pretty sophisticated request that simply can't be addressed by most television partners.
Speaker 7: and we proved results for them. So streamers exposed to the campaign were 20% more likely to have a streaming session than the control group, and we helped another partner, this is similar. We helped another service find that three plus hours of streaming or three plus distinct streaming days in a month.
Speaker 7: was their tipping point for retention. So at that point, the likelihood for return visits to their app increases double digits. And so I give you that example so you see that Roku uses the power of our platform to drive engagement specifically. And that's business building and insights. That is, the world turns to efficiencies.
Speaker 7: and it's a question about M&E. Well, again, compliment Roku. I think you're also seeing across the industry that the Roku for ad supported tiers of traditional S5 businesses is surpassing their subscription tiers. And obviously we're poised to help those companies grow. So...
Speaker 7: Yeah, add to all of this, that Roku has a diversified ad business and this starts to get to fill rates and your question on fill rates. Beyond media and entertainment, this diverse ad business is
It is so powerful because we are powering a full funnel marketing experience. Top of the funnel for Brawg Reach, all the way down to performance at bottom of the funnel. So actually just last week in this piece to fill right, we got a call from the studio I last week was worried about top and bottom of the funnel for weekend streaming and he called me about his premiere and I showed him our approach. We had to move.
You know, quite a bit of inventory to accommodate him. And by the end of the weekend, he was using home screen ads on Roku to drive your ship for his movie. And then in his post analysis, he talked about how we didn't just help here, but across multiple platforms. So look in the end, I believe that Roku is poised for greater demand and to take a bigger piece of this important market and the smart money will come to Roku.
Thank you guys. Thank you. Please stand by for our next question.
Our next question comes from the line of Shavita, Kajuria with Eva Kor, your line is open.
Okay, thank you for taking my questions. For being EBITDA positive next year, if we were to think about the OPEX line items, where do you see most leverage? I understand you're focused on OPEX growth rate, but how should we think about the key leverage drivers within your OPEX buckets? That's question one. The second question is on...
Opening up to third party DSPs is one of your levers. You have other monetization opportunities too. But how should we think about the timeline for that in terms of the meaning and magnitude of contribution as you open up to third party platforms? Thank you. Make sure to hit Steve. I'll take the...
on looking at the prioritization on the road maps and really focusing our efforts on high ROI strategic initiatives and so we can effectively slow down the year of year growth rate. Both from a head count perspective is then we're also been looking at the
opportunities to get more efficient on the non-headcount side so we have other work streams that are pushing efficiencies and cost saves on the non-headcount side. So the combination of those, certainly the last round we talked about, we announced in
late March was related to that kind of project level work and some of the other ongoing initiatives on the non-HICC outside. So for us the leverage is really looking taking a harder look at the roadmaps and skinning those down so that we're getting the highest ROI initiatives remaining on track and that we're becoming more efficient in a lot of different categories around that. So that will allow us to drive that year of your growth rate down.
to single digits by the end of the year. And then, as Anthony mentioned at the start, we're also pairing that with work on monetization efforts, other growth initiatives to make sure that we're driving the top line as well and positioning ourselves to really attract a good place when the rebound happens on the macro environment in the ad business.
Charlie, you want to take the third party DSP? Sure, and thanks for the question. You know, and I said before, and I always like to remind everyone, Roku is and will remain the best place to buy Roku. We've actually always shared inventory with third parties, including DSPs and Re-Kill Media, full funnel partners.
etc. and we'll continue to do so. But incremental demand sources, as I said, really obviously are important to us, have been important since day one, and so we've been deepening our data and tech integrations with select third-party partners. But what's interesting in your question about timing is, you know, we're evaluating many partners and we haven't made any preferential deals.
But each marker is at a different phase of their shift to streaming. And so really our philosophy on the DSP side has been to meet them where they are and be a better partner for them. We've made significant progress this quarter and we'll continue to do so.
at a different phase of their shift to streaming. And so really our philosophy on the DSP side has been to meet them where they are and be a better partner for them. We've made significant progress this quarter and will continue to do so. Okay. Thank you, Charlie. Thank you, Steve.
