Q3 2023 Roku Inc Earnings Call
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All good shops know this to be true great meals start with great ingredients. This season, we went short term for the very best from fresh produce and seafood.
<unk> Southern flavors, we've got you covered so join me in my kitchen here inside the southern food and beverage museum for some truly memorable meals welcome back everybody Emerald Cook.
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I know youre going to love.
Welcome to my Roku original Martha Cook.
I'm, bringing you into my kitchen, and visiting some of my favorite places to try so incredible cuisine don't tell anybody delicious history.
So good and create some wonderful dishes with friends.
That's the key we might even have a little fun now streaming free on the Roku channel.
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Operator: The 2023 NFL draft, because I'm about to begin. 32 teams get better in three days, some get better than I was.
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Operator: This will change the entire draft. It's a once in a lifetime opportunity. You get the number one pitch.
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Good day, and thank you for standing by.
Welcome to the Roku third quarter 2023 earnings conference call.
At this time all participants are in a listen only mode.
After the presentation, there will be a question and answer session.
Operator: You're family grows, but your house stays the same.
I'll ask a question. During this session you will need to press star one one on your Touchtone telephone.
Operator: I feel defeated as a working mom. I'm eating your home. Can you gain massive difference?
We'll then hear an automated message advising your hand is raised.
Operator: This is going to be awesome. And if it's not, go after her.
To withdraw your question. Please press star one one again.
Operator: We need to bring in storage, musical space.
Please be advised that today's conference is being recorded.
Operator: Hey, nowhere. I'm holding it out of the table over here.
I would now like to hand, the conference over to your host today Conrad Grodd, Vice President of Investor Relations. Please go ahead.
Operator: This is celebrated. With changing the home, we can change families.
Thank you operator, good afternoon, and welcome to brokers third quarter 2023 earnings call I'm joined today by Anthony Wood, Roku is founder and CEO and Dan <unk>. Our CFO also on todays call for Q&A are Charlie Collier, President Roku media and <unk>.
Operator: All good chefs know this to be true. Great meals start with great ingredients.
Operator: This season, we went searching for the very best. From fresh produce and seafood to classic southern flavors. We've got you covered.
<unk> Ozcan president devices.
Full details of our results and additional management commentary are available in our shareholder letter, which can be found on our investor Relations website at Roku Dot Com sports Slash investor our comments and responses to your questions on this call reflect management's views as of today, only and we disclaim any obligation to update this information.
Operator: So join me in my kitchen here inside the southern food and beverage museum for some truly memorable meals. Welcome back, everybody. The Emerald Cooks. I know you're going to love these.
Operator: Welcome to my Roku original Martha Cook. I bring you into my kitchen and visiting some of my favorite places to try some incredible cuisine. Don't tell anybody delicious pastry. This is so good. And create some wonderful dishes with friends. That's the key. We might even have a little fun. Now, stream me free on the Roku channel.
On this call we will make forward looking statements, which are predictions projections or other statements about future events, such as our financial outlook, our commitment to positive adjusted EBITDA for full year 2024, and continued improvements thereafter, our investments future market conditions and macro.
Current uncertainties. These statements are based on our current expectations forecasts and assumptions and involve risks and uncertainties. Please refer to our show later and periodic SEC filings for risk factors that could cause our actual results to differ materially from these forward looking statements. We will also discuss.
Operator: Nobody had ever been in a draft front. The 2023 NFL draft is about to begin. 32 teams give better and three days. Some get better than others.
Operator: This will change the entire draft. This is once in a lifetime opportunity. Get the number one pick. This is a big apron. This is my sleeper's my son. Put a ball on it.
Certain non-GAAP financial measures on today's call reconciliations to the most comparable GAAP financial measures are provided in our shareholder letter finally, unless otherwise stated all comparisons on this call will be against our results for the comparable period of 2022, now I would like to hand, the call over to Anthony.
Operator: This is the most unpredictable draft we've ever seen. And the picture is hidden.
Operator: Ben! Ben, here we go! That's the name of the bull's run! That's it now! We're going to talk about it! We're going to go on it! How much of a movie's now like 200 bucks? That's their 40s! It's about to fill the key! Here we go! 24 of us won! 1,000! Oh, Shukalaka!
Thanks Conrad.
We are executing well as the shift of TV streaming continues and delivered a strong quarter.
We grew our scale with net adds of $2 3 million active accounts.
An acceleration from the previous quarter.
Drove strong engagement with streaming hours, surpassing $100 billion for the first time on a trailing 12 month basis and the Roku channel remains a top 10 streaming app with engagement comparable to Paramount plus Peacock and Max According to Nielsen.
On the monetization side platform revenue was up 18% year over year, reflecting strong contribution from content distribution and video advertising.
We continue to tap into new AD demand sources and are now integrated with more than 30 programmatic partners.
And on the Roku platform through automated third party demand sources in Q3 grew meaningfully year over year and.
Conrad Grodd: Find Jason Gordon! Good day, and thank you for standing by. Welcome to the Roku 3rd quarter 2023 earnings conference call. At this time, I'll participate in Tsar Noly's mode. After the presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your touchtone telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded.
And we expanded our partnerships with marquee brands this quarter with Spotify, We introduced video ads and the Spotify App on Roku devices and with the NFL, We launched the firstly Brandon zone, and the Roku sports experience.
We continue to make progress in reducing our year over year Opex growth rate in September we announced additional measures that included a reduction of our workforce and office facilities and the removal of select content.
These measures and other cost reductions along with our strong top line growth.
Enabled us to deliver adjusted EBITDA of $43 million in Q3.
Going forward, we will balance investments for growth with our commitment to positive adjusted EBITDA for the full year 2024.
And we expect continued adjusted EBITDA improvements after that.
With our growing scale and engagement relentless focus on providing the best TV streaming experience and ongoing innovation, we are well positioned as the AD market recoveries.
Conrad Grodd: I would now like to hand the conference over to your host today, Conrad Grodd, vice president of Investor Relations. Please go ahead. Thank you, operator. Good afternoon, and welcome to Roku's 3rd quarter 2023 earnings call. I'm joined today by Anthony Wood, Roku's founder and CEO, and Dan Jetta, RCEFO. Also, in today's call for Q&A, our Charlie Collier, president, Roku Media, and Stafa Ozgan, president devices. For full details of our results in additional management commentary are available in our shareholder letter, which can be found on our Investor Relations website at Roku.com-4-investor.
Now I'll turn it over to Dan to discuss our results.
Thanks Anthony.
We ended the quarter was $75 8 million active accounts globally up 16% year over year.
<unk> net adds of $2 3 million accelerated quarter over quarter.
Overall smart TV unit sales in the U S were up year over year in Q3, driven by our consumer focus on value that benefited roku, which grew significantly faster than the overall industry.
Roku player unit sales remain above pre COVID-19 levels and the average roku players selling price was up 2% year over year.
Conrad Grodd: Our comments and responses to your questions on this call reflect management's views as of today only, and we disclaim any obligation to update this information. On this call, we'll make four-looking statements, which are predictions, projections, or other statements about future events, such as our financial outlook, our commitment to positive adjusted EBITDA for four-year 2024, and continued improvements thereafter. Our investments, future market conditions, and macro-environment uncertainties. These statements are based on our current expectations, forecast and assumptions, and involve risks and uncertainties.
Roku users streamed $26 7 billion hours in the quarter, an increase of 22% year over year, while viewing hours on traditional pay TV fell 15%.
Conrad Grodd: Please refer to our shareholder letter and periodic SEC filing for risk factors that could cause or actual results defer materially from these four-looking statements. We'll also discuss their non-gap financial measures on today's... Call. Reconciliation to the most comparable gap financial measures are provided in our shareholder letter.
Streaming hours per active account per day, a $3 nine was up 5% year over year.
In Q3 total net revenue increased 20% year over year to $912 million.
Platform revenue was up 18% year over year to $787 million driven by both content distribution and video advertising offset by lower media and entertainment promotional spend.
Content distribution activities grew faster than overall platform revenue benefited from increased subscription sign ups, along with recent price increases from <unk> partners.
Similar to Q2 2023 platform revenue and gross profit also benefited from a positive 606 adjustments from changes in forecast of our content distribution deals.
Conrad Grodd: Finally, unless otherwise stated, all comparisons on this call will be against results of the comparable period of 2022.
Anthony Wood: Now, I'd like to hand the call over to Anthony. Thanks, Conrad. We are excusing well as the shift the TV streaming continues and deliver the strong quarter. We grew our scale with net ads of 2.3 million active accounts and acceleration from the previous quarter. We drove strong engagement with streaming hours surpassing 100 billion for the first time on its trailing 12 month basis. And the Roku channel remains a top 10 streaming app with engagement comparable to Paramount Plus, Peacock and Max, according to Nielsen.
Q3 devices revenue increased 33% year over year, driven by the launch of our Roku branded Tvs and smart home products.
In Q3, <unk> was approximately $41 on a trailing 12 month basis down 7% year over year, but up quarter over quarter for the first time since Q3 of last year.
We expect <unk> to benefit in future periods from a recovery in the AD industry.
In Q3 gross profit was $369 million up 3% year over year.
Anthony Wood: On the monetization side, platform revenue was up 18% year over year, reflecting strong contribution from content distribution and video advertising. We continue to tap into new ad-demand sources and are now integrated with more than 30 programmatic partners. Stand on the Roku platform through automated third-party demand sources in Q3 through meaningfully year over year. And we expanded our partnerships with marquee brands this quarter. With Spotify, we introduced video ads in the Spotify app on Roku devices. And with the NFL, we launched the first Lee brand's zone in the Roku sports experience. We continued to make progress in reducing our year-over-year off-ex growth rate.
Excluding the restructuring and impairment charges gross profit was up 22% year over year.
Gross margin was 48% down five points sequentially, driven primarily by a $62 million impairment charge related to the removal of select licensed and produced content from the Roku channel.
Excluding the impairment charge platform gross margin would have been 56% a three point increase sequentially.
Devices margin was negative, 8%, which was up nearly 10 points sequentially.
Q3, adjusted EBITDA was positive $43 million to better than expected performance was driven by strong topline growth along with cost reductions and measures we announced in September to further reduce our year over year opex growth rate.
Dan Jedda: In September, we announced additional measures that included a reduction of our workforce and office facilities and the removal of select content. These measures and other cost reductions, along with our strong top-line growth, enabled us to deliver adjusted EBITDA of 43 million in Q3. Now, in forward, we will balance investment for growth with our commitment to positive adjusted EBITDA for the full year at 2024. And we continue the adjusted EBITDA improvements after that. With our growing scale and engagement, relentless focus on providing the best TV streaming experience and ongoing innovation, we are well positioned as the ad market recovers.
Free cash flow for Q3 was positive $239 million and we ended the quarter with over $2 billion in cash and restricted cash.
