Q3 2024 Roku Inc Earnings Call
on the renovations. I love a Christmas. I have Jessica and Lizzie come into our space to renovate. It's so far reaching so let's bring it. Bring it. Let's bring it. This may be our most challenging renovation yet. This is the biggest family that we've ever designed. Yeah, we're family of nine. We just want to make sure that we just maximize every moment that we can. Our parents do so much for us. They really do just deserve their own space. I'm gonna be playing with the holiday. We are on a very tight deadline. We have to have it done in time for the holidays.
for the world's coolest Christmas party, how many people's been? 50. I didn't think this design was possible. The best Christmas gift ever. We are hologaying this place out.
The End
Where's the remote? I don't know where the remote is! Are you guys looking for the remote? Jedda! Love and chatter looking for the remote! I'm only thought of 90 minutes watching me! Have you guys thought about getting a roe coup? It has a lost remote binder! Stella Maker lies a lot less frustrating! Don't you have to protect your son? You're welcome, Jed! I love you! I love you! Let's scream in more screaming. Welcome!
Hey, Roku, turn it up. Educational Superstar, that's all he does. This is the Yellow Stone, and you have no right here.
Speaker Change: On the preservation, I would be for... I love a Christmas. I have Jessica and Lizzie come into our space to renovate its full form of reaching so let's bring it. Bring it! Let's go, bring it! This may be our most challenging renovation yet. This is the biggest family that we've ever... We're designing. Yeah, we're family of nine. We just want to make sure that we just maximize every moment that we can. Our parents do so much for us. They really do just deserve their own space. I'm gonna make a big plan for holiday. We are on a very tight deadline. We have to have it done in time for the holidays.
Speaker Change: [inaudible]
Speaker Change: [inaudible]
Good day, everyone, and thank you for standing by. Welcome to the third quarter 2024 Roku Learning Conference Call. At this time, all participants are in a listen-only mode.
After the speaker's presentation, there will be a question and answer session. To participate, you will need to press star 11 on your telephone. You will then hear a message advising your hands to raise.
To withdraw your questions, simply press star 11 again. Please, be advised that today's conference is being recorded. Now I will pass the call over to Conrad Grodd, Vice President of Investor Relations. Please go ahead.
Thanks, Carmen. Welcome to the Roku 3rd Quarter 2024 Journey Call. On today's call are Anthony Wood, Roku Founder and CEO, Dan Jedda, our CFO, Charlie Collier, President of Roku Media, and Mimstafa Ozcan, President of iQtudes.
Our full results and additional management commentary are available in our careful letter on our IR website at roku.com forward slash investor. On this call, we'll make forward-looking statements which are subject to risk and uncertainties.
Speaker Change: Please refer to your letter and periodic SECC filings for risk factors that can cause your actual results to be deferred materially from these forward-looking statements.
We'll also look at the gap and non-gap financial measures.
Recalliation of non-GAAP measures and most comparable GAAP financial measures are provided in our annual letter. Unless otherwise stated, all comparisons will be given as a result of the comparable 2020-2023 period. Now, I'd like to hand the call over to Anthony.
Thanks, Conrad. We deliver strong results to Q3. Our first quarter is worth more than $1 billion in total revenue. We continue to benefit from our platform's simplicity, value, and solid light.
The Roku OS has been the number one selling TV OS in the U.S. for more than five years, and it was again the number one selling TV OS in the U.S., Canada, and Mexico.
Q3 was also the 3rd straight order that the Road Channel was the number 3 app on our platform by both reach and engagement, with streaming hours up 80% year over year.
A major driver of good growth is our position as the lead MTV, and we expect a lot of London going forward.
This year, we focused on our initiatives to grow platform revenue, which include home screen innovation, growing ad demand to deeper third-party platform integrations, such as TSDs, and growing road-to-build subscriptions.
In Q3, we continue to adjudicate against these initiatives and green platform revenues 15% year-over-year.
Speaker Change: On our home screen is Q3, the Roseport Zone's organized games and events, including the MLB, the Olympics, and the NFL.
These zones drove youth and engagement and also helped grow drivers for our front-line partners. Additionally, the support zone and our other viewer experiences broadened sponsorship opportunities.
We also continue to deepen our relationship with third-party platforms to better serve and advertise programmatic needs. And we are beginning to see positive impacts that we believe will drive incremental revenue over time.
Speaker Change: While still early, we feel good about our initiative to grow farm revenue, and we will continue to balance our investment in growth and profitability.
Now I'll turn it over to Dan to discuss our results.
Dan: Thanks Anthony.
We also engage with Earth House globally with streaming hours per day, or .1 hour in UQ3, up from 3.9 hours in the year ago period.
Speaker Change: In 2003, we grew total net revenue of 16% to a figure of $1.06 billion.
Platform revenue of $918 million, a 15% revenue over the year, contributed by both Dreaming Service Distribution and Advertising Activities.
Speaker Change: Within advertising, we stock our performance from political advertising along with early positive impact marketing for innovation and trade deaths.
Speaker Change: Distributors of a distribution item have paid even faster than overall at-bomb-run revenue due primarily to subscription-like increases.
Vice President could increase 20% net revenue over a year in QEV, driven by expansion of retail distribution of our Rupert Brown ETVs.
While Platinum Rembrandt would not be 50% Euro Reader, our group of $41.10 on a $3.01 basis was Platinum Reader.
This is Slide 1. We appreciate green households and international markets for we are seen on scale and engagement
and Dan Jedda. Thank you. Thank you.
