Q1 2023 Roku Inc Earnings Call
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Speaker 5: Hello, and thank you for standing by and welcome to Roku Q1 2021 23 earnings conference call.
Speaker 5: At this time, all participants are in the listen only mode.
Speaker 5: After the speech presentation, there will be a question and answer session.
Speaker 5: To ask the question during this session, you will need to press star 11 on your telephone.
Speaker 5: You would then hear an automated message advising your hand is raised.
Speaker 5: To withdraw your question, please press star 1-1 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 Audgen, President Devices.
Speaker 6: and Gadon Katz, President, 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
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, forecast 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 on GAAP financial Measures on today's call. Reconciliation to the most comparable GAAP financial Measures are provided in our severalAh ????? to facebook, house, website or share site, call yourself from this really important
Speaker 6: Finally, unless otherwise stated, all comparisons on this call will be against our results in the comparable period of 2022.
Speaker 6: Now, I'd like to hand the call over to Anthony.
Speaker 7: Thanks, Conrad.
Speaker 6: ROPA delivers solid first quarter results in a challenging economic environment.
Speaker 6: We grew both our active accounts and streaming hours. Ruffus 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 achieve 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 8: 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: We're leaning into our unique role as the number one TV streaming platform in the US, Canada, and Mexico to simultaneously benefit consumers, content partners, and advertisers while growing monetization opportunities.
Speaker 7: 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 and operated content and services. As we noted in our letter, streaming hours that originated from our home screen menu 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.
Speaker 7: 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: and turn it over to Steve to discuss our results. Thanks, Anthony.
Speaker 7: We enter the quarter with 71.6 million active accounts globally. Sequential med ads of 1.6 million were above med 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.
Speaker 7: Roku users stream 25.1 billion hours in the quarter and increase 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: million. Platform revenue was down 1% year-over-year to $635 million.
Speaker 7: 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 TVs.
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. In Q1, Gross Profit declined 7% year-over-year to $338 million. Platform Gross Margin was 53%, which was down 3. sequential.
Speaker 7: 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 8th 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 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 the total net revenue of $770 million, up 1% year-over-year, gross profit of $335 million, with a gross margin of 44%. And adjusted EBITDA of negative $75 million.
Speaker 7: We continue to expect the macro trends that have 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 in certain verticals improving such as travel and health and wellness, while other verticals remain pressured such as M&E and financial services.
Speaker 7: 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.
Speaker 7: 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: We are executing against our plan to focus investments on high priority projects while slowing your over-your-op-X growth. We anticipate Q2-op-X-UR over-your-growth in the mid-teens, a nearly 30-point sequential improvement, and we continue to expect further deceleration to single digits year-over-your-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 for the full year 2024. new e3 grants marking the changes??
Speaker 7: With that, let's take questions. Operator?
Speaker 5: Thank you. Ladies and gentlemen, as a reminder to ask the 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 one one again.
Speaker 5: your question, please press star one one again. Please stand by while we compare the Q&A roster.
Speaker 5: 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? And then...
Speaker 7: on revenue in the letter you mentioned, quote, creating new monetization opportunities to re-accelerate revenue growth. Hoping you could expand a bit on some of the initiatives that you think could be most impactful, especially on the programmatic side. Thank you.
Speaker 7: In the letter you mentioned, quote, creating new monetization opportunities to reaccelerate revenue growth. Hoping you could expand a bit on some of the initiatives that you think could be most impactful, especially on the programmatic side. Thank you. Hey, Corey. Thanks. This is Anthony. Just give people some time for a break.
Speaker 7: So I'd start by just saying we had a solid Q1 going both active accounts and streaming hours.
Speaker 8: We're executing on our plan to achieve positive adjusted EBITF 2024 both through both the revenue and also offering this.
Speaker 8: He's been a little bit more about this details on. Yeah, Cory. Again, we're continuing to take adjustments to both the operations that we've got and the overall off-ex space, which is allowing us to manage through these challenging macro environments that we're facing.
Speaker 8: We expected OpEx tightening that we've been doing to continue to improve the year of year OpEx growth rates. As part of the outlook in Q2, we talked about year of year OpEx growth in the mid teens. That's a 30 point sequential improvement. We saw a similar improvement on the year of year growth rate from Q4 to Q1 as well, as you might have noticed before.
Speaker 8: And then we were sort of reaffirming that single digit off-axe year of year growth like Q4. So given all the work we're doing we remain committed to that path to deliver positive adjust speed with off for full year 24.
Speaker 8: And this is answering again. You know, we're in a great position with our unmatched scale engagement.