Looking to the fourth quarter, we anticipate total net revenue of $955 million up 10% year over year.
Gross profit of $405 million with gross margin of 42%.
And positive adjusted EBITDA of $10 million.
Within the platform segment, we had a solid rebound in video ads in Q3, and we expect year over year growth rate of video ads in Q4 to be similar.
Dan Jedda: Now I'll turn it over to Dan to discuss our results. Thanks, Anthony. We ended the quarter with 75.8 million active accounts globally, up 16% year-over-year. To Quential Net ads of 2.3 million accelerated quarter of a quarter. Overall, Smart TV unit sales in the U.S, were up year-over-year in Q3, driven by a consumer focus on value that benefited Roku, which grew significantly faster than the overall industry. Roku player unit sales were made above pre-COVID level, and the average Roku player selling price was up 2% year-over-year.
However, we remain cautious and uncertain macro environment and an uneven ad market recovery.
AD verticals like CPG, and health and wellness continued to improve while vertical by financial services and M&A remained challenged.
Additionally, we will face difficult year over year growth rate comparisons and content distribution, and M&A, which will challenge the year over year growth rate of platform revenue in Q4.
Within devices segment, we expect device margins to be down sequentially in line with historical seasonal trends, but up year over year.
Dan Jedda: Roku users streamed 26.7 billion hours in the quarter, and increased at 22% year-over-year while viewing hours on traditional pay TV fell 15%. Streaming hours per active account per day of 3.9% was up 5% year-over-year. In Q3, total net revenue increased 20% year-over-year to 912 million. Platform revenue was up 18% year-over-year to 787 million, driven by both content distribution and video advertising, offset by lower media and entertainment promotion, and I will give you an additional spend.
We anticipate both the sequential point decrease and the year over year <unk> increase to be in the low teens.
As a reminder, Q4 is traditionally a heavier promotional period in the retail calendar, resulting in lower device margins in the quarter relative to other quarters.
Turning to Opex, we anticipate Q4 year over year growth and a negative <unk> a significant improvement from opex year over year growth of approximately 70% in Q4 of last year.
We will continue to operate our business with discipline to defend margins with a focus on driving positive free cash flow over time.
Dan Jedda: Content distribution activities grew faster than overall platform revenue that if it is from increased subscription sign-ups along with recent price increases from S-VOD partners. We expect Roku to benefit in future periods from a recovery in the ad industry. In Q3, Grodd's profit was 369 million, up 3% year over year. Excluding restructuring and impairment charges, Grodd's profit was up 22% year over year. Platform Grodd's margin was 48% down 5.2%, driven primarily by a $62 million impairment charge related to the removal of select licensed and produced content from the Roku channel.
Additionally, we remain committed to achieving positive adjusted EBITDA for full year 2024 with continued improvements after that.
We will balance this commitment with investments to further expand our scale engagement and monetization.
With that let's take questions operator.
As a reminder to ask a question. Please press star one one on your Touchtone telephone and wait for your name to be announced.
To withdraw your question. Please press star one one again please.
Please standby, while we compile the Q&A roster.
Our first question will come from the line of Cory Carpenter with Jpmorgan.
Hey, Thanks for the question.
Hoping you could go a bit deeper into the different trends, you're seeing across many upfront and the scatter markets generally maybe specifically for you anything that you would call out an impact from geopolitical events in <unk> and then Dan maybe if you could just tie it altogether.
Can the various crosscurrents Gotcha <unk> guide thank you.
Dan Jedda: Excluding the impairment charge, Platform Grodd's margin would have been 56% a 3-point increase sequentially. Advice's margin was negative 8%, which was up nearly 10 points sequentially. Q3 adjusted EBITDA was positive 43 million. The better than expected performance was driven by strong top-line growth, along with cost reductions and measures we announced in September to further reduce our year-over-year off-ex growth rate. 3 cash flow for Q3 was positive 239 million, and we ended the quarter with over 2 billion in cash and restricted cash.
Hey, Cory. Thanks. This is Anthony so that Charlie will take that first part of that question and then the second part.
Thanks, Anthony and Hey, Corey I hope it will.
I'll start in second quarter, we saw a continued rebound in video advertising from second quarter into third quarter and in third quarter year on year growth of video advertising on Roku actually outperform the overall AD market and the linear AD market in the U S. So while we're optimistic about the ongoing re.
Bound in video advertising on our platform.
We remain cautious about the uncertain macro environment and the uneven AD market recovery by category actually Cory for instance.
Dan Jedda: Looking to the fourth quarter, we anticipate total net revenue of 955 million, up 10% year over year, plus profit of 405 million with gross margin of 42%. And positive adjusted EBITDA of 10 million. Within the platform segment, we had a solid rebound in video ads in Q3, and we expect your rear growth rate of video ads in Q4 to be similar. However, we remain cautious amid an uncertain macro environment and an uneven ad market recovery.
CPG and health and wellness are growing and doing quite well, but there are still categories like financial services and insurance that are not recovering as quickly and you mentioned M&A.
I expect M&A to be further pressured fourth quarter by of course, the limited fall release schedules because of labor strikes and there are some challenging comps last year. If you remember included the World Cup and a healthy seasonal and full theatrical schedule.
Dan Jedda: Ad verticals like CPG and health and wellness continue to improve, while verticals like financial services and M&E remain challenged. Additionally, we will face difficult year-over-year growth rate comparisons and content distribution and M&E, which will challenge the year-over-year growth rate of platform revenue in Q4. Within devices segment, we expect device margins to be down sufficiently in line with historical seasonal trends, but up year-over-year. We anticipate both the sequential point decrease and the year-over-year point increase to be in the low teens.
And more so I would say sort of trend wise, we had a solid really solid.
Rebound and video ads in third quarter and those are the ups and downs I mentioned, we're executing well and I fully expect the year on year growth rate of video ads in the fourth quarter to be similar to the third.
Dan do you want to yes, Hi, Hi, Cory Thanks for the question I'll, Let me just tie that with Charlie just said into how it impacts Q4 guide.
Yes, we did have a very solid video ads rebound in Q3, we do expect as Charlie said the year over year growth rate in video ads to be similar in Q4 and you also.
Dan Jedda: As a reminder, Q4 is traditionally a heavier promotional period in the retail calendar, resulting in lower device margins in the quarter relative to other quarters. Turning to FX, we anticipate Q4 year-over-year growth in the negative and the deep, a significant improvement from FX year-over-year growth of approximately 70% in Q4 glass. Foster, and will continue to operate our business with discipline to defend margins with a focus on driving positive free cash flow over time. Additionally, we are made committed to achieving positive adjusted EBITDA for a full year 2024 with continued improvements after that. We will balance this commitment with investments to further expand our scale, engagement and monetization.
We said that we remain cautious and uncertain for the macro environment, the uneven AD market recovery.
I do want to add we also do face a difficult year over year growth rate comparison in content distribution and M&A and that does challenge a sequential growth rate change from Q3 to Q4, we had a very strong Q3 in our economy.
Content distribution activities that comp gets harder in Q4, and that's factored into our guide.
And so from a sequential basis. When you look at Q4 2023 growing slower than Q3 2023 some of that.
This.
Harder comp and some of it is timing if you look at our H two compared to each one of this year relative to our H two compared to 800 last year Youll see a nine point sequential change in the second half of 2023 relative to 2022.
Operator: With that, let's take questions. Operator? As a reminder to ask a question, please press star 1-1 on your touchtone telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by when we compile the Q&A roster.
So thats also playing into the guide and I'll just end by saying, we expect to demonstrate further leverage in our business.
While our outlook with an outlook that calls for double digit increase year on year and gross profit and a double digit decrease year over year in Opex and that's what's driving the positive adjusted EBITDA for Q4.
Cory Carpenter: Our first question will come from the line of Cory Carpenter with J.P. Morgan. Thanks for the question. I hope you go a bit deeper just into the different trends you're seeing across in many upfronts in the scatter markets. Charlie may be specifically for you, anything that you would call out on impacts on geopolitical events in 4Q. And then Dan, maybe if you could just tie it all together and to have those various cross-currents got you to your 4Q guide.
Hey, Corey this is Andy.
Yes.
If I could just wrap that I'll just add that.
Feel good about our commitment to achieving positive adjusted EBITDA.
For the full year of 2024, and obviously with continued improvements after that.
So feel good about continuing to invest in our business. While also meeting those targets. So.
Things are looking good for us right now.
Cory Carpenter: Thank you. Hey, Cory, thanks. This is Anthony. So, yep, Charlie. We'll take that first part of that question and then the second part. Thanks, Anthony. And hey, Cory. I hope, well, you know, I'll start in second quarter. We saw a continued rebound in video advertising from second quarter into third quarter. And in third quarter, you're on your growth of video advertising on Roku actually outperform the overall ad market and the linear ad market in the US.
Thank you thanks.
Our next question comes from the line of Michael Nathanson with Moffett Nathanson.
Thanks.
Hey, Charlie I have two here one is as you noted in the press release Roku channel is up 50% year over year.
You talk a bit about what's changed on your watch in terms of how your program. It versus previously and then secondly, where I'll focus on Amazon entering the market.
Cory Carpenter: So, while we're optimistic about the ongoing rebound in video advertising on our platform, we remain cautious about the uncertain macro environment and the uneven ad market recovery by category. Actually, Cory, for instance, CPG and health and wellness are growing and doing quite well. But they're still categories like financial services and insurance that are not recovering as quickly. And you mentioned M&E, you know, expect M&E to be further pressured in fourth quarter by, of course, the limited fall release schedules because of labor strikes.
Prime video as where you think it means for more broadly the ecosystem and then any competition that you think you'll hit.
They enter.
Prime video advertising thanks.
Hey, Michael this is Anthony.
Well, let me start with the.
The question about.
And competitors.
And then Charlie can it okay great.
And on the.
The rest of your question. So just I, just I would say.
No.
Cory Carpenter: And, you know, there are some challenging comps. Last year, if you remember, included the World Cup and a healthy seasonal and full theatrical schedule and more. So, I'd say sort of trend wise, we had a solid, really solid rebound in video ads in third quarter. And though there are the ups and downs I mentioned, we're executing well and I fully expect the year on your growth rate of video ads in fourth quarter to be similar to third.
Yeah.
First of all we are the leading TV streaming platform, it's a great position to be and we get asked about market dynamics a lot. We've founded roku on the belief that all television, including advertising is going to be streamed and we're obviously seeing that seeing that happen, we're willing to that transition, but theres still a long way to go and traditional TV ads in the U S as everyone.
<unk>, probably knows as a $60 billion of your business, it's all going to move to streaming and theres going to be multiple winners.
Our platform, obviously has significant scale engagement first party data unique ad products.
