Q4 2024 Roku Inc Earnings Call
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Good day, and thank you for standby and welcome to the Roku fourth quarter 2024 earnings conference call at.
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 ask a question. During this session you will need to press star one one of your telephone you will then hear an automated mess advising your hand is raised to withdraw your question. Please press star one again.
Speaker Change: Please be advised that today's conference is being recorded I would now.
Speaker Change: Now I'd like to hand, the conference over to your Speaker today, Conrad Grodd, Vice President of Investor Relations. Please go ahead.
Speaker Change: Welcome to Roku fourth quarter and year ended 2024 earnings call on today's call are Anthony Wood brokers, founder and CEO, Dan <unk>, Our CFO, Charlie Collier, President Roku media and MS staffer Ozcan President devices are fully.
Speaker Change: <unk> and additional management commentary are available in our Cheryl letter on our IR website at Roku Dotcom forward Slash investor.
Speaker Change: On this call we will make forward looking statements, which are subject to risks and uncertainties.
Speaker Change: These refer to our shareholder letter and periodic SEC filings for risk factors that could cause our actual results to differ materially from these forward looking statements.
Speaker Change: We will also present GAAP and non-GAAP financial measures reconciliations of non-GAAP measures to the most comparable GAAP financial measures are provided in our shareholder letter.
Unless otherwise stated all comparisons will begin our results for the comparable 2023 period.
Speaker Change: Beginning this quarter, we will forego prepared remarks and go straight into Q&A.
Speaker Change: Operator, our first question please.
Speaker Change: Thank you as a reminder to ask a question. Please press star one one of your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Speaker Change: Our first question comes from the line of Shyam Patil with Susquehanna International Group. Your line is now open.
Shyam Patil: Hey, guys. Congrats on the strong results I had a couple of questions.
Speaker Change: I guess the first one.
Speaker Change: Very strong fourth quarter, what what drove the outperformance.
Speaker Change: And do you guys expect that to continue in 2025, and then second question on.
Speaker Change: On free cash flow conversion. It is how should we expect that to trend in 2025 and beyond Thank you guys.
Speaker Change: Hi, Sean this is Anthony thanks for the question.
Speaker Change: We were very pleased with the Q4 results it was an outstanding quarter.
Speaker Change: I feel like we're continuing to execute well.
I thought one of the interesting things about the quarter was just how it provide a lot of proof points that our strategy to grow our platform revenue is working and working well.
Speaker Change: And just to remind everyone by the three key points of our strategy to grow our platform revenue. The first is to lean into making better use of our home screen.
Speaker Change: Homescreen as a key or home screen on all our roku devices as a key asset for us.
Speaker Change: Half of broadband households in the U S start their TV viewing experience with our home screens, so leaning into making better use of the assets is a big part of our strategy to grow platform revenue. The second part of it is to continue to drive more AD demand by expanding our third party partnerships, that's also going well and.
Speaker Change: Then the third point is just to continue focusing on growing our subscription revenue with more focus on subscriptions generally.
Speaker Change: More resources focused on subscriptions and more homescreen integrations so.
Speaker Change: I feel like our strategy is working well.
Speaker Change: And we're seeing that start to play out in the quarter.
Speaker Change: Looking at advertising generally I mean advertising is also doing well it did great in the quarter. It was an outstanding advertising quarter as well.
Speaker Change: Even ex political it was a strong advertising quarter advertising picked up on many fronts.
Speaker Change: And one of our strategies around advertising is to continue to create more unique high demand.
Speaker Change: Broad reach AD units that are unique to our platform.
Speaker Change: For example, one of those AD units as the video marquee add on our home screen and that's also very popular.
Speaker Change: We're also in our AD business very good at reaching the right person with the right message at the right time.
Speaker Change: So it was an outstanding quarter, we're executing well our strategy is working and the strategy is going to continue to work. There is still a lot of a lot of growth left in this business is still fairly early days in the streaming transition I expect to see continued growth in 2025, but let me turn it over to Dan who can talk more about that part of your question.
Speaker Change: Thanks, Anthony Hi, Sean It's Dan So let me, let me give a little bit of color on Q4 and into 2025.
Dan: The Q4 very strong we grew 25% on the platform side, if you back out political which added six points of growth we grew 19%.
Dan: And if you look at our Q1 and what we're expecting we're going to grow 16% on a year over year basis for platform in Q1 and for the full year, we're going to grow 12% and if you back out political in 2025, we're going to grow 15%, which is actually faster than the growth in two.