Additionally, each country has a different A-bomb on its A-station, and each has different economic characteristics.
Speaker Change: In Q3, U.S. profit was $408 million, up 30% year-over-year.
Speaker Change: When excluding UCB 3000 2020 Pre-Truck Charges, Westwood offers up to 10% newer gear.
Speaker Change: Total growth margin 45% of the 488.0 year, and flat land growth margin 54% of the 610.0 year.
The Vice President of the Army will make a database set at between 6,000 and 10,000 bases when you're a soldier.
Excluding UCP 3,000 2040 restructuring charges, total cost margin was down $268.10 a year. 5.1 was our marginal $198.10 a year, and device cost margin was down $268.10 a year.
Speaker Change: D3 adjusted EBITDA was $98 million, which was significantly above our outlook.
The better-than-expected performance was primarily driven by our platform segments.
Free cash flow is $157 million on a trailing 12-month basis.
We ended the quarter with $2.1 billion of cash and recently closed a $300 million credit facility.
We continue to see leverage in our operating model with our fifth straight quarter of positive adjusted EBITDA and free cash flow.
Let me turn to our outlook for the fourth quarter.
We anticipate total net revenue of $1.14 billion.
Gross profit of $465 million, with gross margin of 41%.
Speaker Change: and Justin D'Ivita of 30 million.
Our outlook for total net revenue anticipates a 16% year-over-year increase.
We expect Q4 platform revenue to grow 14% year-over-year and device revenue to grow 25% year-over-year.
We expect platform gross margin to be between 52% and 53% in line with the first half of 2024.
We expect the Vice Gross Margin to be in the negative high teens due to continued investment in the Roku-branded TV program and seasonal promotional spend.
For operating expenses, we expect sales and marketing to be more seasonal in 2024 than in the prior year.
As a result, we expect OPEX to be up 9% year-over-year in Q4.
However, sales and marketing and total OPEX will be slightly down for the full year, reflecting our ongoing operational discipline.
Speaker Change: Our expectations for both Q4 and 2024 OPEX year-over-year growth rates exclude one-time restructuring charges from 2023.
Speaker Change: In early 2023, we made a commitment to achieve positive adjusted EBITDA for the full year 2024.
Speaker Change: Our Q4 outlook implies adjusted EBITDA of $213 million for the full year, and we expect free cash flow to be in line with adjusted EBITDA.
This level of profitability is a result of the team's relentless focus on improving our cost structure while continuing to invest in our streaming experience and simultaneously improving platform monetization.
Speaker Change: We are confident in our ability to continue driving platform revenues and free cash flow growth.
With that, let's take questions.
Speaker Change: Operator?
Speaker Change: Certainly, as a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.
Speaker Change: And one moment for our first question.
Our first question will be coming from Corey Carpenter of J.P. Morgan. Your line is open.
Good afternoon, thank you. I wanted to see if you could expand on the drivers of the platform acceleration and the beat relative to your guide in 3Q. And then as a follow-up, could you talk about the change in the KPIs and the rationale for removing streaming households in RPU? Thank you.
Hey, Corey, this is Anthony. Yeah, we had a great quarter, strong quarter.
Our first quarter over a billion dollars in revenue. Platform revenue was up 15% which we're
Speaker Change: year-over-year. In terms of what drove platform revenue, we said in Q4,
on our Q4 call in February that platform revenue growth and profitability are very important priorities for us. And we've been focused on those, and that focus is showing results.
Speaker Change: In terms of some of the things that we've been doing in that area, one, we're deepening our integration with third-party platforms, which we've talked about before, but that's ongoing and going well. And we're seeing early positive impacts from Trade Desk and others.
We continue to focus on improving the ways our home screen and UI can drive monetization. You know, our home screen is a very powerful asset for us. We're focused on innovating there as well as using it more effectively.
Speaker Change: For example, we added a lot of new vertical ad categories to our home screen UI, including the sports zone in the quarter. Ad spend on our home screen for non-M&E brands has grown each of the last three quarters.
So we're focused on deepening and improving our third-party partnerships to drive additional demand, add demand.
focus on growing the ways we use our home screen. We're also focused on growing subscriptions.
And one highlight in Q3 is that our Olympic zone helped to drive substantial volume of peacock sign-ups through Roku Pay, including many first-time subscribers.
We also have a new content row on our home screen that we added recently and that's also helping to drive subscriptions.
Speaker Change: So, you know, our strategy to grow a platform revenue is working. We're confident, focused, and we're executing well.
In terms of your second question on our KPM changes,
You know, we're very focused on platform revenue growth and profitability.
you know, the most important or very important priority for us.
Yet, the majority of our platform revenue is currently generated in the U.S., but a large portion of our streaming household growth is now in our international markets, which are in different stages of monetization and have different economics.
And so for these reasons, we don't believe screening household growth is representative of platform revenue growth.
Speaker Change: We're going to continue to grow streaming households in multiple international markets as well as in the U.S. And we'll provide updates on our scale as we achieve certain milestones. For example, I'm confident we'll achieve 100 million streaming households in the next 12 to 18 months.
Dan, do you want to add?
Dan: Yeah, thanks Anthony, and thanks for the question Corey. Let me just add a little bit to the second part of your question. So, the industry and our business have grown and evolved since we established the streaming household as a KPM.
Dan: As an example, at the time of our IPO, we had 15 million streaming households. We now have more than 85 million globally, and in the U.S., we are approaching half of all broadband households, and as Anthony mentioned, streaming household growth is just not representative of platform revenue growth.