Cory Carpenter: Yeah, hi, Cory. Thanks for the question. Let me just tie that with Charlie just said into how it impacts the Q4 guide. Yes, we did have a very solid video ads rebound in Q3. We do expect as Charlie said, the year of your growth rate and video ads to be similar in Q4. And he also said that we remain cautious and uncertain for the macro environment, the uneven admiral. Recovery. I do want to add that we also do face a difficult year-over-year growth rate comparison in content distribution and M&E.
And like we said before in the U S. Our scale is approaching half of broadband households.
That makes us a tremendous an important platform to begin and be involved in for everyone. In the ecosystem are streaming hours passed 100 billion hours great milestone for us.
The Roku channel.
As Charlie will talk more about it but it is a top 10 streaming app.
On our platform and represents nearly 3% of all TV streaming in September not just on roku, but across everywhere, which is comparable to the engagement of alkylate, Paramount plus Peacock and Mac. So.
Cory Carpenter: And that does challenge the sequential growth rate change from Q3 to Q4. We had a very strong Q3 in our content distribution activities. That comp gets harder in Q4 and that's factored into our guide. And so from a sequential basis, when you look at Q4, 2023, growing slower than Q3, 2023, some of that is this harder comp and some of it is timing. If you look at our H2 compared to H1 of this year relative to our H2 compared to H1 of last year, you'll see a nine-point sequential change in the second half of 2023 relative to 2022.
We're in a great position.
Strong.
Part of the ecosystem, we are executing well.
And if I think about.
A couple of factors.
Impacting our the growth of our video AD business specifically the.
The most important one which we've mentioned before and continues to be the most important is just the macro as well as the macro environment, which is.
It's impacting everyone right now and then the second one is just how fast advertisers move from traditional TV streaming.
There's still a lot of dollars that are in the traditional pay TV ecosystem that are all going to move to streaming.
Cory Carpenter: So that's also playing into the guide and I understand by saying we expect to demonstrate further leverage in our business while our outlook with an outlook that calls for double-digit increase year-on-year and gross profit and a double-digit decrease year-over-year in our backs. And that's what's driving the positive adjusted EBITDA for Q4. Hey, Cory, this is Andy again. I'll just, if I can just wrap it, I'll just add that I, you know, I feel good about our commitment to achieving positive adjusted EBITDA for the full year of 2024. And obviously we've continued improvements after that. I also feel good about continuing to invest in our business while also meeting those targets. So you know, things are looking good for us right now. Thank you. Thanks.
Thats.
Big factor in terms of our growth and I think.
As.
Services like.
Services that were traditionally.
AD free start start to add as it does have the benefit of.
Creating more interest in.
Advertisers are moving their ads to streaming so thats a positive benefit for us.
And then I think.
Another thought I have maybe most people don't think about is if you think about.
The Roku channel.
As <unk>.
Popular streaming services make the tradeoff to add add.
It levels, the playing field and viewers minds with services like the Roku channel, which are already AD supported.
Michael Nathanson: Our next question comes from a line of Michael Nathanson with Market Nathanson. Thanks. Hey, Charlie, I have two of you. One is, as you noted in the press release, Roku channels up to 20% year-to-year. You talk a bit about what's changed on your watch in terms of how you program it versus previously. And then secondly, we're focused on Amazon entering the market for prime video ads. What do you think it means for more broadly the ecosystem and then any competition that you think you'll hit as they enter prime video advertising? Thanks. Hey, Michael, this is Anthony.
In other words, the streamer and streaming services that don't traditionally have ads as they enter the advertising business.
I believe it's going to increase engagement on the Roku channel.
So those are a few high level thoughts.
And then Charlie you want to sure.
Sure.
Yes, thanks for the question Michael Thanks, Anthony.
Look we've done a lot of.
Curation on the Roku channel and we feel really good about.
Sure.
Our opportunities there Michael to continue to grow.
Really our focus is on bringing the right mix of content to the Roku channel content that our customers love and watch across what is really that curated mix of licensed content, the fast channels and original content and <unk>.
Anthony Wood: Why don't we start with the question about video ads and competitors and then Charlie can expand on the rest of your question. So, you know, just, I would say, you know, first of all, we're the leading TV streaming platform. It's a great position to be in. We get asked about market dynamics a lot. You know, we've founded Roku on the belief that all TV, including advertising, is going to be streamed. And where I wish you'd seen that, seeing that happen will well into that transition, but there's still a long way to go.
To sort of summarize our prioritized for your original are a key part of our strategy and I'm proud of the team and our efficient and impact driving efforts, but the foundation of Roku as content spend is third party licensed content that we surface for viewers through Roku is unique UI advantages our position.
The platform is extremely powerful probably.
I would say more powerful than I anticipated, even coming in when we first spoke and we have great program overall and the numbers and the engagement growth proved that our content mix is is working well the roku channel has grown streaming hours, 50% year on year and so just like I do.
Anthony Wood: Traditional TV ad in the US, as everyone probably knows, is a $60 billion Europe business. It's all going to move to streaming and there's going to be multiple winners. Our platform obviously has significant scale engagement, first-party data, unique ad products. You know, unlike we said before, in the US, our scale is approaching half of broadband households. You know, that makes us tremendously important platforms to be involved in for everyone, and Ecosystem.
AMC and other places I've led we're very serious about managing our library and we frequently tweak it in fact.
We review the Roku channel is content and the content performance often simply to ensure that viewers have the best possible experiences. That's the job to adjust the mix of offerings and do so to the benefit of audiences and that process has helped us grow and the engagement is growing consistently and we.
Anthony Wood: Our streaming hours pass 100 billion hours, a great milestone for us. The Roku channel, which Charlie will talk more about, it's a top 10 streaming app on our platform and represents nearly 3% of all TV streaming in September, not just on Roku but across everywhere, which is comparable to the engagement of Half Light Paramount Plus, Peacock and Max. So, you know, we're in a great position, we're a strong part of the Ecosystem, we're executing well.
See continued growth ahead across all key content categories, starting with that direct license as I mentioned, including the fast channels.
And even sports and focused in budget originals.
Anthony Wood: And if I think about, you know, a couple of factors that we're impacting are the growth of our video ad business, specifically, the most important one, which we've mentioned before and continue to be the most important. It's just the macro is, well, one is the macro environment, which, you know, is impacting everyone right now. And then, but the second one is just how fast advertisers move from traditional TV to streaming. You know, there's still a lot of dollars that are in the traditional pay TV ecosystem that are all going to move the streaming.
We have 400, plus fast channels linear fast channels and they're gaining in traction fans noticed that our NFL partnership continue to grow and the NFL zoned launch within our sports one in September and Roku original mirrored that and Premier the NFL draft pick Zane I think you just saw clip if you were waiting on the call.
Applebee's sponsored that and that provided insider access to the NFL draft in partnership with the NFL sitting side by side with our expanded NFL partnership and then we did innovative stuff like we launched the Mr. <unk> fast channel working with one of the most popular Youtube creators I think he has something like a 176 million Youtube.
Anthony Wood: And that's a big factor in terms of our growth. And I think as services like, you know, services that were traditionally ad-free start to add ads, it does have the benefit of creating more interest in moving advertisers and moving their ads to streaming. So, that's the positive benefit for us. And then, I think, you know, another thought I have that maybe most people won't think about is if you think about the Roku channel, you know, as popular streaming services make the trade off to add ads, it levels the playing field into yours minds, the services like the Roku channel, which are already ad supported. In other words, the streaming services that don't traditionally have ads as they enter the advertising business, you know, I believe it's going to increase engagement on the Roku channel. So, those are a few high-level thoughts.
Subscribers and that was both strategic and accretive and it is an exclusive launch that our audiences loved and it performed real well so we're on strategy Michael.
And see growth ahead, we will continue to release, new content and new partnerships on the Roku channel and I'm pleased with the team and our process and our progress.
And this is Anthony again.
Maybe I'll just point out an important component of our Roku channel business model, which I think all of that people understand but maybe not everyone, which is that record big strategic advantage is.
With the platform that a large number of people used to watch TV, so approaching half the broadband households in the United States when they turn on their TV do you why do they see as the Roku user interface.
And so <unk>.
One way, we use that is to help recommend content.
Charlie Collier: And then, Charles, you want to share that with your thoughts. Yeah, thanks for the question, Michael. Thanks, Anthony. Look, you know, we've done a lot of curation on the Roku channel, and we feel really good about, you know, our opportunities there, Michael, to continue to grow. Really, our focus is on bringing the right mix of content to the Roku channel, content that the fast channels and original content. And to sort of summarize or prioritize for you, originals are a key part of our strategy.
Is it to recommend content that's in the Roku channel to viewers, obviously, we use it to recommend all kinds of content, but we also insert.
And make sure that we promote content in the Roku channel and our user interface when they're deciding what to watch and so that position in the viewer journey is a big competitive advantage that allows us to grow the scale and engagement in the Roku channel.
With much smaller content budgets and other other companies that have similar scale have to spend in order to reach that sort of in order to achieve that kind of reach and so it's a big competitive advantage in our business model.
Thank you both.
Charlie Collier: I'm proud of the team and our efficient and impact driving efforts. But the foundation of Roku's content is third-party license content that we surface reviewers through Roku's unique UI advantages. You know, our position as the platform is extremely powerful. Probably, I would say more powerful than I anticipated even coming in when we first spoke. And, you know, we have great programming, well, overall, and the numbers and the engagement growth prove that our content mix is working well.
Okay.
Our next question comes from the line of Jason <unk> with Oppenheimer.
Thanks two questions.
Sorry, there was an echo.
One how much further does the company plan to go with DSP integrations I think you called out 30 over 30 in the letter.
Are you fully deployed with the major DSP and agency trading desk, just maybe help us understand what inning and then second question. Dan can you give us your philosophy for guidance like what's a reasonable kind of upside downside range.
Charlie Collier: You know, the Roku channel has grown streaming hours 50% year on year. And so, just like, you know, I did a day MC in other places, I've led. We're very serious about managing the library and we frequently tweak it. In fact, we review the Roku channel's content and the content performance. Often, simply to ensure that viewers of the best possible experiences. That's the job to adjust the mix of offerings and do so to the benefit of audiences.
Even if no number just philosophically I think just that would help investors kind of better set expectations. Thank you.
Hey, Jason this is Anthony.
We're making great progress with third party dst's, but it's still early in our journey there.
Tapping into that demand source, but.
I'll, let <unk>.
Charlie you talked about it more.
Charlie Collier: And that process has helped us grow. And the engagement is growing consistently. We see continued growth ahead across all key content categories, starting with that direct license. As I mentioned, including the fast channels and even sports and focused in budget originals. You know, we have 400 plus fast channels, linear fast channels, and they're gaining interaction. Fans noticed that our NFL partnership continued to grow. And the NFL zone launched within our sports zone in September.
Thanks, Jason.
We are seeing meaningful success with our early efforts to scale third party DSP, we broadened our relationships with a full spectrum of not just third party DSP, but also third party supply and demand partners.