Dan: 24, so to answer your question, we do expect.
Dan: Some very strong results to continue into 2025, if I if I just take it down to platform gross margin at the midpoint of our guide for 2025 at 52, 5%.
Dan: That compares to 53, 5%.
Dan: In 2024, so a 100 basis point decline, but that's fully explained by 606 adjustments in 2020 for which we do not expect any 606 adjustments in 2025 so.
Dan: Backing out 606, our platform margins are flat. So we expect to grow platform, our gross profit as much as platform revenue.
Dan: 606, and then dropping to adjusted EBITDA of $350 million Guide would imply a 130 basis point improvement in EBITDA margins on a year over year basis for 2025%. So again, gaining very good leverage.
Dan: We grew our platform revenue as we manage our opex and still continue to invest in our platform business. So all in all very good answer to your last question on how to think about free cash flow conversion trend in 2025. Thank you for that question free cash flow and free cash flow per share is our is our north star metric, we feel very good about free cash.
Dan: Cash flow. We ended 2024 at just over $200 billion of free cash flow I'm actually expecting free cash flow to be higher than our adjusted EBITDA Guide for 2025, we've got a lot of good things working on the working capital front, we will continue to be Capex light in 2025, and so free cash flow should.
Dan: Continue to grow and should grow faster than adjusted EBITDA for 2025.
Dan: Thank you Anthony Thank you Dan.
Speaker Change: Thank you. Our next question comes from the line of Michael Morris with Guggenheim Securities. Your line is now open.
Michael Morris: Thank you. Good afternoon, guys two questions for me one just to follow up on that last question could you expand on some of the drivers of the 16% platform revenue growth that youre looking for in the first quarter.
Speaker Change: Be great to hear about how youre thinking about maybe advertising versus SSD and.
Speaker Change: It'd be great to hear also about how these third party DSP partnerships are contributing and how you think about that throughout the year.
Speaker Change: And then secondly could you share any updated thoughts on how this Walmart acquisition of Vizio will impact your business.
Speaker Change: I think they are a pretty large retail partner of yours. Currently so do you expect that your products are going to be de emphasized or that there will be an impact on your business as a result of that combination. Thank you.
Speaker Change: Hey, Mike This is Anthony I'll, let Dan take your first question and then when he is finished with that I'll take your second question about Walmart.
Speaker Change: Hey, Mike It's Dan I'll take that first question with respect to the drivers of the 16% platform revenue growth in Q1. So that is both streaming service distribution and our advertising activities. Both have a very both are growing very strong and our Q1, we we start to comp.
Speaker Change: The average price.
Speaker Change: This increases in the back half of 2025.
Speaker Change: We'll give more guidance on SSD going forward, but in Q1, both are driving excellent growth, we feel very good about the advertising business activities. Both for Q1 and for full year I would expect our advertising activities to actually grow faster than streaming services distribution, which we love to see so all in all again very strong.
Speaker Change: Wrong going into Q1 very strong for the full year for both SSD that's.
Speaker Change: Primarily from subscriptions and then of course, our advertising activities, which we've talked a lot about in the shareholder letter on whats driving them, including.
Speaker Change: The answer to the second part of this question on the DSP partnerships, which I'll turn it back to Anthony.
Speaker Change: And then regarding your question about Wal.
Speaker Change: Walmart and the <unk> <unk> acquisition I'll, let me just make a few introductory remarks and now let me turn it over to MS staffer, who runs our device business to talk more about it.
Speaker Change: First of all.
Speaker Change: We're doing a great job on growing our streaming households, I mean, we passed over 90 million streaming household globally in the quarter, we added over 4 million new streaming households.
Speaker Change: The last quarter alone.
Speaker Change: Our first party Tvs are also doing well.
Speaker Change: Sold over 1 million first party Tvs in 2024.
Speaker Change: And.
Speaker Change: We announced I think last quarter that we expected to in the not too distant future past 100 million streaming households, we're on track for that to happen. So.
Speaker Change: Streaming households are growing nicely both inside the U S and outside the U S. Both parts are growing.
We're aware that Walmart vizio and Thats all taken into account in our forecast and our our view of the future and I fully expect.
Speaker Change: Our streaming household theyre going to continue to grow both inside the United States and outside the United States. Walmart is an important partner for US we do a lot of business together.