Speaker 8: And we are working on opportunities as well that will be accelerating revenue growth as the ad market recovers.
Speaker 8: And maybe to talk a little bit more about some of those monetization opportunities that we turn over to.
Speaker 8: And maybe to talk a little bit more about some of those monetization opportunities that we turn up over to, Charlie and then Get On in the past.
Speaker 8: Great. Well, thanks for the question, Corey. This is Charlie.
Speaker 8: Now, I think to go right into your question about DSP's, you know, 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 8: 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 ever made true that incremental demand sources are a focus of ours. And of course, managing third party relationships toward that incremental demand and incremental revenue has been a priority of mine. So basically joining the rate bill does drive three zeroes.SCSI whatever, giving out your actual commitment to ensure due?ayri and that we have a Ryan's
Speaker 8: from day one. So to take best advantage, you know, I have been moving us toward third parties and e2b partnerships, all kinds that help us meet partners where they transact and doing that, not just DSPs, by the way, but retailers, distributors of all kinds. So we're focused on demand diversification. I see an opportunity to tap incremental demand at Roku.
Speaker 8: while preserving our overall, you know, Roku-first strategies. And this should ensure two things. One, the ongoing value of our data and specialized ad units. And then really a focus on Roku's overall market distinction. We spend a lot of time talking about the leverage of our unmatched scale and innovation and creating new monetization opportunities.
Speaker 8: And so, as you asked, we are working with more third-party DSPs to tap into that incremental demand. Thanks, Charlie. Tori, thanks for the question. At Roku, we obviously have two key revenue streams, first the subscription and then secondly the advertiser. Well, our goal when we think about those revenue streams is about creating new monetization opportunities.
Speaker 9: is to help.
Speaker 9: Consumers discover great content, help content partners engage with consumers, and help advertisers organically and authentically.
Speaker 9: help.value exchange.
Speaker 9: What we've been doing at ROCOR over the last couple of years is really investing in the tools to enable that symbiotic relationship.
Speaker 9: And that's what's enabled us to achieve these fantastic engagement results. I mean, 3.9 hours per consumer, per count per day. This huge engagement, and that's been driven by the investments we started making a few years ago.
Speaker 9: left that matter. Similarly last year, we launched What to Watch and we launched the sport so within What to Watch we enabled customers to discover great content.
Speaker 9: And to remember the content they're already watching, a lot of our customers, or 50% of our customers on the research, that's at the bottom of what they're watching. So integrating, continue watching, into their home speed, helps them come back.
Speaker 9: And to watch my
Speaker 9: From now, talk to watch. Neye, ??ane. From now, talk to watch.
Speaker 9: change. We make sure there is relevant contextual advertising, both on the home screen, but also within all of these other discoveries.
Speaker 9: to make sure there's relevant contextual advertising, both on the home screen, but also within all of these other discovery vehicles.
Speaker 9: And this drives our advertising revenue, but it also drives diversity of content viewing, which drives our subscription revenue. You see that, you know, premium subscriptions.
Speaker 9: which is growing at three times the speed of the ad subscriptions on the blackboard. So we see ourselves continuously continuing to invest in these surface areas, continuing to drive more engagement.
Speaker 9: carbon engagement levels and continuing to create this authentic and organic symbiosis.
Speaker 6: between content bomb as advertisers and not to choose. This is Anthony again. I guess just in summary, we're looking at new ways to sell ads during commercial metals such as ESD. We are seeing.
Speaker 6: The amount of content on the platform grows significantly, both in terms of the number of streaming services and the depth 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 their experience to help users find something to watch in a way that's that's entertaining and informative and we're creating new, add opportunities in those.
Speaker 6: in those experiences. So those are some examples. I mean there are other examples too like creating unique advertising in this like, shopable ads, that sort of thing.
Speaker 10: Thank you all.
Speaker 10: Thank you. Thank you.
Speaker 5: Please stand by for our next question. Our next question comes from the line of Bassily with Cannonball Research. Your line is open.
Speaker 5: stand by for our next question. Our next question comes from the line of Vasily with Cannonball Research. Your line is open.
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 costs. So if I look at your disclosures in the 10K, I can see a couple of things that
Speaker 11: a martization expenses small compared to the license content of martization and then license cost the license content.
Speaker 11: really spiked in 2022 compared to 2021, and then the expected amortization in 2023 drops off significantly. Can you explain the reason for such volatility? Is the increase due to short contracts or what's driving that?
Speaker 11: And if you expect they produce content and democization costs to remain at relatively low level, the way it is now. Thank you.