We're as you noted.
Or were there with over 30 programmatic partners, both big and small to answer your question.
Spending.
We're seeing them spend on the Roku platform through automated third party demand sources and also obviously directly with us and that grew meaningfully year over year in the third quarter.
Charlie Collier: And Roku originals mirrored that and premiered the NFL draft to pick us in. I think you just saw a clip if you were waiting on the call. Apple V sponsored that and that provided insider access to the NFL draft in partnership with the NFL sitting side by side with our expanded NFL partnership. And then we did innovative stuff like we launched the Mr. B fast channel working with one of the most popular YouTube creators.
Charlie Collier: I think he has something like 176 million YouTube subscribers. And that was both strategic and creative and it was an exclusive launch that our audiences loved and it performed real well. So we're on Straszy Michael and see growth ahead. We will continue to release new content and new partnerships on the Roku channel. And I'm pleased with the team and our process and our progress.
A lot of it has to do with the concerted effort to meet marketers', where they wish to transact.
And that's been successful it allows us to diversify demand and to demonstrate the full power and breath of roku capabilities really no matter, how an investment in Roku has transacted and it also has allowed us to be a really flexible partner.
In multiple ways across the markets. We serve so the initial results prove the benefits of the strategy and beyond just growing revenue the feedback has been terrific.
We're often called our partners most productive supplier of CTV impressions and as Anthony said the good news is these are still early days I should say there is no silver bullet the programmatic market faces the same overall macro challenges as other marketplaces, including categories like insurance that or not.
Anthony Wood: And this is Anthony again. I'll just point out an important component of our Roku channel business model, which I think a lot of people understand that maybe not everyone, which is that Roku's big strategic advantage is that with a platform that a large number of people use to watch television. So, you know, approaching half the broadband households in the United States, when they turn on their TV, the United they see is the Roku user interface.
Back as robustly as several other categories.
Overall, though our embrace of third party partners of all kinds continues and the results should continue to be positive we work sort of client by client to set up the best ways to build their businesses and to prove the unique value of roku.
Anthony Wood: And so one way we use that is to help recommend content to our we use it to recommend content within the Roku channel to viewers, obviously we use it to recommend all kinds of content, but we also insert a make sure that we promote content in the Roku channel in our user interface when they're deciding what to watch. And so, you know, that position in the viewer journey is a big competitive advantage and allows us to grow the scale and engagement in the Roku channel with much smaller content, but just than other other companies that have similar scale have to spend in order to reach that sort of in order to achieve that kind of reach. And so it's a big competitive advantage in our business model. Thank you both.
I want to note.
So to say this every quarter, but it's important.
Much of our unique first party in ACR data, along with our specialized AD products, our original programming and many of the unique elements of the Roku UI, which deliver it at scale that few others can offer.
These features will continue to remain accessible only through roku and this diversity of market facing options that allows us to manage both demand diversification in the one hand, and then product and pricing distinction on the other.
Hey, Jason I'll take the second part of that question on guidance.
Obviously, we performed far better than what we said.
Jason Helfstein: Our next question comes from a line of Jason Helstein with Oppenheimer. Thanks. Two questions.
When we issued our 8-K in early September and the reason for that.
We did have a 606 adjustments that we talked about in the letter that I talked about earlier.
Jason Helfstein: Sorry, there was an echo. How much further does the company plan to go with DSP integration? I think you called out 30 over 30 in the letter. Are you fully deployed with the major DSPs and agency trading desk, which is maybe help us understand what ending.
We had a great September and Q3 on video ads revenue, we had a very strong content distribution.
Order as well and we saw the opportunity to go even deeper in our our operating cost savings and so a lot of that played in to what resulted in Q3 and going forward.
Jason Helfstein: And then second question, Dan, can you give us your philosophy for guidance? Like what's a reasonable kind of upside down side range? Even if no number just philosophically, I think just that what help investors is kind of better set expectations. Thanks.
The ad market.
It's variable it's challenging a lot of ads are running closer to air date that does create some variability within a quarter and it's a very uneven ad market recovery.
Jason Helfstein: Thank you. Hey Jason, this is Anthony. You know, we're making great progress with third party DSP but it's still early in sort of our journey there and tapping into that demand source but I'll let Charlie talk about it more. Thanks. Thanks Jason. We are seeing full success with our early efforts to scale third party DSPs. We've brought in our relationships with a full spectrum of not just third party DSPs but also third party DSPs supply and demand partners.
We're doing our best to forecast that we think we've got a good handle on that content distribution activities is less seasonal and slightly more predictable, but the guidance is to give the best view that we have.
Started in the quarter.
When we give the guidance so it's not I wouldn't say, it's like overly conservative is better with progressive we don't give a range for a reason we give what we believe is our best view at the time that we give this call.
Jason Helfstein: We're, as you noted, we're there with over 30 programmatic partners, both big and small to answer your question and we're spending, we're seeing them spend on the Roku platform through automated third party demand sources and and also, you know, obviously directly with us and that grew meaningfully year over year in the third quarter, you know, a lot of it has to do with a concerted effort to meet markers where they wish to transact and that's been successful. It allows us to diversify demand and to demonstrate the full power and breadth of of Roku's capabilities really no matter how an investment in Roku is transacted and it also has allowed us to be a really flexible partner in multiple ways across the markets we serve.
Thank you.
Our next question comes from the line of Schwinn Tokar, Julia with Evercore ISI.
Thank you for taking my questions.
Could you please.
Provide some color on what drove the net adds.
<unk>, specifically pointed to a couple of things in your letter, but anything that you could point to if it was specific to this quarter something that was one time or just the trends that you saw and my next question is anything you want to call out on macro there are couple of other advertising platforms that did call out impact from the Israeli war or anything that you saw.
Well just the overall brand sentiment right now and in Q3. Thank you.
Jason Helfstein: So the initial results prove the benefits of the strategy and beyond just growing revenue, the feedback has been terrific and we're often called our partners most productive. We're often called our partners most productive suppliers of CTV impressions and as Anthony said, the good news is these are still early days. I should say there's no silver bullet, you know, the programmatic market faces the same overall macro challenges as other marketplaces, including categories like insurance that are not back as robustly as several other categories overall though our embrace of third party partners of all kinds continues. And the results should continue to be positive, you know, we work sort of client by client to set up the best ways to build their businesses and to prove the unique value of Roku.
This is Anthony.
Alaska was stopped by to see if he has any color on.
No what drove our net adds in the quarter and then I think your second part of your question was up political ads.
Sure.
And we're on it.
Yeah.
Charlie Charlie can take.
Hi, Sean.
Bob.
Thank you for the question in terms of.
And drivers have been.
Or are there.
It's a combination of strong growth in international markets as well as in the U S market.
Although we are approaching half of the broadband households in the U S. We still continue to grow it and we still see growth opportunities.
Charlie Collier: I do want to know that I sort of say this every quarter, but it's important. You know, much of our unique first party and ACR data along with our specialized ad products are original programming and many of the unique elements of the Roku UI which deliver it a scale that few others can offer. I mean these features will continue to remain accessible only through Roku and it's this diversity of market facing options that allows us to manage both demand diversification in the one hand and then product and pricing distinction on the other.
As the shift to streaming.
It's happening in the U S.
Followed by the international markets.
Overall, both the.
Keeping devices in the play and devices are contributing to the growth in general Tvs are slightly higher than the players because of the international markets, where we have a strong.
Sure.
Players have.
The mix of the devices used by the consumers in those markets.
Overall.
Dan Jedda: Hi Jason, I'll take the second part of that question on guidance, you know, obviously we perform far better than what we said. When we issued our AK in early September and the reason for that was we did have a 606 adjustment that we talked about in the letter that talked about earlier. We had a great September and end Q3 on video ads revenue, we had a very strong content distribution quarter as well.
Just looking at the international that we are doing really well in Latin America.
In Mexico, we are the number one selling TV OS.
Launch the Roku channel, which continues to grow.
Reach and engagement.
We are beginning to monetize in Mexico.
And again the improvement that we're doing the engagement.
We're dealing with a distribution with our partners and with our player devices, we see continued growth in Mexico.
Yes, we have more than 10.
Dan Jedda: And we saw the opportunity to go even a little deeper in our operating cost savings. And so a lot of that played into what resulted in Q3 and going forward, the ad market is variable. It's challenging a lot of ad they're running closer to air date that does some create some variability within a quarter. It's a very uneven ad market recovery. We're doing our best to forecast that. We think we've got a good handle on that content distribution activities is less seasonal and slightly more predictable. But the guidance is to give the best view that we have at the start of the quarter when we give the guidance. So it's not, I wouldn't say it's like overly conservative, it's not overly aggressive.
TV partners in Mexico, and they are all growing their market share and that's helping us to get to get the number one.
Selling TV OS in Mexico equally we're growing in other markets like Brazil, we have a strong growth in Brazil and Mexico.
Mexico is a large country.
Most households, so that's helping us to drive our net.
<unk>.
I'll, just add really quick to that.
On the international is definitely.
<unk>.
Tailwind for us, but on the RPC side, which of course takes the actors into account.
We were down 7% at 41% or three year on year, we did see sequential change that's on a 12 month trial basis, we did see a sequential growth.
Dan Jedda: We don't give a range for a reason. We give what we believe is our best view at the time that we give this call.
Operator: Thank you.
Yes.
In <unk>, which is a big positive despite a very solid net active adds quarter and then we also look at it on a quarterly we don't.
Shweta Khajuria: Our next question comes from a line of Shweta Khajuria with Evercore ISI. Thank you for taking my questions. Could you please provide some color on what drove the Net ads? I think that was one time where just the trends that you saw. And my next question is, anything you want to call out on Macro, there are a couple of other advertising platforms that did call out impact from the Israel War, anything that you saw or just the overall brand sentiment right now and in Q3.
We don't share it out but the quarterly.
<unk> also had a year on year change positive change so really good <unk>. In addition to a very strong net adds for the quarter.
This is Anthony again, I'll add just a couple other observations about net adds one is.
Yes.
This shift in consumers' minds to select and value oriented products and we excel in the value segment of television.
That would help that helped us and then.
It's also I think we also continue to see consumers selecting larger screen size Roku Tvs, which is which is also beneficial because they tend to.
The consumers that the larger screen sizes tend to be in the main room in the house and so it is a great spot to be in.
Shweta Khajuria: Thank you. This is Anthony. I'll ask Mustafa to see if he has any color on what drove our Net ads in the quarter. And then I think your secondary question is up political ads. We're on it. Charlie can say. Thank you for the question. In terms of the drivers of the Net ads in the quarter, there. You know, it's a combination of strong growth in international markets as well as in the US market.
And then Charlie talked about.
Thanks.
Sure. Thanks for the question about the conflict thus far we are not seeing.
A direct impact to AD spend from the conflict.
We would of course like most companies.