Speaker Change: I also expect that to continue.
Speaker Change: But let me let me talk to turn it over to Mr. <unk>, who can provide more detail.
Speaker Change: Hi, Mike This stuff was speaking.
Speaker Change: Roku OS has been the number one selling TV Pos in the U S for six years in a row.
Speaker Change: For full year 2024 unit sales of Roku Tvs were greater than the next two operating systems combined.
Speaker Change: And as Anthony mentioned earlier, we've surpassed half of broadband households in the U S. In terms of household penetration.
And yes, we are very large.
Speaker Change: In terms of distribution and also in terms of installed base and therefore, our streaming players.
Speaker Change: Roku Tvs have already a wide retail distribution.
Speaker Change: Daria available popular retailers, such as Amazon Best buy Sam's clubs and target and also in other specialty and regional stores. So it's a quite wide distribution.
Speaker Change: And.
Speaker Change: We continue to gain shelf space in the retailers as we introduce new products and upgrade our products.
Speaker Change: And also because our brand is very popular customers love our brands They trust our brand.
Speaker Change: Ask for <unk> by name at stores, so retailers would love to carry our products.
Speaker Change: So overall these are all.
Speaker Change: The sort of the reasons why the retailers will continue to care broker products and.
Speaker Change: As long as the demand there will be basically a good shelf space allocated.
Speaker Change: For our products and.
Speaker Change: And I should also highlight that.
Speaker Change: We distribute our operating systems to our customers in three different ways. One is with our streaming players which is quite large business together with our third party Tvs and recently with our first part of television we have a large <unk>.
Speaker Change: Different channels to distribute our operating systems. So we'll continue to do that.
Speaker Change: We feel very confident that we are.
Speaker Change: We are well positioned to continue to grow.
Speaker Change: In the U S also in other countries and remain on track to achieve.
Speaker Change: $100 million estimate household target in the coming years.
Speaker Change: Thank you. Thank you. Our next question comes from the line of Laura Martin with Needham. Your line is now open.
Laura Martin: Hi, there.
Laura Martin: Congratulations on fantastic results.
Laura Martin: Hey, Anthony.
Laura Martin: Hey, Laura.
Laura Martin: You fired everybody.
Laura Martin: Yes.
Laura Martin: And one of the most recent quarter you over delivered platform by about $100 million.
Speaker Change: Did you break out for us.
What did you give John and the subscription business in the year you just finished managing that business and when you think about the roadmap how much or how much bigger of a contributor.
Speaker Change: The script.
Speaker Change: Going forward.
Speaker Change: Charlie is doing over in retail media network.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Hey, Laura it's nice to hear from you.
Speaker Change: The connection wasn't great. So I think I got your question, but if I don't answer it let me know I think you asked.
Speaker Change: About our subscription business.
Speaker Change: Can you break out what we've been doing there in the last year.
Speaker Change: A little bit about the roadmap and then.
Speaker Change: I wasn't quite sure. What this is the biggest retailer in media business.
Speaker Change: So.
Speaker Change: If we go back to our strategy for growing platform revenue, it's leveraging our home stream more.
Speaker Change: Growing AD demand Theres, a bunch of ways, we're doing that but one of the biggest is working with third party platforms and deeper integration there and the third is growing our subscription business very very large subscription business is tens of millions of subscribers that we build on our platform.
Speaker Change: And it's both through what we call premium subscriptions.
Speaker Change: And also through direct to consumer subscriptions.
Enabled by our billing platform Roku pay and that that business is it's a very good business for us it continues to grow.
Speaker Change: And there is there is a lot of items on the roadmap. We don't talk about that will continue to drive that business.
Speaker Change: We continue to add more partners. For example, we recently added Max to the premium subscription lineup.
Speaker Change: And.
Speaker Change: We've also made changes internally around the way we handle operations are organized to just give it more focus.
Speaker Change: We're very disciplined about our opex, but we're allocating more of our opex to subscriptions and we used to.
Speed up some of the changes in the roadmap that will continue to grow that business.
Speaker Change: So.
Speaker Change: <unk> got a lot of room to grow.
And I'm very bullish on it and then the last part of the question.
Speaker Change: So I think I think that answers your question if not let me let me know.
Speaker Change: That was great and my second one was just on local I thought it was interesting the political with 6% of your fourth quarter revenue on trade desk that it was 5% of theirs would you say that's a secular shift out of the local television business. When you would expect that to grow in every two year cycle now.