Speaker 7: Okay, facility has a seat. Thanks for the question. I'll talk about that. And Charlie has any color just from the kind of overall content strategy you can turn in there if I missed anything.
Speaker 7: So, you know, just a reminder for the road control channel, you know, our overall approach is to try to, you know, grow the content spend kind of commencing it with these KL and the growth trajectory for the road control and obviously the factor in the macro environment into those expectations.
Speaker 7: 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, Charlie, that's on a little bit the Roku original side of things is exciting you …
Speaker 7: piece of content that gives exclusivity 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 7: 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 license. Some of them are...
Speaker 7: Short-term, and that's really where 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, it's going to be essentially multi-year, especially for the bigger, more well-known TV series. And so, there's likely a mixed effect on that piece. Certainly, we've been...
Speaker 7: you know, adjusting our content spend based on the micro economic conditions and so that can change the mix overall between both short-term and long-term fixed license contracts as well as the mix for road-go-riginals.
Speaker 8: Hi, the facility is Charlie. You look, yeah, it's either right, the foundation of our conference, that's going to be around spend on continuing to be revshare and fixed licensing, but I should step back and talk about Roku Regions for a second. They create content and specificity that is absolutely sought out by
Speaker 8: the viewers and the advertisers adding value to both. So you just premiered die harder, started Kevin Hart, and then last weekend, slipped with Zoe Lister Jones. And each of these has been supported by some of our biggest clients, the progressive insurance, Verizon, T-Mobile, and a lot more. And so...
Speaker 8: We'll continue to grow our investments in Roku Originals to create exclusivity for users and advertisers. I have to get the letter we highlighted, Emeril, and the broad support from Coca-Cola and Martha's Gardens and her interwoven relationship with Scott's Lawn Care.
Speaker 8: We'll do that, but we'll do it with focus and responsibility. I get asked a lot about overall content to spend on roadboot. And Steve's right, of course, we'll do a commensurate with the Scaled Road to the Road and Channel and in the context of the broader macro environment. But I'd like to point out, I feel, forgive a baseball analogy. The team's with the biggest payroll.
Speaker 8: Do not win every year, not by a long shot. I think, certainly my history, the great team I work with here, our history as programming executives show that we can be targeted and successful. So with the data platform that we have and using all the benefits that ROC can pass us to.
third parties and advertisers. I believe, again fueled by this great team that grows and continue to deliver differentiated product at a price that doesn't put us anywhere near the streaming wars.
Which probably isn't 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.
Thank you both. This is Anthony again. I'll just wrap up by saying that, you know, the content that we just discussed, the licensed content, ROKU originals, that can be found on the ROKU channel, which is just doing extremely well and continues to grow.
Engagement was up, seating hours were up 65%, you're over here on the rugby channel, and it's a top five channel by reach and engagement.
Thank you. You're welcome and stay Senior ther if you could operation be down by forgotten.
Our next question comes from the line of Cheyenne Patil with Susquehanna. Your line is open. Your line is open.
Hey guys, Natchel on the quarter. I had a couple of questions. Can you talk about just kind of how you're thinking about M&E and financial services?
As well as the scatter market overall over the near to intermediate term. I know you're not guiding beyond Suki, but I'm just curious if you could talk about how you expect to see the bottoming and then maybe the improvement in those areas. The second question, the Roku channel is a big opportunity for you guys in terms of monetization. You guys have talked about engagement.
and viewership and I'm just wondering how are you guys thinking about you know Fill rates and the time frame for improving the fill rates to to where you might want to be over time. Thank you
Let's see, so, Emani, I'll start with that, then we can talk about scatter markets. Then we can talk about scatter markets.
You know, I think how many, you know, kind of 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, and are also... To go on the Druck ½ Diets.
entertaining and engaging. And increasingly we're seeing that advertisers, both brand advertisers, but also M&E, you know, media and entertainment services on our platform, want to reach those consumers before the consumer decides, the viewer decides what they want to watch. So we're definitely, we're seeing lots of opportunity.
to create more UI experiences that will create more opportunities for advertisements for fan advertisers as well. And many, you know, it's the number one streaming platform with on that scale and engagement, we're in a great position to do that.
You know, advertising is 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.
Advertising is definitely a bit of a lull, but it's a cyclical business. It will bounce back. As it bounces back, these experiences that we're building will create a lot more opportunities for us to monetize. So, you know.
We're leveraging that unmatched scale and innovation to create new monetization opportunities around our experience. So, uh, turns of the kind of market speed. Yeah, let me just talk about kind of our overall thoughts on the environment that infects the scatter market. It probably can guide dive into some of the more.