<unk> impact from it to the extent that it affects the macro environment, but again.
We're not seeing a direct impact has been from it yet.
Okay. Thank you very much.
Thanks.
Shweta Khajuria: You know, although we're approaching half of the broadband households in the US, we still can see the growth opportunities as the ship streaming is happening in the US and followed by the international markets. Overall, both the TV devices and the player devices that were contributing to the growth in general, TVs are slightly higher than the players because of the international markets that we have a strong share of TVs and players because of the mix of the devices used by the consumers in those markets.
Our next.
<unk> comes from the line of <unk> <unk> with Bank of America.
Hi, Thanks for taking my questions and congrats on the quarter. My first question is on the upfront.
Can you give some more details like how did upfront pricing compared to last year last.
Last year, you said you had 1 billion pleasant commitments I mean did you continue to gain share. So any details on specifically on the pricing because in the scatter market as you open up your DSP tools working with third party Dsp's are you open to price discovery below that level of the upfront and so how do you trade off.
Shweta Khajuria: Overall, you know, just looking at the international, but we are doing really well in Latin America. In Mexico, we are the number one selling TV OS launched the broker channel which continues to grow in recent engagement. And we are beginning to monetize in Mexico. And again, the information that we're doing engagement and the information we're doing with the distribution with our TV partners and with our player devices, we see continue to grow in Mexico.
Fill rate versus CPM on margins.
This is Anthony Charlie obviously can take that question I was hoping you take it.
Alright. Thanks.
Look I'm not going to break out the upfronts, except to say youll be pleased with our numbers overall, whether they come in the broadcast upfront calendar upfront scatter as the blend.
Just described.
Start by saying look I'm pleased to report that.
We did do well in terms of total upfront dollars to the platform.
Shweta Khajuria: But again, we have more than 10 TV partners in Mexico and they are all growing their market share and that's helping us to get to get the number one selling TV OS in Mexico. Equally, we're growing in other markets like Brazil, you know, we have a strong growth in Brazil and just like Mexico, Brazil is a large country and there's a number of households and that's helping us to drive our net ads.
It's interesting as I said in last quarter's earnings call. This year with a very different one for everyone across the industry because it proceeded as such as slower paced unusual and despite the pace. It closed on time as we knew it would and we're pleased with the outcome.
Drifting to me because the sales team pretty much pivoted from closing the upfront right into focusing on scatter and one trend you see is advertisers are still spending closer to air date, I think that will continue and we certainly saw evidence of that in the third quarter. So when I look at total dollars, we did well.
Shweta Khajuria: I'm just adding really quick to that. The international is definitely a big tail in for us, but on the RPU side, which of course takes the actors into account. Well, we were down 7% at 41 over three years and you just see a sequential change. That's on a 12 month trail basis. We did see a sequential growth in RPU, which is a big positive despite a very solid net active ads quarter.
We continue to take share from the overall TV market because the combination of our unique scale of the data, we offer and compelling roku only offerings.
Again business tends to keep coming in late is we keep highlighting but the agriculture itself is uneven as Dan mentioned across categories. So that's just making forecasting, particularly challenging but as broadcast and linear entertainment impressions continue to decline.
Shweta Khajuria: And then, you know, we also look at it on quarterly. We don't want to share it out, but the quarterly RPU also had a year on your change, positive change. So, really good RPU in addition to a very strong net active ads for the quarter. This is Anthony again, I'll add just a couple other observations about NetApp. One is in consumer's mind to select and value-oriented products, and we excel in the value segment of PV, but that helps us, and then I think we're also continuing to see consumers selecting larger screen sized Roku TVs, which is also beneficial because they tend to be consumers that the larger screen sizes tend to be in the main room of the house, and so it's a great spot to be in.
As a reminder, by the way global hours on Roku grew 22% year over year, while linear hours in the U S declined 15%. So the gap is significant so as this continues I believe CTV in general and Roku, specifically, we will continue to be planned and bought earlier in the process. So.
Overall advertisers engage with roku on the upfront I talked a little bit about our third party DSP, we're seeing great engagement there too.
And we're seeing again later than usual, but we're seeing that engagement in scatter as well.
We've talked a lot about having nearly half the broadband households in the U S and the unique advantages of that scale and our data and our AD products like Roku City, where shopper will adds or some of the powerful tools, we use to attract engage and retain audiences. I think all of that is what's seeing us drive that success.
Shweta Khajuria: And then, Charlie, you want to talk about that? Yeah, thanks for the question about the conflict. You know, thus far we are not seeing a direct impact to add spend from the conflict. You know, would of course, like most companies experience impact from it to the extent that it affects the macro environment, but again, we're not seeing a direct impact has been from it yet. Okay, thank you very much.
Got it and just for a quick follow up if and Muni spend remains weak are there things you can do to monetize the home screen and screen saver differently.
Diversify to other end markets. So any thoughts there. Thank you so much and congrats on the quarter.
Shweta Khajuria: Our next question comes from a line of Ruplu Bhattacharya with Bank of America. Hi, thanks for taking my questions and congrats on the quarter.
Thank you and thanks for the question.
Let me let me let me.
I'll start on <unk>.
Sure Charlie has.
Things to say on that topic as well so.
Ruplu Bhattacharya: My first question is on the upfronts. Can you give some more details, like how did upfront pricing compare to last year? I mean, I think last year you said you had 1 billion pleasant commitments. I mean, did you continue to gain share? If any details on specifically on the pricing, because in the scatter market, as you open up your DSP to working with a third party DSPs, are you open to price discovery below that level of the upfronts? And so how do you trade off the fill rate versus CPMs and margins? Ruplu, this is Anthony Charlie. Obviously you can take that question. I was hoping you take it. All right, thanks Ruplu.
I think well first of all.
I'll just say that.
As I said before we're the number one TV streaming platform, we distribute lots of streaming services and apps and content.
We're often.
Not usually their number one distribution platform on television.
This relationship.
<unk> of our relationship with viewers and with content apps generates a lot of different revenue streams for us beyond just M&A.
And you can see this in our Q3 results and Q3 <unk> was pressured but we still do the platform revenue 18%.
So those are sort of.
That implies obviously, there's these other revenue streams are doing well.
Anthony Wood: Look, I'm not going to break out the upfronts except to say you'll be pleased with our numbers overall, whether they come in the broadcast upfront calendar upfront scatterer as the blend you just described. I'll start by saying, look, I'm pleased to report that we did do well in terms of total upfront dollars to the platform. You know, it's interesting as I said in last quarter's earnings call, this year was a very different one for everyone across the industry because it proceeded such a slower pace than usual.
And then when it comes to M&A promotions, specifically just in case, everyone doesn't know what that is.
As we as we expose the television viewing UI to our viewers and if they browse around we integrate promotions for different types of content into the user experience.
We do it in ways that are effective in driving engagement.
It builds subscriptions, but also ways that are super VR friendly so it says.
Something we're good at we put a lot of effort into it it's a win win for everyone.
Anthony Wood: And despite the pace it closed on time as we knew it would, and we're pleased with the outcome. It was interesting to me because the sales team pretty much pivoted from closing the upfront right into focusing on scatter and one trend you see is advertisers are still spending closer to air dates. I think that'll continue and we certainly saw evidence of that in the third quarter. So when I look at total dollars, we did well.
Good for our business and Leverages, the fact that.
One of our key assets.
Interface for selecting content.
So it's an area that we continue to invest in an area and I think we're best in class in.
And an area that we're going to.
Turning to investment and.
M&A is down right now because of the current state of the economy in the AD cycle, but this is an area that I think has long term potential.
Anthony Wood: We continue to take share from the overall TV market because of the combination of our unique scale, the data we offer and compelling Roku only offerings. Again, business tends to keep coming in late as we keep highlighting, but the ad recovery itself is uneven as Dan mentioned across categories. So that's just making forecasting potential, and I think it's a bit more specifically challenging. But as broadcast and linear entertainment impressions continue to decline, Ruplu, as a reminder, by the way, global hours on Roku grew 22% year over year, while linear hours in the US declined 15%, so the gap is significant.
I don't know Charles do you want to add as well.
Sure. Thanks, Anthony Thanks for the congratulations we talked a lot about diversifying demand and Anthony talked about integrating all sorts of different advertisers and promotion into the UI beyond M&A and that's right and maybe I'll just add that stepping back I think it's good to think about how versatile.
A partner Roku is.
Both to <unk> and to other advertisers who need to prove that their marketing is working we are top of the funnel and Bob at the bottom of the funnel impact and were building upon it. So just on M&A look we are a business builder for our media and entertainment partners not just a place for them to invest in that because we make their services and content we use the word on <unk>.
Anthony Wood: So as this continues, I believe CTV in general, and Roku specifically will continue to be planned and bought earlier in the process. So overall, advertising engaged with Roku on the upfront, I talked a little bit about our third party DSPs, we're seeing great engagement there too. And we're seeing, again, later than usual, but we're seeing that engagement scatter as well. You know, we've talked a lot about having nearly half the broadband households in the US, and the unique advantages of that scale and our data and our ad products like Roku City, or shoppable ads, or some of the powerful tools we use to attract an engage. And retain audiences. I think all of that is what's seeing us drive that success. Got it.
Miscible lot unmissable across the full funnel from broad reach acquisition right through to engagement and in the case of M&A partners on Roku that literally means right youll see their ads on our platform and the integration as Anthony talked about.
Click here and watch the video here too so that that is the ultimate endemic advertiser for us and we're starting to see that impact beyond M&A. So.
So we are effective and accountable and what's interesting is we're finding each of our partners has individual ways of seeing the power of the roku platform to help them build their business and so simultaneously we can benefit the customers really.
Anthony Wood: And just for a quick follow up, if M&E spend remains weak, are there things you can do to monetize the home screen and screensaver differently at is diversified to other in markets? So any thoughts there? Thank you so much and congrats on the corner. Thank you. And thank you for the question. Let me start on Avenue and Charlie has things to say on that topic as well. So, you know, I think, well, first of all, you know, I'll just say that, as I said before, we're the number one TV streaming platform.
The consumers the advertisers and our M&A channel partners, and we sort of relish all three opportunities Anthony talked about the short term pain.
The <unk> category is facing because of the difficult AD sales market limited fall release schedules and the general uncertainty.
And I mentioned earlier that last fourth quarter, there was some pretty big promotional moments from the World Cup.
Mid term elections, but I got to tell you the temporary economic cycles do not dampen the.
The enormous opportunity that we see in working with our streaming partners.
Anthony Wood: We distribute lots of streaming services and apps and content where, you know, often, if not usually their number one distribution platform on television. And, you know, this this relationship, this scale of our relationship with viewers and with content apps generates a lot of different revenue streams for us beyond just M&E. And you can see this in our key to results, you know, in Q3, M&E was pressured, but we still do the platform revenue 18%.
We just have the reach and the scale and the powerful tools both to win ourselves, but also to help them win.