People converted to using TTM place of local broadcast political ads.
Charlie Collier: Well I'll turn it over to Charlie.
Charlie Collier: Definitely one of the drivers for US was just we we spent we put more effort into it I mean, it's an area that we've identified strategically is a big vertical for us that we want to get better and better at.
Charlie Collier: And we did better than we did the last cycle I am sure we will get better at it. The next cycle. So that's one of the drivers, but there are definitely secular shifts I'll, let Charlie talk about it.
Charlie Collier: How are you.
Charlie Collier: I would hope.
Charlie Collier: I would say this.
Charlie Collier: You learn so much from political advertising because it really is a good microcosm of what we do very very well.
<unk>.
Charlie Collier: Talk about driving results for marketers and obviously an election cycle is time bound theyre very specific with respect to their targets and Roku does a really good job.
Charlie Collier: Delivering performance. So we've seen not just the growth, but I like what it portends in terms of our our thesis that we can be a performance platform at the highest level. So yes, I think there'll be a continued shift to CTV.
Charlie Collier: Brochu, specifically because of how well, we deliver for advertisers and prove our ROI.
Speaker Change: Thank you great numbers.
Charlie Collier: Thank you.
Speaker Change: Our next question comes from the line of Jason <unk> with Oppenheimer. Your line is now open.
Speaker Change: Thanks for taking the question already.
Speaker Change: Clearly the Roku channel is delivering tremendous usage growth and giving you a lot of available AD units for sale. When you think about your success with political in the fourth quarter.
Speaker Change: Did this crowd out other AD demand or do you think that this is.
All incremental.
Speaker Change: Do you think about inventory Paul Thank you.
Speaker Change: Hey, Jason this is Anthony.
Charlie Collier: I'll, let Charlie to take that question sure.
Speaker Change: Jason.
Speaker Change: I think probably in the market there were people who waited to get out of the political cycle to play some advertising. So I think advertisers were making that choice for us we have and like you said the Roku channel grew 82% year over year, we have a lot of inventory in that.
Speaker Change: How's us to come to the market from a position of strength and really serve every part of demand.
Speaker Change: The demand curve and to service all types of pricing.
Speaker Change: So for us.
Speaker Change: Okay.
Speaker Change: I think the the question to <unk>, it's tough to say, but as I said before one thing.
Speaker Change: Sure of is our ability to target and improved performance.
Speaker Change: Really evident during the political cycle and I think it's served us well throughout the quarter and we will.
Speaker Change: <unk> continued to do so into 2005.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from the line of Matt Conlan with citizens JMP. Your line is now open.
Matt Conlan: Thank you so much for taking my questions. My first one is just on the home screen monetization.
Matt Conlan: Understood and as you guys had talked about video ads being placed there and that was in data as I mentioned it in the shareholder letter. So I just wanted to touch base on that and say that's progressing and maybe what are the levers you guys have there to increase monetization and then my second question is just on device revenue and gross profit margins understood I think it was in.
Matt Conlan: Increased.
Matt Conlan: Discounting period during holiday, but it does seem like that carried over into <unk>. So I'm just trying to make sure that there was any sort of increased competitive intensity in the quarter and into <unk>.
<unk>.
Matt Conlan: Hey, Matt This is Anthony I'll, let Charlie talk about.
Matt Conlan: Video ads and just how that plays into our overall and strategy and then I'll take your.
Matt Conlan: Follow on question about device.
Matt Conlan: <unk> margins I will say.
Charlie Collier: Just before I turn it over Charlie our strategy of making better use of our home screen is not just about putting a marquee video AD on the home screen. For example, like we are we are very careful about.
Charlie Collier: Putting ads on our home screen I mean, we're very focused on both driving more monetization, but also driving increased customer satisfaction.
Speaker Change: We have a very iconic home screen consumers love it.
Charlie Collier: We have no intention of breaking it so.
Charlie Collier: So putting video as strategically in different locations on our home screen as part of it but also for example, we added.
Charlie Collier: We added one ROE content recommendations on our home screen.
Charlie Collier: That alone is driving significant more engagement in the Roku channel and also driving a lot of subscriptions as well. So that's another example of like how do we use our home screen to drive more monetization, but let me.
Charlie Collier: Charlie can talk about our AD strategy and how things like the Marquis video AD fit into our overall strategy and then.