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 at next year's normal models.
similar to Q1.
So I love the question. I mean, we believe the environment will drive a flight to effectiveness and 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. So if you were CD-Add on the Roku platform and literally watch the show that was advertised would be very improvised. Soon to your own plans will include a solution that will make you tired of
and 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. Actually, I'll give you a specific example, because it really highlights how sophisticated.
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 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 3 plus hours of streaming or 3 plus distinct streaming days in a month 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 like you're talking about M&E. Well again compliment Roku. I think you're also seeing across the industry.
that the ARPU for ad-supported tiers of traditional S-VOD businesses is surpassing their subscription tiers. And obviously, we're poised to help those companies grow. So yeah, add to all of this, NetRoku 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're powering a full funnel marketing experience. Top of the funnel for broad reach, all the way down to performance at bottom of the funnel. So actually, just last week, and this speaks to Phil Wright, we got a call from a studio head last week who 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 quite a bit of inventory to accommodate him. And by the end of the weekend, he was using home screen ads on...
Please stand by for our next question. Our next question comes from the line of Shweta Kajeria with EBCOR. Your line is open. Thank you for taking my questions. For being EBITDA positive next year, if we were to think about the ALT-BACs,
to third party DSPs is one of your levers. I mean, 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.
I'll take the op-ex question.
In terms of most leverage, as a reminder, our single biggest block of OpEx is headcount and headcount-related expenses. And then we have a range of other categories of non-headcount expenses. And so really our focus has been on looking at the prioritization on the roadmaps and really focusing our efforts on.
high ROI strategic initiatives and so we can effectively slow down the year-over-year growth rate both from a headcount perspective and 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 costs.
on the nonhand-hand 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 nonhand-hand side. So for us, the leverage is really looking, taking a harder look at the road maps.
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 part of DSP? Sure. Can you get a little bit of that one?
But incremental demand sources, as I said, really obviously are important to us, have been important to day one. And so we've been deepening our data and take integrations with select third party partners. But what's interesting in your question about timing is, we're evaluating many partners and we haven't paid any preferential deals, but each marker is at a different phase of their shifts.
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. Okay, thank you Charlie. Thank you Steve.
Thank you. Please stand by 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 you know, 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 onto 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 how they shift their businesses to more ad based subs. So it looks more like what I guess you see today in like Hulu, which I think is like two thirds ad supported versus 70, 80, 90% the other direction for a lot of these platforms.
I'll let Charlie take that. But I guess my thoughts at a high level. One is
The way Roku's business model is constructed, we monetize our platform whether it's
Rook's business model is constructed. We monetize our platform regardless of whether consumers
for an ad tier or a subscription tier. And we're seeing growth in both those areas, subscriptions and ads as for tiers, as for 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 as you can 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.
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 one outcome we expect to happen as more consumers.
to drive ad support for peers. Charlie, do you want to... Yeah, sure. Well, you're right. Anthony was focused on ad 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 you actually have to watch the shows.
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 and with our platform advantages that Anthony just mentioned, you know, we're great partners to help focus on engagement. And 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 and we can and will continue to help BMB partners grow as they see their RPU benefits from it.
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 marketing budgets. They're really cutting their marketing budgets, which obviously doesn't help their ad dollars. They can generate up.
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 road-coup platform. And so you're absolutely right. The shift from driving subscriptions to a flight toward engagement and
to reopen. Thank you for the question.
Thank you. Please stand by for our next question.
Our next question comes from Ilana Ruplu-Baktirara, the Bank of America. 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. Well, so look, we spend a lot of time leveraging our unmatched 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 to tap incremental demand. And it'll ensure two things. Because one, and Erin in your question is pricing, we feel good that we can, again, continue to add ongoing value from our data and our specialized units and keep up the value of the general market distinction.
I have said it now a couple times, but 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. And 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 or EMs. So just your thoughts on how you're approaching the TV market. Thank you.
Just as a general statement, the Roku TV program overall, those licensing and our new Roku-branded TV is usually 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.
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 and
In the 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 OSs combined. We have a pandemic in the United States, and in the United States is shows byafe.
A company like Rokid 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.
Program that has a Company like broken it has a licensing program, but also sells first-party products. It's very common in the industry It's pretty standard you see it with things like and Google Android pixel or the Microsoft Windows surface you know these having the
first-party devices as well as the third-party devices. It gives consumers more choice. It really gives us a platform to drive innovation and pass that innovation on to our partners.
third-party devices. It gives consumers more choice 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 increased market share over time, both for our licensing partners and through the first party products directly. To add more, let me turn it over to Mustafa, who's team leads the Roku TV program.