Just a few examples we produced some branded content that builds viewer loyalty one of our partners actually leans on advanced Roku machine learning to optimize their creative executions for them. So they can proactively reduce churn and improve win backs and theres lots of examples like this and it's not just the large partners. This is really effective.
Anthony Wood: And so those are so that, you know, that implies obviously that these other revenue streams are doing well. You know, and then when it comes to M&E promotion specifically, just in case everyone doesn't know what that is, you know, as we as we exposed the TV viewing UI to our viewers, and if they browse around, we integrate promotions for different types of content into the user experience. And we do in ways that are effective in driving engagement, you know, ways to build subscriptions, but also ways that are superview or friendly.
Media and if you're a roku user you probably noticed.
A couple of weeks ago, we had a fan experience around the new season of Apple's the morning show and this content with exclusively available on the Roku platform. It included unlocked new material free episodes exclusive interviews and the three months free extended trial for Apple TV plus subscribers, so the breadth and depth.
This promotion is a perfect example of what Ive been talking about.
<unk> question, but answering a couple of others, where the right place for M&A and other partners to invest to build engagement and we will do more of it and we will measure it uniquely for them and we will prove the impact.
Anthony Wood: So it's a, you know, something we're good at. We put a lot of effort into it. It's a win-win for everyone. It's good for our business. It leverages the fact that, you know, one of our key assets is the user interface for selecting content. And so it's an area that we continue to invest in an area, I think we're best in class in an area that we're going to continue to invest in.
And this is Anthony again, just maybe touch back on your question. The other part of your question which was.
Whats beyond them any.
The user experience I think is sort of how I interpreted that question then.
No.
Anthony Wood: And, you know, M&E is down right now because of the current state of the economy in the ad cycle, but it's an area that I think has long term potential. I don't know, Charlie, do you want to add? Sure. Thanks, Anthony. And Rupert, thanks for the congratulations. You know, we talked a lot about diversifying demand, and Anthony talked about integrating, you know, all sorts of different advertisements. Sanders, and Promotion into the UI beyond M&E, and that's right.
It is.
Innovating ways to create.
Ways for viewers to discover content and also to create experiences that they find compelling and our user interface and an integrated promotion marketing sales into those experiences.
Big part of our strategy of monetizing our installed base and so.
And this is an area that we have invested in historically I think we lead in it and it's an area that we continue to invest in just some example to know when we launch the sports Zone. For example, which is a big pain point for viewers, how do they find which of the many streaming services their favorite games being played on currently.
Anthony Wood: And maybe I'll just add that stepping back, I think it's good to think about how versatile a partner, Roku, is both to M&E and to other advertisers who need to prove that their marketing is working. We have top of the funnel and bottom of the funnel impact and we're building upon it. So, just on M&E, look, we're a business builder for our media and entertainment partners, not just a place for them to invest.
<unk>.
It was that sports experience when we launched it was sponsored by T. Mobile, so which is not a traditional M&A advertiser for us.
And then another example.
Brochu City.
Anthony Wood: And that's because we make their services and content, we use the word unmissable a lot, unmissable across the full funnel from broad reach acquisition right through to engagement. And in the case of M&E partners on Roku, that literally means, right, you see their ads on our platform and the integrations Anthony talked about, and a viewer will click here and watch the video here too. So, that is the ultimate endemic advertiser for us, and we're starting to see that impact beyond M&E.
Super popular with our viewers has become a cultural phenomenon used to have only <unk> based ads, we started adding buildings like we added the Mcdonald's building for example is a big hit.
So these are the kinds of things that we're doing and these are things that these are promotions and advertising and viewer experiences that everyone loves advertisers loved them our viewers looking so it's a big there's certainly a huge area of focus for us.
Thanks for all the detail.
Anthony Wood: So, we're effective and accountable, and what's interesting is we're finding each of our partners has individual ways of seeing the power of the Roku platform to help them build their business. And so, simultaneously, we can benefit the customers and really, you know, the consumers, the advertisers and our M&E channel partners. And we sort of relish all three opportunities. Anthony talked about the short-term pain that the M&E category is facing because of the difficult ad sales market, limited fall release schedules.
Our next question comes from the line of Steven Cahall with Wells Fargo.
Yes.
Thank you sorry, if I missed this earlier, but as we just look at the gross margin performance. It platform in the quarter is it right to think about some of the year on year and sequential weakness is being driven by the <unk> market.
That's some of the highest gross margin revenue and so as that trend into Q4 and could even be a little bit weak in Q1 should we just be thinking about a little bit of pressure. So I would love some color there.
Anthony Wood: And the general uncertainty. And, you know, I mentioned earlier that, you know, last fourth quarter, there was some pretty great promotional moments from the World Cup to midterm elections. But I got to tell you, the temporary economic cycles do not dampen the enormous opportunity that we see working with our streaming partners. We just have to reach in the scale and the powerful tools both to win ourselves, but also to help them win.
And then Dan when you think about the Opex growth heading out sorry, heading down to mid teens in Q4, you've done a lot on cost there was something in the 8-K and I think you've continued to work on it is that a good way for us to think about some of the early part of 2024 as well I know youll hit a tough comp by the end of 2024, but can opex be down mid teens I know you've had.
Investment projects in the past so just wanted to make sure if that's a decent run rate or if theres anything more ahead on the Opex side. Thank you.
Anthony Wood: Just a few examples. You know, we produced some branded content that builds viewer loyalty. One of our partners actually leans on advanced Roku machine learning to optimize their creative institutions for them so they can proactively reduce churn and improve windbacks. And there's lots of examples like this and it's not just the large partners. This is really effective media. And if you're a Roku user, you probably noticed that a couple weeks ago, we had a fan experience around the new season of Apple's The Morning Show.
Yes, I'll take that thanks for the question Stephen.
The gross margin side.
And gross margin.
The 6% backing.
Backing out the impairment charges that we talked about for Q3 was a very strong gross margin quarter for us. It was up three points sequentially as we look as you look forward and yes.
Year over year basis, there is an impact on the mix of M&A. It is it is our highest one of our highest margin.
Anthony Wood: And this content was exclusively available on the Roku platform. It included unlock new material, free episodes, exclusive interviews, and a three month free extended trial for Apple TV plus subscribers. So the breadth and depth this promotion is a perfect example of what I've been talking about. In this question, but answering a couple others, we're the right place for Emily and other partners to invest to build engagement and we'll do more of it and we'll measure it uniquely for them and we'll prove the impact.
But then within advertising.
And there's also different margin structures within the different.
Content distribution activities as well as within.
Display versus video versus M&A advertising. So when we look at margins, we look at them and we want all of them to go up into the right as we improve margins, but we're very focused on.
Absolute gross profit dollars, which leads to absolute free cash flow, which which is obviously a north star for us but to answer your question on guidance. We did have a 606 adjustments in Q3 that did add 200 basis points of margin.
Anthony Wood: And this is Anthony again, just maybe touch back on your question, the other part of your question, which was, you know, what's beyond Emily in the user experience, I think is sort of how I interpret that question. And you know, it's an innovating ways to create ways for viewers to discover content and also to create experiences that they find compelling in our user interface and then integrate promotion marketing sales into those experiences is a big part of, and our strategy of monetizing our install base.
Platform.
We don't there's no guidance to give before that because of course.
And on the forecast that we have at the end of the quarter for 606 adjustments, but we do feel good about both gross margins ex that 606 adjustments and where they are on a go forward basis, but mix will play an impact on that based on.
Anthony Wood: And so, you know, it's an area that we have invested in historically. I think we lead in it, and it's an area that we continue to invest in. Just some examples, you know, when we launch the sports zone, for example, which is a big pain point for viewers, how do they find, which is a many streaming services, their favorite game is being played on currently. You know, it was that sports experience when we launched it was sponsored by team mobile, so which is not a traditional M&E advertiser for us.
The <unk> market, which does continue to remain challenged and we're expecting that.
That.
That business to be challenged going forward. So that gives you a little bit of color on how to think about gross margins.
To your question on Opex, we guided to.
Profit of 405 for Q4, and an EBITDA of 10.
You all will do the math that puts opex in that 500 to 510.
Anthony Wood: And then another example, you know, Roku City become super popular with our viewers, become a cultural phenomenon. You know, it used to have only M&E base ads, we started adding buildings like we had the McDonald's Building for example, which is a big hit. So, these are the kinds of things you're doing, and these are things that these are promotions and advertising and viewer experiences that everyone loves, you know, advertisers love them, our viewers love them. So, it's a big, it's certainly a huge area of focus for us. Thanks for all the details.
Range from Gulfport perspective, we'll give more guidance.
For 2020 for next quarter, when we do Q4 results, but I would anticipate low single digit growth rates from a run rate basis off of that.
But.
Because we are focused on driving towards the positive adjusted EBITDA, but we're also going to balance that with growth and look at positive ROI initiatives and invest in those as we look to expand our scale and our monetization.
Steven Cahall: Our next question comes from a line of Stephen K. Hall with Wells Fargo. Thank you. Sorry if I missed this earlier, but as we just look at the gross margin performance platform in the quarter, is it right to think about some of the year on year, and sequential weakness is being driven by the M&E market, that that's some of the highest gross margin revenue. And so as that trends into Q4 and could even be a little bit weak in Q1, should we just be thinking about a little bit of pressure.
Thank you.
Our next question comes from the line of David Joyce with Seaport Research partners.
Thank you could.
Could you please discuss your thoughts on boats.
The carrier deals in the legacy world, such as charter and Disney where the streaming apps are becoming more prevalent on those cable systems, how might that impact your business model or plans and.
Steven Cahall: So, I would love some color there. And then, Dan, when you think about the OPEX growth heading out, sorry, heading down to midteens in Q4, you've done a lot on cost. There was some in the 8K, and I think you've continued to work on it. Is that a good way for us to think about some of the early part of 2024 as well? I know you'll hit a tough comp by the end of 2024, but you know, can OPEX be down midteens? I know you've had investment projects in the past. Just want to make sure if that's a decent run rate, or if there's anything more ahead on the OPEX side. Thank you.
And if you could marry that with the increase in pricing on the streaming services.
How do you think the consumers reacting to all of the streaming choice out there and the pricing versus the legacy model in terms of how that could impact you.
Youre streaming.
Trajectory.
Yes.
Hey, David This is Anthony.
Well I think.
At a high level.
Dan Jedda: Yeah, I'll take that. Thanks for the questions, Steven. On the gross margin side, the platform gross margin of 56% backing out the impairment charges that we talked about for Q3 was very strong. Gross margin quarter for us, it was up 3 points, quenchally. As we look forward, and yes, on a year over your basis, there is an impact on the mix of M&E. It is one of our highest margin products within advertising.
Like you just highlighted.
I'll also highlight the importance of streaming and the current and future Tivo <unk> TV ecosystem. So.