And we see that when platform revenue was up 15% year over year, yet total ARPU was flat at $41.10. So as an example of how ARPU is obscured when looking...
We're not looking beyond streaming household as a metric. Mexico is one of our fastest-growing countries, and we have significant penetration of broadband households there.
We're in the early stages of monetization in Mexico, and the overall ad and SVOD markets in Mexico are quite different than they are in the U.S., so this results in ARPU in Mexico currently being a fraction of the ARPU in the U.S., but it all blends together when just looking at streaming households.
So while US arpu has continued to grow over the last several quarters, total arpu has
due to the mix of streaming households internationally. And as we stated in the letter, we strongly believe the right KPMs for us are streaming hours, which is a great proxy for both engagement and viewer experience.
and then platform revenue, adjusted EBITDA, and pre-cash flow. And we remain committed to growing all these metrics over time. To add a little bit more to the first part of your question, Corey, our better-than-expected Q3 performance was primarily driven by our platform segment in both revenue and gross profits.
Platform revenue of $908 million was driven by both streaming services distribution and advertising.
Dan: SSE grew faster than platform revenue due primarily to subscription price increases.
But we also saw a meaningful, sequential increase in our advertising activities, despite this challenged M&E market. Now, some of that was due to the political...
environment and we just performed very well in political spend and as we mentioned we're also seeing very positive impacts from our deeper integration with the Trade Desk.
Ron: Thank you, Ron.
Speaker Change: And one moment for our next question.
And our next question will be coming from Justin Patterson of KeyBank. Your line is open.
Thank you for watching!
Justin Patterson: Great, thanks. Building off that last question, you previously even talked about growth accelerating into 2025. So given just the momentum you have exiting this year, how should we think about just the ability to accelerate growth each quarter throughout 2025? And then separately, I wanted to hit on OPEX.
Given sales and marketing and total OpEx are slightly down this year, how are you thinking about the right level of investment to support that growth into 2025? Thank you.
Thank you for watching!
Speaker Change: Hey Justin, Dan will take that question.
Yeah, thanks for the question. So, growth of platform revenue has exceeded our expectations in 2024 and specifically in H2 with our guide in 2024. We had stronger growth than expected, again, due to SSD from the price increases.
We also, in a couple of quarters, did have 606 adjustments. We've seen strong contribution from political spend.
Justin Patterson: Q3, and so we've seen an acceleration in platform revenue in Q3 versus Q2 and our Q4 guide implies a similar acceleration in Q4.
Justin Patterson: versus Q2. And while we continue to expect strong growth in 2025, I'm very optimistic about it, it may not accelerate from current run rates in all quarters, just given certain variables like comping price increases in SSD and strong political spend in Q3 and Q4.
And again, we had some positive 606 adjustments in Q2 and Q3 of this year. We'll provide further guidance next quarter and during the year, but overall we feel very good going into 2025 on our growth trajectory.
Thank you for watching. This is the end of the video. I hope you enjoyed it. If you did, please go ahead and click on the like button. And I will see you in the next video.
Let me talk, let me briefly address your question on OPEX. As I mentioned in my prepared remarks, we do expect operating expenses to grow in Q4 of this year by 9%.
excluding impairment and restructuring charges. But for the full year, we expect OPEX to be slightly down year over year, excluding impairment and restructuring charges.
The team has done a tremendous job, not only in right-sizing our cost structure, but also in focusing our resources on the highest-impact projects, including the highest ROI projects.
This work is ongoing. We continue to evaluate capital allocation. So, while I do expect some incremental increase in OPEX growth rates, as we likely add some headcount in FY25, mostly in our low-cost locations,
I expect the increase to be modest, and I expect us to get leverage in FY25 and beyond. Again, we'll provide further guidance as the year progresses, but, you know, from an OpEx standpoint, it's going to be a modest increase in FY25.
Speaker Change: very helpful. Thank you.
And one moment for our next question.
And our next question will be coming from Vasili Koureziov of Cannonball Research. Your line is open.
Thank you, good afternoon. Wanted to ask Charlie a question about next year, but a different angle. So out of these two major advertising revenue related initiatives, the partnership with the Trade Desk, which you
said is already providing a positive impact.
Justin Patterson: and the potential for home screen video advertising. First of all, which one do you think could be a bigger benefit next year? And can you tell us how you expect them to ramp throughout next year so that we can keep track of them? Thank you.
Speaker Change: Thank you for watching!
Justin Patterson: Thank you. Thank you.
Justin Patterson: Thank you.
Hey Vasili, thanks for the question. It's a good question. You know, starting with the Trade Desk, you know, we began the Trade Desk integration, specifically UID2, in mid-August, and we are beginning to see the positive impacts you mentioned. It's one of many third-party partnerships we've built over the last 18 months.
But to your point, there's a lot of opportunity to learn and grow as we optimize the trade debt deal and the others. What we're seeing is that we're growing both the number and types of advertisers we serve.
Justin Patterson: and our early signs show a growing share of wallet as well, which is very good. So, Trade Desk represents the deepest integration to date, but also to address how we're going to move forward, you know, we'll continue to do more integrations with other DSPs as well that expand our ability to serve the entire demand curve and do it at multiple price points.
And I think this will drive incremental revenue that holds us in good stead as we learn over the quarters. And then on the home screen video side, you know, it's...