Thank you. Thank you. Please say goodbye for our next question.
Our next question comes from the line of Richard Greenfield with Light Shed. Your line is open. Hi, thanks for taking the question. Maybe Anthony, Charlie, I guess. I don't know who it's for specifically, but it's pretty clear when I look across the streaming landscape.
HBO Max, which I guess in a few weeks will be called Max.
They're all you know most of these subs are coming on ad free, and I guess I'm thinking about like What changes these companies need to make and what role Roku can play in the evolution? So that there are more ad supported subs come on to these platforms I'm just trying to think like how that plays out whether that's advertising in your platform or
Just how do you think about sort of the how they shift their businesses to an At more ad-based sub so it looks more like what I guess you see today in like Hulu, which I think is like two thirds ad supported versus you know 70 80 90% The other direction for a lot of these platforms. Thanks
Hey Rich, I'll let Charlie say that, just take that. But I guess my thoughts on a high level one is the way ROKU's business model is constructed, we monetize our platform regardless of whether consumers...
line up for an ad tier or a subscription tier, and we're seeing growth in both those areas, subscription and ads, ad support tiers, ad support products.
And I think, you know, the really most interesting thing for us about partners offering lower cost password tiers, which I'm sure will become more popular over time.
get used to them is
is that those tiers monetize more the more people watch, which is not the case for a subscription and free tier. And so we believe that that will cause increased interest in our M&E.
promotional products, you know, the ability to promote shows on our platform to drive more engagement.
is what outcome we expect to happen as more consumers as we strive to add support to your, Charlie, do you wanna? Yeah, sure, well, you're right. Anthony was focused on add support before it was cool and we're now watching our M&E tools.
Not just be great for driving subscription and retention, that's still true and they will, but the shift to engagement risk that they actually have to watch the shows and the commercials during an advertiser's flight, that is a great trend for Roku because that's what we do. As a business, we talk a lot about simultaneously helping the consumer, the content partner and the advertisers, all while growing monetization on our platform.
With us approaching nearly half the broadband households in the country, it's staggering. With our platform advantages that Anthony just mentioned, we're great partners to help focus on engagement. Again, I think there is a huge flight to engagement happening. So bottom line is we're an impressions-based business and we build impressions for a living.
we can and will continue to help BMB partners grow as they see their RPU
Charlie, if I could just follow up on that point, obviously as you move to an impression-based business you need time spent.
Yet it seems like the knee-jerk reaction from all of the companies that you know super well to mitigate their losses in streaming. All of them are just, they're not really cutting their programming budgets, they're really cutting their marketing budgets. Which is obviously doesn't help their ad dollars they can generate from platforms like yours. That just seems like a real disconnect. It is, Richard, it's a great question. First of all, only one question, I'm sorry. Q and A. Q and A.
No, I'm just kidding. If you think about it, you've nailed it. Marketing and programming that has to happen to drive engagement. And that's what we do. And it's not lost on anyone that while we can drive subscriptions so incredibly well and drive programming so incredibly well.
These partners are huge advertisers as well, and they value the power of the Roku platform. And so you're absolutely right. The shift from drive ins subscriptions to a flight toward engagement and effectiveness, even in an environment where people have to show that they're being responsible, that will flatter us because we prove our ally. So you're right, it's a cycle that has to be about both.
And if it's just about one, they won't have the engagement. They'll quickly realize that. We see that again, it's why I believe the smart money will be coming to Rope.
Thank you for the question. Thank you. Please stand by for our next question.
Our next question comes from the line of Blue Blue Bacta Rara with Bank of America. Your line is open. Your line is open.
Thanks for taking my questions. I have two of them. First, Charlie, I just wanted to pick your brain a little bit on your thoughts about making ad inventory more accessible. What guardrails are you putting on that? So on the positive side, I can see your fill rates going up, but do you see any possibility of CPMs coming down?