Charlie Collier: Then you can try you can turn it back over to me and we'll talk about device sure margins. Thanks, Anthony Hey, Matt.
Charlie Collier: Anthony is right the home screen.
Speaker Change: <unk>, our proprietary asset and it is doing very well in terms of demand for advertisers we call. It the roku experience everything that an advertiser can participate and inside.
Speaker Change: The UI is considered part of the Roku experience and we've been talking a lot to you guys about our demand diversification and really over the last few quarters.
Speaker Change: We've diversified demand and I believe the homescreen placements are a big part of that so.
Speaker Change: The Roku experienced advertising I mentioned in the letter, we're Pepsi and neutrogena, but there were all sorts of advertisers you took advantage of not just the marquee video unit that Anthony mentioned, which now puts video on the home screen.
Speaker Change: But we view integrations that include shop ability, we have integrations, where we built showcases where people can go in and look at the color of the car that were advertising and it's really impact driving and performance.
Speaker Change: Roku in the macro is living.
Speaker Change: At the intersection of two of the fastest growing segments in advertising I would say commerce driven solutions, which.
Speaker Change: Again, our roku experienced units perform really well and then just the move from linear to CTV and streaming and so all of the unique products in the Roku experience and the integrations, we do allow us to prove business results for our marketers.
Speaker Change: Not just M&A anymore, but marketers.
Anthony Wood: Every category. So it's working really really well Anthony do you want to take part two.
Speaker Change: Yes.
Speaker Change: <unk>.
Speaker Change: So device device revenue and gross margin. So let me I'll just repeat like I said before which is.
Speaker Change: That we're very happy with the progress, we're making on growing streaming households passed 90 million streaming households globally, we're growing both in the U S and internationally in the U S. We passed half of all broadband households.
Speaker Change: We added over 4 million streaming households in the quarter, we're making great progress I expect that growth to continue we expect to continue to grow streaming households, both in U S and outside the U S.
Speaker Change: But in terms of your question about devices in gross margins on revenue, let me turn it over to Dan.
Speaker Change: Yeah.
Speaker Change: Matt for the question, it's Dan here.
Speaker Change: No.
Speaker Change: I think as you mentioned like during the holidays the market had high expectations for unit sales and from an overall market perspective that.
Speaker Change: That did not materialize and a lot of excess inventory across the market did drive pricing down including at <unk>.
Speaker Change: It impacts our revenue and our device gross profit for Q4 and led to an excess inventory position in Q4.
Speaker Change: Which will impact Q1, it will this will carryover just the excess inventory.
Speaker Change: And basically this is primarily in our first party TV business, but for the full year and so we don't we do expect margins to come.
Speaker Change: <unk> rationalized to a more normal device margin level. That's in our guide so for the full year, we're guiding to roughly flat dollars for device gross profit relative to 2024, that's on higher device revenue. So margins are improving and our guide does factor in what we would expect from the market pricing.
Speaker Change: Going into this year.
Speaker Change: Thank you so much.
Thank you.
Speaker Change: Our next question comes from the line of Ralph <unk> with William Blair. Your line is now open.
Speaker Change: Good afternoon. Thanks for taking the question you on the call we've talked a lot about the strength and the strong outperformance in the quarter and sort of your outlook.
Speaker Change: And that advertising grew faster than overall platform revenue in Q4, maybe if you could sort of segment the top one or two things that are going to really write that business I'm sure. There is a bunch of things coming together driving a strong performance, but maybe just get a sense of whats really driving the strong performance of that business and then I would follow up with.
Speaker Change: Yeah.
Anthony Wood: I think this is Anthony.
Anthony Wood: I mean, all three parts of our strategy group platform revenue is really working well, we are making better use of our homescreen to drive more engagement and to drive more subscriptions to drive more ad revenue.
Anthony Wood: Uh huh.
Anthony Wood: There is more I think theres still a lot of room to grow there, but thats going well.
Anthony Wood: Integrations with third party DSP is to drive more and demand.
Anthony Wood: Those are going well, we're continuing to work on that were continuing to deepen those.
Anthony Wood: And then subscriptions subscriptions is a good business for us.
Anthony Wood: And is growing both the premium subscriptions and the direct to consumer subscriptions.
Anthony Wood: And Theres, just a lot of things to a lot of.
Anthony Wood: Product changes product improvements as well as <unk>.