Justin Patterson: It's really an enormous opportunity. The video marquee, which is currently in beta, is really receiving good reviews from our clients. It'll go GA in the fourth quarter, and you see us testing new units and looking at new opportunities to monetize the home screen all the time. Our positioning in the market has been about being the lead-in to television.
And the whole notion of home screen innovation is that our home screen reaches U.S. households with 120 million people every day. You know, the Roku channel is the number three app on our platform, and we're excited about the fact that we have the scale and the data to take advantage of.
Speaker Change: Thank you. Dan, can I have...
Sorry, this is Anthony. I'll just jump in and add a couple things.
These are both big opportunities for us. I think we're really just getting started with programmatic expansion as well as their home screen.
Justin Patterson: I mean, if you think about...
I mean, Roku is the number one streaming platform by a very wide margin in the United States, which is...
the largest ad market in the world.
Justin Patterson: We're in high demand by DSPs. They all want to integrate with our platform and, you know, something that we're now working on in earnest. So there's a lot of opportunity to deepen those relationships and grow that business. And then, you know, we're also just getting started on how we can use our home screen to drive monetization. I mean, Charlie talked about some of the things we've done, like our food zone and our sports zone and our, you know, video ads in the marquee, but
Justin Patterson: but we're looking comprehensively at our home screen. There's a lot of ways we can continue to improve that, both for the user and for the advertiser. So there's a lot of opportunity in both of these areas.
Thank you. Dan, can I ask you quickly how big the 606 adjustment was in the quarter?
Speaker Change: Yeah, it was $12 million.
Thank you.
Speaker Change: Thank you for watching!
And our next question will be coming from Laura Martin of Needham. Your line is open, Laura.
Thank you very much. Two, Connected Television is moving full funnel as Amazon Connect purchases two Connected Television ad units.
And what I'm wondering is about cost per thousand pressure for Roku, who really is only has a top of funnel solution primarily. So, I'm wondering if you are seeing cost per thousand pressure as other alternative
have more of a direct performance-based connected television alternative as part of their
product set. That's my first one. The second one is generative AI.
You're talking about self-service here, which I think is really intriguing for your small and medium businesses. My question is, are you integrating...
generative AI into the self-service into the self-service offering to get conversions up and how are you using generative AI today in your product set. Thank you.
Hey Laura, this is Anthony. Good to hear from you.
I guess a couple things on connected TV move, you know, full funnel versus not, I mean, first of all, we do focus on top of the funnel as well as we have a lot of products that are focused on performance based advertisers as well. So, it's not, it's an area that we spend a lot of time working on in terms of our ad product roadmap.
addressing the entire funnel of ad demand. But the more important thing I think about our business is that...
were a streaming platform.
And we're not impacted by
market-driven pricing changes in CPM the way other streaming services are because we have
Speaker Change: a very diversified revenue stream across streaming service distribution and advertising. We have traditional video apps, of course, but we also have a unique set of UI and ad products and sponsorships that are only possible because we own the platform. We also have a...
a lot of performance-based ad products as well that are in our portfolio. The Roku home screen is, of course, one of our most important assets as an ad platform and is why we are the lead into TV. Every day, U.S. households are more than 120 million people.
Speaker Change: start their screening experience with the Roku home screen and it reaches people before they decide what to watch including those that are only going to watch ad-free apps. So you know for a lot of our customers a Roku ad is the only way to reach those customers.
Speaker Change: And then, of course, we're continuing to focus on creating new ad products in our UI, including performance-based products.
We have a great ad business that's well positioned to grow.
Thank you. Thank you.
And then, Charlie, do you want to add anything before we go to generative AI? Sure. Lawrence, great question. Thank you. It is true, the market currently has a lot of supply.
And as Anthony mentioned, it just doesn't impact Roku the same way it will the apps and individual streaming services. The fact that we're a platform, we're not an app, we're not bundling linear assets with CTV assets, these all make a difference. You know, we have inherent advantages that allow us to not just...
lessen the impact of market oversupply, but also, Laura, benefit from
and really grow in this environment because we have the scale to absorb pricing fluctuations. We have sports and original programming and unique home screen assets like Roku City, I mentioned earlier, and other assets to just create demand and drive pricing. And all that makes us an extremely effective partner for advertisers. And again, we're just not affected the same way.
individual streaming services and apps.
You know, obviously we're looking, I mean, AI is a technology we use across our business already. We're looking at harder about ways we could integrate generative AI in ways that could drive
Speaker Change: platform revenue and also be cost effective. You know, self-service is one of the ways, obviously, one of the areas we're looking at. We just recently launched the Roku Ad Manager, which is a self-service platform targeting, you know, advertisers that want to
interact with us on a self-serve basis and particularly small and medium-sized businesses.
And so that's clearly something we're focused on, and yeah, it's a big opportunity for us.
Oh, no, you don't want to answer that.
Thanks, Laura. You know, I'll just throw one thing on top of what we're seeing as ads manager really ramps is that a significant portion of the ads sold in ads manager are taking advantage of action and interactivity. So your technology question is prescient because we really are building it to meet the needs of the advertiser. And it's a solid demonstration of our demand diversification strategy we've been talking about for the last few quarters.
Speaker Change: We, you know, from direct I.O. to a preferred D.S.P. are now through self-service. All of our demand diversification is really focused on platform revenue growth, and it's off to a great start.
And one moment for our next question.
Speaker Change: Our next question will be coming from Ruplu Bhattacharya of Bank of America. Your line is open.