Are you making any of the first party data that your platform has available to third party DSPs? So if you can talk about where you are in the process, what your thoughts are about how open you want to be, and do you think you have enough ad tech and enough relationships to support the third party DSPs and what you're trying to do.
Thank you. Okay. Well, well, so look, we spent a lot of time leveraging our on-match scale and innovation to create the new monetization opportunities you're talking about. And so, doing that, we're doing so hand in hand with, again, our current partners and then more and more third party DSPs to tap incremental demand. And I think we're really focused on that demand diversification and see an opportunity.
Every time I am asked about incremental demand, I just want to remind you how successful we've been and how focused we are on Roku being the best place to buy Roku. We have so many opportunities to work with partners to customize what that means.
Okay, thanks for the details there, Charlie. Maybe as a follow-up, I'd like to ask Anthony about the new Roku brand TVs that were launched. Since you came out with a very broad range, I mean 24 inches to 75 inches with a very broad price range, your TV OEM partners are already in the value part of the TV spectrum.
So why not just focus on the larger screen sizes and the high end TV space where maybe you would compete less against the existing TV OEMs. So just your thoughts on how you're approaching the TV market. Thank you. Just a general statement, directed TV like the program overall, those lights that's in there.
Roku branded TV's been usually successful for us and continues to grow Now we mentioned a little better that in last quarter 43% Of all the TVs in the United States where Roku TVs. I mean that's a large Market share and we're very proud of that. That's more than the next three OS's combined
successful for us and continues to grow. Now we mentioned in the letter that in last quarter 43% of all the TVs in the United States were Roku TVs. I mean that's a large market share and we're very proud of that. That's more than the next three OS's combined.
A program that has a licensing program but also sells first party products is very common in the industry. It's pretty standard. You see it with things like Google Android Pixel or Microsoft Windows Surface. By having the first party devices as well as the third party devices, it gives consumers more choice. There are a few operations in the industry of budgets and
It really gives us a platform to drive innovation and pass that innovation on to our partners. So at a high level, we believe pretty strongly that the Roku branded TV program is incremental. It's going to drive increase.
market share over time both for our licensing partners and through the first party products directly. But to add more let me turn it over to Mustafa who's team leads the TV program. Yeah hey Mustafa speaking.
Yeah, Roku brand TVs are about expanding the choice for the consumers. And it's also a strong demonstration of our commitment to further strengthen the Roku TV ecosystem with innovation and with additional investment R&D on our side. So staying in the full range of products and then being able to.
is bringing the best performance out of the mid-range hardware. And so it's very important to focus on both the cost innovation and also the performance innovation, because again, this helps our OEM partners at the end as we come up with innovations, and as we come up with new ideas in that area.
And we are definitely very excited about the positive reception our new TVs have received both from the consumers and the industry press. And again, they are great complement to growing array of excellent Roku TVs made by our licensing partners.
And we are definitely very excited about the positive reception our new TVs have received both from the consumers and the industry press. And again, they are great compliment to growing array of excellent Roku TVs made by our licensing partners. With that said...
We are definitely very excited about the positive reception our new TVs have received both from the consumers and the industry press and Again, they are great compliment to growing array of actually worker TVs made by our licensing partners and I'd like to sort of caught there
comment from Tom's guide which awarded us the Editor's Choice Award for the Roku Plus series. And they said, and we mentioned this in the shareholder letter, they said, the fact that the Roku Plus series 4K QLED TV comes even remotely close to the best TVs for the fraction of the price is remarkable. And so, we're going to be talking about the new QLED TV series 4K QLED TV series. And we're going to be talking about the new QLED TV series 4K QLED TV series 4K QLED.
I think that this summarized the focus we have is bringing the best performance out of the TV hybrid that exists in the market today and offering that the consumers, again, offer that our partners are key goal in the Roku-Brennan TV initiative.
And overall, as Anthony mentioned, the TV program is highly successful, drives great results for broken partners. Not only in the US, which we again reached the 43% market share record high in Q1. But also globally with more than TV partners and growing, actually that number has continued to grow, we can drive
great results and to grow the scale of our business.