The fact that pay TV operators are more actively trying to promote streaming offerings I think.
Just shows.
Is it pretty clear that streaming is the future and.
We're the number one streaming platform the United States, we're in a great position to continue to benefit as the world and the <unk>.
Countries shifts to streaming.
And the U S. For example.
Dan Jedda: And there's also different margin structures within the different content distribution activities as well as within display versus video versus M&E advertising. So when we look at margins, you know, we look at them and we want all of them to go up into the right as we improve margins, but we're very focused on absolute gross profit dollars, which leads to absolute free cash flow, which is obviously the north star for us. But to answer your question on guidance, we did have a 606 adjustment in Q3 that did at 200 basis points of margin to platform.
Our active account base is bigger than the largest III pay TV providers combined.
Which is awesome I think when we started roku people would've thought that would never happen.
The number one TV streaming platform in the country by our stream.
And these both.
Both of these positions, while competing with very large competitors. So.
So I think we're well positioned to continue to monetize your activity engagement.
On our platform no matter, where the viewers pain there.
Streaming streaming subscription credentials.
Dan Jedda: There's no guidance to give for that because, of course, that depends on the forecast that we have at the end of the quarter for 606 adjustments. But we do feel good about gross margins, excess, 606 adjustment, and where they're on a goal forward basis. But mix will play an impact on that based on the M&E market which does continue to remain challenged. And when we're expecting that, that business to be challenged going forward. So that gives you a little bit of color on how to think about gross margins.
I just think we're in a great position and.
Uh huh.
Pay TV companies are trying to figure out.
How to.
Make the transition to streaming but.
There's going to be very sticky and very difficult for them to do that.
And if you look at the Roku platform serves not just viewers that.
Our cord cutters and sign up for Netflix and Youtube in the Roku channel that also.
We do serve pay TV operators pay TV customers virtual TV services are very popular even non virtual TV services like for example, I personally living a spectrum area.
Dan Jedda: Here's a question on OpEx. We guided to a gross profit of 405, 4Q4, and an EBITDAV 10. You all will do the math that puts OpEx in that 500 to 510 range from a goal forward perspective. We'll give more on guidance for 2024 next quarter when we do Q4 results. But I would anticipate low single-digit growth rates from a run rate basis off that. But we are focused on driving towards the positive adjustment EBITDA, but we're also going to balance that with gross and look at positive ROI initiatives and invest in those as we look at to expand our scale and our monetization.
And I use roku, obviously to watch TV that I also subscribe to the spectrum App, which is a great app on roku as well.
So.
I think that.
We're great at selling subscriptions.
We monetize all of your activity not just by selling subscriptions.
And we monetize viewers no matter, how they obtain their streaming credentials and we're extremely well positioned to.
To continue to do well as the world shifts to streaming.
I think our big headline could it be that you watch television.
Yeah, Brian.
And I have a pay TV right.
But it's through the spectrum App on Roku.
Alright I appreciate it thank you for the question.
Yes.
Oh, and then you asked about.
David Joyce: Our next question comes from a line of David Joyce with Seaport Research Partners. Thank you.
Impact of increasing the price increases on streaming.
No.
It's a natural evolution of the ecosystem.
Anthony Wood: Could you please discuss your thoughts about the carriage deals in the legacy world, such as charter and Disney, where the streaming apps are becoming more prevalent on those cable systems? How might that impact your business model or plans? And if you could marry that thought with the increasing pricing on the streaming services, how do you think the consumers reacting to all of the streaming choice out there and the pricing versus the legacy model in terms of how that could impact your streaming trajectory?
It will raise overall streaming revenue.
And I think we've seen so far it's been good for our business because.
Because they have a large business distributing content services.
We do billing we have revenue share arrangements, we have a lot of different arrangements that result in that being positive for our business overall.
Our next question comes from the line of Rich Greenfield with light shed partners.
Yes.
Hi, Thanks for taking the question.
Anthony a lot of your streaming partners your media and entertainment companies are losing billions of dollars in Wall Street is putting a lot of pressure on them I'm sure you've seen their stock prices are at multiyear even multi decade lows.
Anthony Wood: David, this is Anthony. Well, I think, you know, at a high level, the agreements like you just highlighted also highlight the importance of streaming in the current and future TV ecosystem. So, you know, the fact that pay TV operators are more actively trying to promote streaming offerings, I think, just make it very clear that streaming is the future and, you know, we're the number one streaming platform in the United States. We're in a great position to continue to benefit as the world and the country shifts the streaming.
What can roku June to help them accelerate revenue growth and reduced cost like what are the options of what types of creative things could you do to help these companies that are really struggling and they're standing businesses. Thank you.
Well I mean as they transform their businesses to streaming <unk> companies I mean, theres a lot of ways, we can help them.
That's what we do actually is our core disconnect viewers with streaming services and advertisers and we do it in a lot of different ways. We have a lot of products that can help them build their businesses, whether they are whether they are trying to build an AD supported business, where they're trying to build a subscription business.
Anthony Wood: You know, in the US, for example, our active account base is bigger than the largest three paid TV providers combined, which is awesome. I think when we started Roku, people would have thought that would never happen. We're the number one TV streaming platform in the country by our stream. You know, and these both, we built both of these positions while competing with very large competitors. So, you know, so I think, you know, we're well positioned to continue to monetize your activity engagement on our platform, no matter where the viewers attain their streaming connection, streaming subscription potential.
We've spent a lot of time, putting those features into our platform thinking deeply about it.
And and.
And so just in terms of effectiveness for them and spending dollars to make the transition to streaming and to sign up new subscribers were by far the most efficient and effective platform to do that marketing platform.
So that's one two is.
There's different ways for those coming to distributed their service they can create apps and a lot of companies are trying to do that.
Anthony Wood: So, you know, I just think we're in a great position and, you know, these paid TV companies are trying to figure out how to, you know, make the transition to streaming, but, you know, it's going to be very tricky and very difficult for them to do that. And if you look at the Roku platform, you know, it serves not just viewers that are core cutters and the, you know, just sign it for Netflix and YouTube and the Roku channel.
But that's a heavy lift I mean, when you do your own directed direct to consumer service create your own app.
Sorry for the technical expertise it requires a lot of marketing expertise it requires a lot of.
A lot of money to acquire customers and retain customers to build user experiences and the other way is for those companies to work with Roku and integrate into our overall user user experience with what we call a premium subscriptions, which is a way for them to offer <unk> services without doing the heavy lifting of building their own app.
Anthony Wood: But also, you know, we do serve paid TV operators, paid TV customers, virtual TV services are very popular, even non virtual TV services like, for example, I personally live in a spectrum area. And I use Roku, obviously, to watch television, but I also subscribe to the spectrum app, which is a great app on Roku as well. So, you know, I think that we're great at selling subscriptions, we monetize all of your activity, not just by selling subscription.
Forgetting how to become a data science experts and.
And how to build engagement when people might be using it the customers might be in a different user experience and so those are that's another way.
<unk> partner or an app or sorry.
A studio that transfer rate sorry, a streaming company the company a media company that is transitioning to streaming.
And much more efficiently.
Build their business without building a lot of new streaming expertise and with focusing more on what they're good at which is the content in their programming. So.
Anthony Wood: And we monetize viewers, no matter how they attain their streaming potential. And we're, you know, extremely well positioned to continue to do well as the world shifts to streaming. I think our big headlines are going to be that you watch TV through Roku. Yeah, try that, and I have a pay TV. But it's through the spectrum app on Roku. All right, appreciate it. Thank you.
Those are a few examples.
I don't know.
Charlie Rich.
Rich one thing we talk about a lot is roku is.
Really powerful engagement engine. So as people are moving from certainly.
Subscription services to now embracing AD sales, we can help them drive engagement and we're seeing that a lot. It's a really big shift even secondly, moving from trying to get people to subscribe and not churn to getting them to watch the shows and the commercials and so we're really good at driving engagement and we're having a.
Anthony Wood: Oh, and then you have to have the impact of increasing the price increases on streaming. I mean, you know, it's a natural evolution of the ecosystem. It will rise. It will raise overall streaming revenue. And you know, I think we've seen so far. It's been good for our business because we have a large business distributing content services. We do billing. You know, we have revenue share arrangements. We have a lot of different arrangements that results in that being positive for our business overall.
A lot of positive response, <unk> seen the impact of our media as we help our M&A partners drive engagement and then another thing we're doing is windowing differently with the studios, so youre going to see.
We're very efficient as Anthony said with respect to our programming costs and we're really good partner for the studios as well in that respect because we are.
Richard Greenfield: Our next question comes from the line of Rich Greenfield with Lightshed Partners. Hi, thanks for taking the question. You know, Anthony, a lot of your streaming partners, your media and entertainment companies are losing billions of dollars. Wall Street's putting a lot of pressure on them. I'm sure you've seen their stock prices at multi-year, even multi-decade lows.
Window that hasn't existed before and we can monetize in different ways because of the power of the UI that Anthony mentioned.
Thank you.
Our next question comes from the line of Ben Swinburne with Morgan Stanley.
Anthony Wood: What can Roku do to help them accelerate revenue growth and reduce costs? What are the options or what types of creative things can you do to help these companies that are really struggling in their streaming businesses? Thank you. Well, I mean, as they transform their businesses to streaming first companies, I mean, there's a lot of ways you can help them. You know, we, that's what we do, actually, as our core, is connect viewers with streaming services and advertisers.
Thanks, guys two questions.
Oh, there's an echo.
Okay Scott.
I wanted to ask you guys about live.
Live programming you guys mentioned in the letter quite of bit growth in live in the investments and live in.
I think back two years ago people, probably thought live TV was been a die in treatment would be all on demand.
Anthony Wood: When we do it in a lot of different ways, we have a lot of products that can help them build their businesses, whether they're, whether they're trying to build an app supportive business or whether they're trying to build a subscription business. You know, we've spent a lot of time putting those features into our platform, thinking deeply about it. And so, just in terms of effectiveness for them and spending dollars to make the transition to streaming and to sign up new subscribers, we're by far the most efficient and effective platform to do that, marketing platform.
Any sense for how much of your viewing is done through by viewing and whether that's an opportunity for you guys in terms of monetization I would imagine it would have.
Later AD loads maybe.
Later overall engagement levels.
I think a lot of the investments you guys have made in content and products are around driving SaaS channels and a lot of the Roku channel is built particularly sports around live so I'd love to hear some thoughts on on whether that's something we should be thinking about as a tailwind to the business and then I just wanted to ask Dan on the Northstar comment on free cash flow.
Anthony Wood: So that's one, two is there's different ways for those coming to distribute their service. They can create apps and a lot of companies are trying to do that, but that's a heavy lift. I mean, when you do your own direct direct to consumer service, create your own app, you know, it requires a lot of technical expertise. It requires a lot of marketing expertise. It requires a lot of a lot of money to acquire customers and retain customers and build these experiences.