Anthony Wood: Partnership improvements additional partners that are all going to drive and are driving that business. So at a high level, that's what I'm seeing I don't know.
Charlie Collier: Charlie or Dan did you have anything better.
Anthony Wood: Got it.
Speaker Change: Absolutely right, obviously, we all those.
Speaker Change: Areas I'll say one other thing we're able to do is we really can come to the market from a position of strength because of the growth of our inventory we have the volume the competitive pricing and the products at every price point on the demand curve. So you start to look at.
Speaker Change: The way the market is moving and Roku is really well positioned.
Speaker Change: To optimize the premium side of our inventory, our sponsorships or sports or or Roku city and all of the premium inventory and we can service all the way down the demand chain to folks who don't need those signals are willing to take a different inventory mix, so very much like that.
Speaker Change: Fact that we are growing in this environment and have the kind of volume and competitive pricing flexibility and products that every point.
Speaker Change: Great and then just a quick follow up to get some for Dan and let her.
Speaker Change: Talked about wanting to provide a clear and accurate outlook.
Speaker Change: Based on latest simple rather than conservatism I'm just curious.
Speaker Change: Is your approach to guidance changed since last call just kind of curious.
Speaker Change: Anything you could add on that what's in the letter. Thank you.
Speaker Change: Yes, it's a good callout Ralph what we're trying to do is just provide not just Q1 this year, obviously, but full year and give the.
Speaker Change: Give the outside all the using all the data points, we have obviously the AD industry can be very choppy and volatile from quarter to quarter, but we are providing our best view that we see for all of 2000 and for Q1 and for all of 2025. So again I think we're just saying Hey. This is this is our view internally on what we see.
Speaker Change: For Q1 and for the full year, obviously, we will update everybody each quarter as we go through it but it's not it's not a guide out there that we would say is overly conservative.
Speaker Change: Our view of what we would expect for 2025.
Speaker Change: Okay. Thanks for clarifying.
Speaker Change: Thank you.
Speaker Change: Next question comes from the line of Steve Chahal with Wells Fargo. Your line is now open.
Speaker Change: Thank you.
Speaker Change: On subscription so we've seen some prices go up at some of the streamers Netflix took price up recently, but they are also guiding to flattish for the year I think their expectation is that folks will down here to the AD tier and we've seen <unk> be kind of flattish at some of the other big streamers. So I'm just wondering how that plays into your <unk>.
Speaker Change: <unk> revenue.
Speaker Change: If pricing goes up but folks do end up on some of these lower subscription tiers do you still get the acceleration of the pricing does it flattened out a little bit maybe you can just help us think about how some of these industry shifts towards AD supported tier is that we're seeing roll through SSD.
Speaker Change: And then a couple follow ups on political so just first given how big the cycles are getting this was a record cycle and it seems like 26 could be similar to 'twenty four from a cycle size.
Speaker Change: Are you, adding sales force to try to build into political more specifically and help their campaigns in the packs reached the younger audiences and then lastly, Dan.
Speaker Change: Sorry, I can't help myself on this one but it seems like you probably would have had a pretty good idea of political when you reported Q3, and then you've said that the guidance isn't isn't conservative. So maybe you can just help us understand how the political kind of came in as a surprise in Q4. Thank you.
Steve Chahal: Hey, Steve Thanks for the three questions.
Steve Chahal: Sorry on subscriptions that's okay.
Dan: I'll turn it over to Dan I'll, just say this.
Speaker Change: Without going into any specific deal because our deals vary or distribution deals.
Speaker Change: But as a general matter.
Speaker Change: Our deals are structured to allow us to.
Speaker Change: So when when our partners win so if we sign up subscriptions, if we grow their engagement.
Speaker Change: That often means brokers as some monetization based on subscription builds but also based on advertising.
Speaker Change: So.
Dan: But that's just kind of a general statement, but let me turn it over to Dan.
Speaker Change: Yes.
Speaker Change: Stan and Anthony exactly right the way to think about subscriptions is the way all our all of our deals are different across the different content of our different partners, but ultimately like.
One of the ways I'd like to think about it is when.
Speaker Change: When they win and we're going to win on the economics of it so as they go through and adjust their pricing to better reflect whats best for them, it's going to flow through to us depending on the deal and the economics.
Speaker Change: And then I'm going to take the third question and then I'll send.
Speaker Change: Send it back to Anthony your Charlie on political but.