For example, in Mexico, in Q1, one in three TVs sold in the market was work at TVs and work at TV had the leading market share. The successful program and the granted TV has really helped us add incremental value to that program that benefits our partners and more importantly consumers.
For example, in Mexico in Q1, one in three TVs sold in the market was Roku TVs and Roku TV had the leading market share. The successful program and the branded TVs really help us add incremental value that program that benefits our partners and more important consumers. Okay, thanks for all the details. Appreciate it.
Thank you. Please stand by for our next question.
Our next question comes from the line of Jason Helfstein with Oppenheimer. Your line is open.
Thanks, everybody. So we'd previously been focused on you opening up demand to third-party DSPs because that kind of seemed like the easiest way to solve the demand issue when the ad market slowed. You made a number of announcements.
I'll call out the one you did to partner with UM to kind of share data to help them better understand their bias. I think there was data that I saw this morning in an industry presentation that something like 50% of the top...
services have overlapped from an ad standpoint and effectively you can see that and they can on their own. So I guess I want to take it a bit deeper. Help us understand when you think about the ability to monetize how much more valuable that is than just those types of deals than simply just opening up kind of simplistically third party demand. Thanks. Go ahead Jim.
I'll turn it over to Charla. I'll just say that data partnerships are definitely an area we're focused on in this.
value in a bunch of different ways. I couldn't agree more. The long term opportunity is terrific and you nailed a few reasons. So thanks for the question, Jason. As more and more clients drive dollars to accountable, connected TV advertising and
Obviously that's happening at scale. I mean, if you look in first quarter, traditional TV hours fell 10% year on year, while our streaming hours grew 20%. So the trends are terrific. And I'm bullish on Roku's position, given our scale and the fact that Roku reaches, as I said before, half the broadband households in the country, and this is important for your point about monetization,
and in video advertising and seeing it continue to stabilize against categories like health and wellness, travel, all of which grew faster than our overall business. And I should mention the new fronts because, you know, the new fronts and the upfront broke, who's only been in this marketplace for a few years. In fact, our first live event.
was just last year and this will be my first New Front on Tuesday in New York with Allison and the team. And I'm so looking forward to it because we'll be presenting new products, new ad sharing, new ad focus opportunities, including the data opportunities that you're talking about. We'll be talking about original content.
and each of these make Roku more impact-driving, distinct, and effective for our partners. I appreciate you mentioning our announcements. You know, one you didn't mention was, we talked about Roku's prime-time reach guarantee, and this is directly speaking to monetization and moving money from cable to Roku.
Advertisers can reach more TV households in prime time on Roku than the average top five cable network. And this is truly about that ongoing shift from traditional TV to more accountable TV streaming. And we're the only ones with enough scale to guarantee that type of broad results.
And you might have noticed there was an announcement today about our Instacart partnership. So think about this in the context of your question. This is a full funnel marketing offer which is so unusual for TV and makes Roku so distinct. With this CPG advertisers measure whether streamers are purchasing products.
on Instacart after seeing the ad on the Roku platform. So we can see them buy the products after seeing our ads and it's this type of results focus and accountability and as Anthony said, our use of data that distinguishes Roku that will really hold us in good stead. So in summary, I think...
We are going to continue to maximize that shift that is happening from traditional TV to more accountable TV streaming. We're doing so as the biggest best solution. I think the smart money keeps coming to ROKU.
that shift that is happening from traditional TV to more accountable TV streaming. And we're doing so as the biggest best solution. So, said it before, but I think the smart money keeps coming to ROKU. Thank you. Thanks, everybody.
Please stand by for our next question. Our next question comes from the line of Benjamin Swinburne with Morgan Stanley . Your line is open. Thank you, good afternoon. Two questions, I guess first for Steve, I think it's for Steve.