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Hi, thanks for taking my questions. I have two. First one for Charlie. So you've integrated with TTD and you've integrated UID 2.0. Have you seen an uptick in fill rates? What portion of Roku's unsold inventory would you be willing to allocate to these third-party DSPs? And I'm asking that because also the shareholder letter talked about Roku's ability to serve the entire demand curve at multiple price points. So Charlie, what guardrail do you have on CPM?
Speaker Change: Whoa.
Thanks Rupul. I appreciate the question. You know, as I said before,
I look at the opportunities at the trade desk and UID too, but also across all of our DSP and third-party relationships.
And I see no correlation with margin degradation, which is at the heart of your question. You know, inventory management is an opportunity for us and a strength.
Speaker Change: and, again, programmatic does not mean margin degradation. CPMs and margins is a good way for you to think about it. They vary by deal type, and we have opportunities for advertisers across that value chain that you asked about, and we have higher-priced opportunities on the home screen in sports and original programming. And then, obviously, our channel partners are open programmatic. All of this comes with fewer unique integrations, fewer data signals, and fewer sponsorships. Those will be on the lower price. But I'm bullish on our ability to price both up and down the chain. And, you know,
Speaker Change: It's not just the DSPs, it's the SSPs, it's our measurement partners. We have a lot of third-party relationships we're building out. And then you'll note that we talked about 80% growth in hours that we're driving on the Roku channel.
And so our opportunity to deploy all these advantages and that growth across the value chain is pretty unique to Roku because we have enough inventory and enough demand with which to do so. So I believe it distinguishes Roku in this market, and I'll just say again, DSPs don't mean margin degradation.
Okay, I'll just add that the Roku channel was the number three app on our platform for the third straight quarter and like Charlie mentioned we grew hours 80% year-over-year. I mean it's an incredible asset for us.
Okay, thanks for the clarification there. Just maybe a follow-up for Dan. Can you prioritize your areas of investment over the next 12 months? So how are you thinking about spending on original content or spending on programmatic and international expansion? Can you help us rank order that? Thank you.
Thank you. Thank you. Thank you.
I can provide some color on that. So we've said for several quarters, you know, we're very focused on platform monetization. And a lot of our investments and a lot of our allocation of our
of our most important asset, our people, do go into the monetization side. We've given very specific examples of changes we're making.
Speaker Change: in deeper integration with Trade Desk and other DSPs being fully distributed amongst DSPs.
We've given examples of changes to our home screen.
that were working on the original content row video in the marquee. Charlie mentioned we have
other ad products that we're continuing to focus on. We've talked about the subscriptions investment and how we're focusing on improving the subscription journey, if you will, through our platform and using our assets to drive more subscriptions through RokuPay.
We have more to launch in premium subscriptions, which you'll hear about soon.
Speaker Change: There's lots of opportunities where we're investing in that are going to drive platform monetization. You know, we're also focusing on international and continuing to grow our scale there. We're doing well on international, as I mentioned in an earlier question. We'll continue to invest in international because ultimately that will monetize as we build scale and engagement.
So those are the areas we're very focused on in terms of monetization. On the original content question, I'll just remind everybody that, you know, much of the cost or content, if you will, in TRC in the Roku channel is variable-based.
Speaker Change: Not fixed. We do have original content. We do have fixed license content, but
The vast majority of that is variable based and is on a rev share. So original content isn't a significant investment for us in terms of cost. And while we will absolutely continue to invest in this content because our streamers love it.
It's not a material portion of our overall cost structure within the Roku channel. And lastly, I'll just reiterate what I said earlier. All these investments are ongoing. They'll continue into 2025. But we're going to do so with modest OpEx growth rates that I talked about earlier.
Speaker Change: Okay, thanks for all the details.
One moment for our next question.
Our next question will be coming from Jason Basnet of Citi. Your line is open.
I just had a strategic question. You said the Roku channel I think is the number three app on your devices and it's doing really well but it's not number three at least according to the gauge data from Nielsen.
Have you ever thought about distributing the Roku channel on devices that aren't Roku devices?
Hey Jason, this is Anthony. Yes. So, but to elaborate, it is the number three app on our platform, which obviously is an area where we have a lot of
influence on what our viewers watch because, you know, as the leading television, we spend a lot of time
building out features that help our viewers find content to watch.
Speaker Change: And that position is the primary reason the Roku Channel, which is, you know, AABOD content, which tends to be more commodity-based content. You know, Roku Channel's an awesome selection, a huge number of hours, and it's got a lot of good content.
Speaker Change: generally licensed content that's readily available, and so that position as the, you know, as the lead into television
and making recommendations to our viewers on what they might want to watch has allowed us to build
that business to a number three app. We have looked, it is available actually off Roku, it's available on various platforms, it's available on Samsung, it's available on Amazon Fire TV for example.
But, and it is a top 10 app, you know, overall, amongst all apps, but, you know, if you just look at the economics of that business, it's much more economical and much more profitable when it's on our platform versus a third-party platform.
And if I can just ask a follow-up, when you guys make innovations like let's say the Roku sports channel
Speaker Change: Is that something that gets refreshed on every single Roku device that's in the field? Or are there some old devices that can't really handle sort of these innovations that you're rolling out to maybe newer devices?
Yeah, I mean that's a great question. We put a tremendous, we don't talk about it much, but we put a tremendous amount of effort in keeping all devices in the field.
running the same software version and the same release. So there might be a few small exceptions here and there, like very old devices, but very few. And then generally all devices, all Roku devices,
run essentially the same software version and have all the same features by region. So it might vary by region like it might be different in Mexico say than the U.S.