You guys generated I think about $150 million year to date.
Any expectations, you can share with us for the year or the fourth quarter just to get a sense for what you think free cash flow might shake out for 2023. Thanks, so much.
Anthony Wood: And the other way is for those companies to work with Roku and integrate into our overall user experience with what we call premium descriptions, which is a way for them to offer it as far as services without doing the heavy lifting of building their own app and figuring out how to become data science experts and, you know, how to build engagements when people might be using customers might be in a different user experience. And so those are that's another way that a content partner or an app or sorry, a studio that transfer a company, a company, a media company that's transitioning to streaming, you know, can much more efficiently build their business without building a lot of new streaming expertise and with folks and see more on what they're good at, which is the content and their programming.
Thanks, Ben This is Anthony I'll take the first part on live and then obviously, we'll take the second part so yeah, I mean, well first of all let me just define lives. So live in the streaming world at least on our platform.
Means content that is truly live like a sports game.
The award so that also means content that is just program linearly because it's hard.
Calling out calling it a linear channel just explain.
Explain that sort of other listeners.
When you call it a linear channels.
Viewers don't respond to that so we called the whole category of linear viewing live and then and live is something we've been focused on for at least a couple of years now and we built out a lot of great experiences to promote live content.
The live menu and our.
Left hand, NAV on a home screen.
And <unk>.
Electronic program guide, which is sort of like a traditional cable box UI for live programming. That's also very popular.
Charlie Collier: So those are a few examples. I don't know if anyone is Charlie. You know, Rich, one thing we talk about a lot is Roku is a really powerful engagement engine. So as people are moving from certainly. Sonscription Services to now, you know, embracing ad sales, we can help them drive engagement. And we're seeing that a lot, you know, it's a really big shift, even psychically, moving from trying to get people to subscribe and not churn to getting them to watch the shows and the commercials.
And we continue to put a lot of effort into things like our machine learning algorithms drive through in our lives.
Charlie Collier: And so we're really good at driving engagement and we're having a lot of positive response and seeing the impact of our media as we help our M&E partners drive engagement. And then another thing we're doing, is windowing differently with the studios. So you're going to see a lie. We're very efficient, as Anthony said, with respect to our programming costs. And we're a really good partner for the studios as well in that respect, because we're a window that hasn't existed before and we can monetize it in different ways because of the power of the UI that Anthony mentioned.
And this.
Anthony Wood: Thank you.
Popular surprise me actually how popular it is.
One notable thought maybe it would fade away, but it's that's not true it turns out there's lots of people that.
Don't want I don't want to pick a show they just wanted to flip through a few channels and find something that catches your attention. So it's a big growth area for us it'll probably continue to be a big growth areas, especially.
It's especially important internationally, where linear is still super big.
So.
There's a lot of different categories or different types of content, whether it's live or bought Avon or as fodder keyboard.
And we put a lot of effort into all of those types of content, but not yet live as a.
Popular and growing fast.
We're also actually airing some live events, we have formula E coming up and we.
We've done some great work.
Miss Universe pageant and and so there are opportunities there, but also live is confusing often to the viewer or the way. So many of these sports packages are being split up so Anthony mentioned it earlier, but our sports zone is an incredible tool for you.
Benjamin Swinburne: Our next question comes from the line of Ben Swingburn with Morgan Stanley. Thanks, guys. Two questions.
Viewers to figure out how to navigate and actually the consumer experience team does an amazing job, helping viewers navigate to the live events that they'd like to find so that's another platform advantage as well they come through our front door, we make it delightful and simple for them to find what they want to watch and.
Anthony Wood: There's an echo. Okay, it's gone. I wanted to ask you guys about live programming. You guys mentioned in the letter quite a bit, growth in live and the investments in live. And I think back to years ago, people probably thought live TV was going to die and streaming would be all on demand. What is any sense for how much of your viewing is done through live viewing and whether that's an opportunity for you guys in terms of monetization.
Anthony Wood: I would imagine it would have greater ad loads, maybe greater overall engagement levels. I think a lot of the investments you guys have made in content and product are around driving fast channels. And a lot of the Roku channel is built, particularly sports around live. So I'd love to hear some thoughts on whether that's something we should be thinking about as a tail into the business.
And get where they want to go.
We're always looking for ways to help our viewers. So for example, we have something called tuna, and reminders, which is a way for a viewer to like be reminded went alive then it's about there.
They can click on an AD for an event.
And it can schedule Athenian reminder, for them, where they'll get a notice so.
It's definitely an area. We're also innovating in as well.
On free cash flow. Thanks for the question on that and yes, you are right.
Three quarters, we're at about $161 million of positive free cash flow of $239 million. In this most recent quarter. We are very focused on free cash flow.
And with respect to Q4.
We will have some restructuring charges that get paid out in Q4.
Dan Jedda: And then I just wanted to ask Dan on the North Star Common and Free Cash Flow. You guys generated a think about 150 million year to date. Any expectations, you can share this for the year or the fourth quarter just to get a sense for what you think Free Cash will might shake out for 2023. Thanks so much. Thanks, Ben. This is Anthony. I'll take the first part on live and then, then obviously we'll take the second part.
I need to wait and see like the timing of that relative to our working capital. Obviously Q4 is a big.
Advertising quarter for us, but a lot of that collections doesn't come until Q1, and then Q1 also is a big.
Payment for us through some of our sales and marketing channels, but that said I think that EBITDA is a very good proxy for free cash flow. We after several quarters of being capital intense we are now capital light.
Dan Jedda: So, yeah, I mean, you know, well, first of all, let me just define live. So live in the streaming world, at least on our platform, means content that is truly live, like a sports game, you know, or a no word show. But it also means content that is just programmed linearly, you know, because it's hard to see. Yeah, calling it a linear channel. I'm just explaining this for other listeners. So when you call it a linear channel, that doesn't, you know, the viewers don't respond to that.
So EBITDA is going to be a pretty good proxy of free cash flow with some fluctuations in working capital from quarter to quarter.
Thanks, everyone.
That concludes our question and answer session I'd like to turn the call back to Anthony Wood for closing remarks.
Dan Jedda: So we call the whole category of linear viewing live. And then, and live is something we've been focused on for at least a couple of years now. And we built out a lot of great experiences to promote live content. You know, there's a live menu in our left hand app on our home screen. We built an EPG, the electronic program guy, which is sort of like a traditional cable box UI for live programming.
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Dan Jedda: That's also very popular. And we continue to put a lot of effort into things like our machine learning algorithms, dry doing a lot, and I was very popular. It surprised me actually how popular it is. I was one of the people who thought maybe it was fade away, but it's not true. It turns out there's a lot of people that don't want to pick a show. They just want to flip through a few channels and find something that catches their attention.
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Dan Jedda: So it's a big growth area for us. It'll probably continue to be a big growth area, especially important internationally where linear is still super big. There's a lot of different categories, different types of content, whether it's live, or Vod, Avod, or Esvod, or T-Vod, and we put a lot of effort into all those types of content. The live is popular and growing fast. We're also actually airing some live events. We have formulae coming up and we've done some great work with Miss Universe pageant and so there are opportunities there, but also live is confusing often to the viewer the way so many of these sports packages are being split up.
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Dan Jedda: Anthony mentioned it earlier, but our sport zone is an incredible tool for viewers to figure out how to navigate and actually the consumer experience team does an amazing job helping viewers navigate to the live events that they'd like to find. That's another platform advantage as well. They come through our front door. We make it delightful and simple for them to find what they want to watch and get where they want to go.
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All good ships know this to be true great meals start with great ingredients. This season, we went to church and for the very best from fresh produce and seafood.
Dan Jedda: We're always looking for ways to help our viewers. For example, we have something called tune-in reminders, which is a way for a viewer to be reminded when a live event is about to air. They can click on an ad for an event and it can schedule a tune-in reminder for them where they'll get a notice. It's definitely an area we're also innovating in as well.
Classic Southern flavors, we've got you covered so join me in my kitchen here inside the southern food and beverage museum for some truly memorable meal welcomed.
Welcome back everybody Emerald Cook.
Okay.
I know youre going to love.
Dan Jedda: I'm free cash flow. Thanks for the question on that and yes, you're right. Three-three-quarters. We're at about 161 million of positive free cash flow. 239 million in this most recent quarter. We're already focused on free cash flow and with respect to Q4, we will have some restructuring charges that could paid out in Q4. I need to wait and see the timing of that relative to our working capital. Q4 is a big advertising quarter for us, but a lot of that collection doesn't come until Q1 and then Q1 also is a big payment for us through some of our sales and marketing channels.
Welcome to my Roku original wanted to Cook.
I'm, bringing you into my kitchen, and visiting some of my team for replacement.
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Dan Jedda: That said, I think that EBITDA is a very good proxy for free cash flow. After several quarters of being capital intense, we are now capital light. EBITDA is going to be a pretty good proxy for free cash flow with some fluctuations in working capital from quarter to quarter. Thanks everyone.
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Put them all in on that.
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Anthony Wood: That concludes our question and answer session. I'd like to turn the call back to Anthony Wood for closing remarks. Thanks everyone for joining. Thanks to our employees, customers, content partners, and advertisers. Thanks for sending our call today.
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Operator: This concludes today's conference call. Thank you for participating.
Operator: You may now disconnect. [inaudible] How much are movies now? Like, 200 bucks? No, they're 4-E. Ha, ha, ha, ha!
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Operator: Showdown begins! I'm about to fill the key. Here we go. Twenty-four of us won. One time though. Boom, shut the lock up. Find Jason Warren. Unfreaking believable. It's crazy. What did you do to yourself? Your family grows, but your house stays the same. I feel defeated as a working mom. I'm eating your home. Can you gain massive difference? This is going to be awesome. And if it's not, go after her. We need to bring in storage, musical space.
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Operator: Hey! No, I'm holding you down the table over here. This is celebrated with changing the home. We can change family. All good chefs know this to be true. Great meals start with great ingredients. This season, we went searching for the very best. From fresh produce and seafood to classic southern flavors. We've got you covered. So join me in my kitchen here, inside the southern food and beverage museum, for some truly memorable meals.
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Operator: Welcome back, everybody. The Emerald Cooks. I know you're going to love these. Welcome to my Roku original Martha Cook. I'm bringing you into my kitchen and visiting some of my favorite places to try some incredible cuisine. Don't tell anybody. Delicious pastry. This is so good and create some wonderful dishes with friends. That's the cake. We might even have a little fun. Now, stream me free on the Roku channel.
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Operator: Nobody had ever been in a draft front. The 2023 NFL draft is about to begin. 32 teams get better in three days. Some get better than others. This will change the entire draft. It's a once in a lifetime opportunity. You get the number one test. This is a big day for us. This is my sleepers, my son. Put a ball on it. This is the most unpredictable draft we've ever seen. And the picture is good.
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