Yeah, hey, we've got some stuff 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 with additional investment R&D on our side. So staying in the full range of products and then being able to innovate in that full range is important to add real value to basically the consumers as well as to our ecosystem partners.
Because when you look at the innovation, we don't necessarily look at just keep adding new technology in the high end. We look at the innovation as bringing the best performance out of the mid-range hardware. 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 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 TVs made by our licensing partners.
I would like to sort of quote a 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 QA TV comes even remotely close to the best TVs.
the fraction of the price is remarkable. I think again, this summarize the focus that we have is bringing the best performance out of the TV hybrid that exists in the market today. And offering that the consumers again, offering 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 our 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 is continues to grow. We can drive
great results and the growth scale of our business. 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 Brennan TV has really helped us add incremental value to 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 had 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 buys. 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. All right.
Jason, this is Anthony. I'll turn it over to Charlie. I'll just say that data partnerships are definitely an area we're focused on and there's a lot
Jason, this is Anthony. I'll turn it over to Charlie. I'll just say that data partnerships are definitely an area we're focused on and there's a great value in a bunch of different ways. Any questions and comments?
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, 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. We reached the majority of port cutters. So we're poised to take a bigger share of the market as advertisers focus on value and effectiveness. And again, inherent in your question because we prove our ally. Thank you.
I talked a lot about M&E, but I should talk about the diversity of our video advertising. We're seeing health 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. I should mention the new fronts, because the new fronts and the upfront, Roku'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, sharing new ad focused 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. 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 roadcrumbs so distinct. With this, CPG advertises to measure whether streamers are purchasing products on Instacart after seeing the ad on the roadcrum platform. So we can see them buy the products after seeing our ads. And is this type of results focused on accountability?
As Anthony said, our use of data that distinguishes road group will really hold us in good stead. So in summary, I think we are going to continue to maximize that shift. And it's 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 Rope.
I think the smart money keeps coming to ROKU. Thank you.
Thank you. 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. 2 questions because 1st, for Steve, I think it's for Steve. Just I know you guys aren't guiding to revenue, but the comps get a lot easier. For everybody in the ad market in the 2nd, half of the year, and I'm just wondering, I think 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&E headwinds for a while now. Is there any way to help us, I don't know, think about the when that becomes just too small of a 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 through this a lot in your prior roles. How are you approaching this? Because on one hand connected TV and Roku have some secular tailwinds which should help you. On the other hand the market, the scatter market's weak and so are you thinking about you know strategy and positioning Roku the best you can for to grow the the 1 billion last year to a bigger number this year in terms of commitments.
Thanks everybody. Hey Ben, it's Steve. I'll take that first couple and then I'll dish it over to Charlie for the new front, etc. Yeah, in terms of the comps, you're certainly correct. The ad spatter market started to really materially slow down in midway through Q2. So this year, this strike was
Certainly as you you comp that You've got easier comps as you get into the back half of things You know in terms of the macro environment You know we we said in our outlook color that we think that the uncertainty is likely to persist throughout 2023 You know really the consumers kind of inch 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 is, you know,
The ad market we think in Q2 will look pretty similar to Q1. You know, with that where, you know, folks talked about all the great incremental monetization opportunities we're working on. So we're not really sure of the timing, but we do think, we do know that ads are cyclical and they tend to track the economy. In general, you don't necessarily need the economy to be doing
you know, well for the ad market to stick back up, but what you need is stability and the uncertainty to kind of start to, you know, 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, you know, we talked about seeing, you know, signs of promise 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 how many you know that it's bigger than an 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 OPEX side of the house as well to make sure that we're sort of balanced so that we can kind of maintain our growth trajectory on the top line when things get better, but also make sure that we drive toward that positive EVA target we talked about for 2020.
Charlie, I'll switch over to you. Well, Ben, first, thanks for noting how old I am and how many up front have been through. I appreciate that. I didn't give a number. Thank you, I appreciate that. Neither will I. So, look, our approach to new fronts is really exciting for two reasons. One is the trend that you talked about. Again, when you know traditional TV is fell 10% and our streaming hours are growing 20% year on year. So, thank you, guys, for being here. Thanks. Thanks, guys. Thanks, guys. Thanks, guys. Thanks.
obviously a really interesting time to come and reintroduce 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 the ad-focused offerings. But actually I want to talk a little bit about why I'm particularly bullish for Roku, which is that we're still quite...
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. I think really in the near term, more and more television is going to be planned platform first because of our scale and power.
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.
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