Speaker Change: That's great. Thank you.
Speaker Change: One moment for our next question.
Our next question will be coming from Peter Cepino of Wolf Research. Your line is open.
Peter Cepino: I thank you, too, if I may. I wanted to ask you about your commentary on revenue growth, and I'm sorry if this duplicates a question we heard earlier, but I want to ask you again to expand on
Speaker Change: your outlook for
2025. I think there was
commentary in the prepared remarks that the business has been accelerating in Q3, and you expect it to accelerate again in Q4. I'm wondering why the press release just says growth in 2025.
And then on another topic, I wondered if you could talk about your outlook for 2025 gross margins, whether the puts and takes in that outlook are any different in 2025 than those that have existed in 2024. Thank you.
Speaker Change: Thank you for watching. See you next time.
and Peter. Dan will take that.
Speaker Change: Yeah, so to be clear, what we said, what I said earlier was the acceleration in Q4 was off of Q2 Obviously because the guide that we gave on platform was 14% in Q4
And what we said about next year is, while we do expect growth, and I would even go so far as to say we expect strong growth, the question was from acceleration, from current run rates.
Just some of the comps that we have on political. We need to get, especially in H2, we just need to get later in the year and see what that looks like before I can comment on that. So I'm just not giving a full-on guide as to if it will accelerate from current run rates. I will say we feel very good about our growth.
from Q4 going into 2025. We'll provide more updates as we get through Q4 and into Q1, but like I said, I feel very good about our growth potential into 2025. Again, some of these are just comp issues.
specifically for political and as I mentioned some of the 606 adjustments that we had this year.
And then the second question on the puts and takes.
Speaker Change: on Gross Margin.
So, you know, our outlook implies platform gross margin in Q4 to be between 52 and 53 percent, which is in line with H1 of this year. And looking beyond Q4, we have different platform activities growing at different rates, so mix will have an impact.
On margin, for example, as we've stated several times, we believe M&E will continue to be challenged and will become a smaller percent of our overall platform revenue going forward. This will negatively impact platform margins, but we also have done a very good job of optimizing our brand advertising margins.
which has largely offset the mixed impact of M&E.
You know, I would just expect, as we go into 2025, I think our margins will be relatively consistent with FY24 if you exclude the impact of 6.06, and that number is around 52%.
Speaker Change: That's my expectation going into 2025, so think about it as flat margins on an x606 basis on the platform side with us being able to offset any M&E mix impact.
Thanks very much.
One moment for our next question.
Our next question will be coming from Stephen Cahal of Wells Fargo. Your line is open.
Thank you. First, just to try to put a finer point on it, so can you just help us make sure we understand what's driving the Q4 deceleration platform revenue growth?
Is that conservatism? Is that the Olympics in Q3 or the political is a little lumpy in Q3 or the 606 or the M&E comp is just tougher? So that's the first one just to understand that quarter-on-quarter slight deceleration. And then secondly, Dan, so you were just speaking about M&E and brand advertising. If we think about home screen as a whole, I know it's somewhere where you're investing in the UI, you're potentially expanding into video, which I think is in beta testing. So if we think about the home screen a little more holistically between M&E and non-M&E kind of revenue, is that still something that you think will start to grow in the future or the comp is still pretty tough there? Thank you.
Speaker Change: Yeah, to your first question on the slight decel, so that again, that's 15% going to 14%. I think it's the question that you're asking. And again, from a political standpoint, we had a very strong Q3 political and while we expect
Q4, to also be strong, I'll just remind everybody that there's really only one month of political in Q4, and that's October.
Speaker Change: We also, again, had a 606 adjustment in Q3, which I just mentioned, was $12 million. So, again, if you kind of do a sort of apples-to-apples comparison of Q3 to Q4, it's really not a decel in that context.
to the second question on home screen.
Speaker Change: Yes, as Charlie mentioned, video ads in our marquee unit is picking up.
I do think that will grow and offset M&E, but overall M&E spend.
will just not keep pace with the growth of our brand advertising, which is growing exceptionally strong. And so we've been able to grow the advertising activities.
both on a year-over-year and really a step-up in sequential change and growth from Q2 to Q3, despite these M&E challenges and M&E not growing anywhere close to our brand ads. And again, we expect that to continue.
So, the home screen is a big part of that, also just overall our brand ads growing through our integration with TradeDesk and a lot of our other ad products.
but essentially like on the home screen as a whole like I do think we'll continue to monetize that home screen holistically which is one of the reasons why we've been able to grow sequentially and again that we think that growth will continue.
And this is Anthony. Let me just add, you know, our work on the home screen is not just focused on ads in the home screen. It's also focused on
making the home screen more influential on what our viewers watch and there's lots of ways we monetize that viewing. So for example, we talked about how one of the drivers of our subscription revenue has been adding subscription services to the recommendation row on our home screen.
So there's a lot of there's a lot of activities around the home screen just some of which have rolled out some we're still working On and haven't been released yet that we expect will drive monetization in a bunch of different areas including advertising
And on advertising specifically, you know, the only thing we've done so far is we've added video ads to the home screen, but there's other areas on advertising related to the home screen that we're working on as well.
And those video ads in the homestream, a lot of them are non-M&E now, so there's a lot of brand advertising that's happening there as well.
Speaker Change: Thank you.
And one moment for our next question.
Speaker Change: Thank you. Thank you.
Our next question is coming from Jason Helstein of Oppenheimer. Your line is open.