I know you guys aren't guiding to revenue, but the comps get a lot easier for everybody in the ad market in the second half of the year. I'm just wondering if there's an expectation in the market that your business will the platform business will accelerate and growth. Does that make sense to you? And then the other piece is just you guys have talked about M and E headwinds for a while now.
Is there any way to help us, I don't know, think about the, you know, when that becomes just too sort of too small to matter or those headwinds fade enough or how fast the business might be growing if you excluded M&E? Just because I think that's probably been masking stronger underlying trends. And then I just was curious, Charlie, you know, on the upfront new front, whatever you want to call it, you know, you've been
Hey Ben, it's Steve. I'll take that first couple and then I'll dish it over to Charlie for the new fronts, et cetera.
In terms of comps, you're certainly correct. The ad scatter market started to really materially slow down midway through Q2. Certainly as you comp that, you've got easier comps as you get into the back half of things. In terms of macro environment, we said in our outlet color that
We think that the uncertainty is likely to persist throughout 2023. You know, really the consumer is kind of inched between, you know, inflation is coming down, but it's still elevated. There's also, you know, concerns of the potential recession, you know, later this year or next year. And so that spend is discretionary spend, which drives a lot of the economy, we think will remain muted.
So overall, the ad market we think in Q2 will look pretty similar to Q1. With that, folks talked about all the great incremental monetization opportunities we're working on. We're not really sure of the timing, but we do know that ads are sick with both.
and they tend to track the economy. In general, you don't necessarily need the economy to be doing well for the ad market to pick back up, but what you need is stability and the uncertainty to start to at least firm up and hopefully start to get incrementally better. I think that's why you see in certain verticals in the ad market, we talked about seeing signs of promise. naive, very wooly you could get close lead, so it's hard to get better. You can't necessarily decide what it's worth, or then find a better solution and take or take that position at Gandalf Channel. Also, for me, when there was really good confidence, you could really see the nice numbers.
on things like travel and health and wellness, but we also do have some areas like financial services and M&E that are continuing to remain pressured. And certainly we, you know, just given the streaming environment we operate in, that we do have an exposure to M&E, you know, that is bigger than average, where the rest of our assets is fairly...
similar to the market overall. So I'm not sure what the timing is, but I think we're well positioned when it comes back. In the meantime, we are working on the off-back side of the house as well to make sure that we're sort of balanced so that we can kind of maintain our our growth trajectory on the top line when things get better but also make sure that we drive toward that positive EBITDA target we talked about for 2024. Charlie, I'll switch over to you. Well, Ben, first, thanks for noting how old I am and how many upfronts I've been through.
ourselves to the market and you think about some of what I said before and what we'll be introducing in terms of the data partnerships and ad focused offerings. But actually I wanna talk a little bit about why I'm particularly bullish for Roku, which is that we're still quite new to this. These are not 50 year relationships, you have a lot of new advertisers.
streaming for the first time and we still have opportunity to both grow. Businesses that have seen how effective Roku is and also add new accounts. So, Roku is in an interesting position because again, the secular trends are coming our way and I also feel really excited to present Roku in the context of really being the base of the advertising market. Here's what I mean by that. We just saw this newcreer with theeterra with the tannerlss stock market market.. Im BAT Thanks for Members' Hug made by youtube Chchen K She P k Great than
I think, really, in the near term, more and more television is going to be planned platform first because of our scale and our really unmatched reach on this platform. So we actually chose to come to the new fronts instead of the up front because we wanted to reach people early and we wanted to show them how much we help all the people they'll be hearing from. Again, those...
networks and apps and partners are M&E advertisers and they value Roku and more and more you're going to see the general marketplace do the same. So I'm excited to present with the team. They're doing a great job and we're hearing really positive feedback.
Thank you very much. Thank you. Ladies and gentlemen, due to the interest of time, I would now like to turn the call back over to Anthony for closing remarks. Thanks. So to wrap up, let me just thank everyone for joining and remind everyone that...
Next week, we will welcome Dan Jetta as our new Chief Financial Officer. On behalf of everyone at ROCA, I want to thank Steve for his contributions and leadership over the last eight years. Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
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