Hi, this is Steve Roman on for Jason. So just a question on next year, OPEX growth, how should we think about that? Or.
views on a margin target for next year. Thanks.
Yeah, again, I mentioned earlier that total OPEX when you back out restructuring and impairment from prior year was slightly down. I believe the number was down 2% to be specific.
so far, and we expect that to continue for the rest of the year. For next year, what I mentioned is we likely will have some increase in OPEX, although I expect that amount to be modest. I'm not guiding to OPEX right now, but I think at a high level, you know, that mid-single digits is probably the right level for us.
We'll provide more guidance going forward, but again, we do believe that we can grow our OPEX very modestly while continuing to invest in all these initiatives that we've been talking about throughout this call. So I do not expect a significant step up in OPEX. It will be modest.
Speaker Change: Great, thank you.
And one moment for our next question.
Our next question will be coming from Cameron McVeigh of Stoneman, excuse me, Morgan Stanley. Your line is open.
Speaker Change: Thank you for watching!
Hi, thank you. I was curious if you are more or less exposed to certain streaming services like Disney, Paramount+, Max, or Peacock and whether one is driving an outsized impact on the streaming services distribution revenue given some of the recent price increases we've seen over the past year. Thanks.
I mean, we're a very large distributor for all the streaming services.
Speaker Change: So that's a fairly diversified business across the different streaming services. I mean, obviously some streaming services have more market share than others, but there's no one particular area I'd call out.
Speaker Change: Got it. And then secondly, I was curious if you could just talk about the international expansion plans a bit more and how that's trending and whether there's the biggest opportunity in one given country. Thank you.
Yeah, this is Anthony Alstard and Dan Jedda.
turn it over to Dan for some more comments on that. So, you know, our international expansion is going well. You know, we have a fairly constrained set of what we call focus countries, countries we're focused on internationally. It's basically all of the Americas plus the UK.
Speaker Change: And we're making good progress in all those countries on streaming household growth.
And in, you know, those countries are in different stages of monetization, but they're all fairly early in monetization, so we're still primarily focused on
growth of scale of households in those countries. You know, we mentioned we're the number one streaming platform in Mexico. We're the number one streaming platform in Canada. Obviously, we're the number one in the U.S. And, you know, we're growing strong in all of our focus countries. But Dan, did you want to add anything?
Dan: I'll just add that, as Anthony mentioned, different international markets are at different stages of scale and monetization. As I mentioned, we have scale in Mexico and we're really starting to focus on monetization and so we expect to have very strong growth rates in Mexico, but again we're just getting started so the base is relatively small.
Speaker Change: We're also seeing meaningful monetization in Canada. These are the two areas where Anthony just mentioned we're the number one selling tvOS.
Speaker Change: But other countries are still building scale and just do not yet have meaningful monetization, but we're growing streaming households and engagement. So when you think of Brazil and the rest of Latin America and even UK, we're really still building that scale and engagement and monetization will follow. So over time, we expect
Speaker Change: international monetization to be a mean to be a more meaningful percent of our net revenue but it does take time for us to build scale and engagement
which is what we need to drive platform monetization. And again, I think we've said it a couple of times is we're gonna continue to grow in all our markets and we expect to achieve 100 million streaming households in the next 12 to 18 months. And with that scale, we'll ultimately monetize these international countries as well.
Speaker Change: This is Anthony. I'll just add, you know, on that forecast of 100 million streaming households in the next 12 to 18 months, we're assuming that we're growing in all markets we're in, all international markets and the U.S. We expect to be growing streaming households for the foreseeable future in all of those markets.
One moment for our next question.
Speaker Change: Thank you.
Speaker Change: Our next question will be coming from Allen Gold of Loop Capital. Your line is open.
Thank you for watching!
Thanks, I've got two questions.
First, I was wondering if, Charlie, if you could just give us...
some sense of how the ad market is looking right now.
And then on the hardware side.
How are the new Roku Pro Series TVs doing and you've had your Roku-branded TVs now for a year plus or so. What impact, if any, have they had on your partner-branded TVs?
Speaker Change: So yeah, Charlie can kick that off and then Ms. Stauffer can answer the Roku TV, Roku branded TV questions.
Speaker Change: Great. Thanks, Alan.
Look, third quarter advertising activities accelerated from second quarter nicely. In the third quarter, the year-on-year growth of advertising activities across the Roku platform.
excluding M&E, as Dan said earlier, outperform both the overall ad market and the OTT ad market in the U.S., so we feel really good about that.
to give you a few specific categories a little more inside baseball in third quarter the year-on-year growth of political retail and CPG as a few ad verticals they were up.
on the Roku platform, and we've mentioned M&E a couple times,
continue to be a little pressured.
a little extra context. You know, the biggest change in the sales process in this market certainly, and you've probably been observing it market-wide, is that the ad market is now a 52-week market. Upfronts were really positive for us and we closed relatively early. However, in an environment where marketers are working with such varied levels of even short-term visibility,
you know, brand allocations from the upfront and then meeting advertiser objectives all year long. And it's changes like that to the market that I think, you know, really holds Roku in good stead because of all the growth and all the characteristics I mentioned in the last answer.
Speaker Change: Yeah, sure. Hey, Alan, this is Mustafa speaking. Look, overall, we are very pleased with the progress of our Roku-branded TVs.
You know, we're still in the early stages of this journey, which we launched these products a little over a year ago.
Speaker Change: And our initial focus was on being fully distributed for these TVs, and we've done that. We have now grown from one exclusive retailer, which was Best Buy, for the calendar year of 2023.
and now to many national and regional retailers. And we will continue to grow the distribution and also the shelf space for these products.
And, you know, with respect to products, again, we continue to receive positive feedback from the users and great reviews and ratings from the technical press.
You know, we have three product lineups now, the Select Series, which is our entry-level products, and the Plus Series, the mid-range, and the Pro Series, our performance-range products.
And they are all receiving really, really good feedback. ProSeries especially, you know, it's been our halo product that we can show our technology and capabilities.
they are really doing well but you know ProSeries is a higher-end product it tends to sell less compared to Select and ProSeries.
but overall it complements the lineup.
And again, doing really well. We are very pleased with the performance of the product in terms of the video and picture quality, the other features that we have.
Speaker Change: Thank you.
You know, great reviews and whatever we develop and design for our Roku-brand TVs, we actually share with our partners. So our licensing partners benefit from these technology developments that we have. We are completely open to them. Almost, you know, they can almost take our underlying hardware and then reuse for their own purposes.
Speaker Change: So we are open at that kind of level and so it's working well. So whatever we're learning, whatever we're developing, is contributing to their products as well. So far,
You know our relationship has been growing with our partners and we continue to bring new partners to our Roku TV program
Speaker Change: So, overall,
You know, it's all moving in the right direction, and I should also note that, you know, the main distribution of our operating system, particularly in the U.S., is through our third-party TV partners and also with our streaming players.
Our Roku-branded TVs are really a small portion of the overall distribution that we get in the U.S. And then this will continue this way, you know, we still rely on and we expect to rely on our third-party partners to
be the main distributor of our operating system in the U.S. and also in the international markets, for sure, because the Roku brand TVs are really available only in the U.S., not in other markets.
Speaker Change: Thanks, Bustafa.
And one moment for our next question.
Our next question, it will be coming from Mark Mahaney of Evercore ISI. Your line is open.
Thank you for watching!
Thanks, this is Ian Peterson on for Mark. Two questions if I may. First question, how much of a contribution from political ad revenue did we see in Q3?
And how should we think about the political contribution in Q4?
and secondly, for the Q4 Platform Revenue Guide.
Any color on how much of a headwind there is in the guide related to SSD and the subscription price increases we saw in Q4 of last year? And secondly, should we expect easier video advertising comps related to the M&E and auto ad verticals from the strikes we saw in Q4 last year? Thanks.
Speaker Change: Dan, I'll take that.
Speaker Change: Let me just talk briefly about Political. Political came in above our expectations in Q3. The team did an amazing job and we're demonstrating that Roku has the tools and the tech that make it a strategic platform for all advertisers, including Political.
Speaker Change: It's also worth noting that political is another vertical of several that Roku is getting better at monetizing every cycle. But to answer your question specifically, it was an impact on Q3. We're not going to say how much it was. It did have an impact on Q3. It is factored into our guide for Q4. But
Note that, of course, political is only one month in Q4, the month of October, versus two strong months in Q3.
And again, this is all factored into our guide.
In terms of your question on SSD headwind in the Q4 guide, I would just not think of it as such, as a headwind per se, our subscription. We did have price increases throughout this year in many of our partners, and so we are benefiting from that.
That is what has caused the 606 adjustments in Q2 and Q3, we talked about that.
Speaker Change: I don't think there's specifically a headwind in terms of SSD going into Q4. I do think that, I just want to reiterate that brand advertising, XM&E, is continuing to accelerate at a very healthy clip.
due to our innovative ad product, due to our integration with Trade Desk and other DSPs. So we like what we see there. In terms of the last part of your question, if we should expect easier ad comps from M&E, from the Strikes.
I just don't think M&E is ever an easy comp, just given the industry and the challenges that M&E faces.
We are in a great position to benefit from any M&E, whether it's due to easier ad comps or if the content partners decide to spend. However, that's not what we've seen so far, and we've been able to grow our platform and our advertising activities.
despite the challenges from overall M&E. So again, we feel really good about our path forward even in this challenged M&E environment. I don't know, Charlie, if you have anything to add to that from the M&E standpoint.
Speaker Change: point.
I think it's worth saying that the team's doing a good job and Roku is and will continue to be the best place for M&E partners.
to build reach, to build engagement, and to see ROI. Dan's right, we're not relying on this vertical for future growth, but a lot of the innovation on the home screen and beyond, both benefits our diversification of categories away from M&E and holds us in a great position when M&E is healthy.
And I would now like to turn the call back to Anthony Wood, CEO, for closing remarks.
I'd like to thank our employees, advertisers, and content partners, and thank you for joining our call today.
This concludes today's conference call. We are aware that there was a technical issue during the prepared remarks. Roku has posted their prepared remarks and the replay will be posted on their IR site. This concludes today's conference call. Thank you for participating. You may now disconnect.
I've got the best tour against anything I've seen in a decade. But Tom, I wouldn't do it again. Where's the remote? I don't know where the remote is! Are you guys looking for the remote? Yeah! Jenny! Mom and Dad are looking for the remote! I'm only five! I'm not even allowed to watch TV! Have you guys thought about getting a Roku? It has a lost remote finder! That would make our lives a lot lighter!
Thanks for bringing that to our attention, son! You're welcome, Jed! I love you! I love you! Less screaming, more streaming. Roku.
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Michael Crockett, Michael Crockett, Michael Crockett, Michael Crockett, Michael Crockett, Michael Crockett, Michael Crockett,
It can be a gun, it can be a fish, or it can be menial.
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