Speaker Change: The Q4 political did obviously surpass our expectations.
Speaker Change: Really was a very strong end of political cycle. We did know that there was demand given all the uncertainty.
Speaker Change: Going into the last month of political but it did surpass our expectations.
Speaker Change: For Q4, and a lot of that is due to Charlie and team and what they were able to do in the political not just on the sales side, but really with amazing focus on what we can do with targeting political is very targeted very performance driven as target as Charlie said and and as Anthony said, we are just very focused on.
Speaker Change: On this so I believe that this particular vertical will be a strength for us going forward Q4, certainly showcase that I'll, let Charlie talk about or Anthony talked about the political cycle and how they're thinking about it as well.
Anthony Wood: Well, yes, let me just say one thing that I will turn it over to Charlie This is Anthony.
Speaker Change: Political.
We were very focused on political is a vertical because we want to become good at it.
Speaker Change: And we knew there was a lot of opportunity there it's very difficult.
Speaker Change: For us to forecast because we haven't it's not something we do every day something we don't have a lot of history is something that we're improving our ability at <unk>.
Speaker Change: So it's an area where.
Speaker Change: Forecasts are going to be uncertain. So I think that was also a factor.
Speaker Change: Do you want to there was also a candidate change which changed the cadence in the middle of the <unk>.
Speaker Change: Election cycle, but in general we did step up I'm really proud of the whole AD sales team in the political team.
Speaker Change: Has done a tremendous job and then I think as the cycle built and as we are successful serving our clients in this case.
Speaker Change: Political clients.
Speaker Change: More money is coming to roku, because its performance and I think that's it's a really good moment in time, because it tests a lot of our skills shows us what we're good at and where we need to be better and we've already started talking about 2026, and even 2028 and how we're going to prepare for it on the staffing side technology.
Speaker Change: All but.
Speaker Change: All signs where that where we're doing a lot of the right things and we still have room to grow.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from the line of Cameron Mcknight with Morgan Stanley. Your line is now open.
Cameron Mcknight: Alright, thank you.
Cameron Mcknight: <unk> done a good job at slowing your Opex growth rate recently, and when you think about your opex levels, particularly.
Here I'm curious, where you see the most opportunity to become more efficient.
Anthony Wood: Hey, Kevin This is Anthony let me I'll, just say I think that.
Cameron Mcknight: We are.
Anthony Wood: Very focused on.
Anthony Wood: Continuing to grow our investment in our platform business, while also being very disciplined about our opex levels and so.
Anthony Wood: Areas to be more efficient part of it is where do we hire employees.
Anthony Wood: A lot of offices around the world.
Anthony Wood: Some of them are in lower cost regions versus say Silicon Valley. So that's one strategy. We're using is to hire more employees in lower cost regions were also looking harder automation, we really bend the curve on our cloud cost for example by putting more resources into the software.
Anthony Wood: Writing more efficient software obviously, we're looking at AI, there's lots of ways to improve efficiency, both in operations and our customer experience using AI.
Anthony Wood: Let me spend a lot of time, just talking about how to become more efficient how to be more effective.
And so just in general is just a big focus for US execution in general is something we're really focused on.
Anthony Wood:
Speaker Change: I don't know if you want to talk about Opex, saying well the only thing I would add on that Anthony is of course right is that doing all what he said has allowed us to reallocate capital to the platform side of the business, while not losing any focus on our critical growing of scale on the device side. So we feel very good about the investor.
Anthony Wood: <unk> that we're making.
Anthony Wood: On the platform side to continue to grow our platform revenue in <unk>.
Anthony Wood: Able to do it because of everything Anthony just said without adding a lot of external opex. So it's a really a balanced approach between operational discipline, but continuing to invest in the platform side of the business, which again, we all feel very good about.
Speaker Change: Got it. Thank you and then just secondly curious how the response has been to the release of your self serve ads manager.
Speaker Change: Hey, Jeff how are you thinking about the SMB opportunity both in terms of timing and magnitude going forward. Thank you.
Anthony Wood: This is Anthony.
Speaker Change: The response has been great and I think there's a huge opportunity.
Anthony Wood: It's a very large market.
Anthony Wood: It's a very large market of advertisers that don't traditionally by TV advertising that we can tap into so it's something we're going to continue to invest in but.
But Charlie I don't let you comment and that's absolutely right and it fits in with our strategy, we talked a lot about demand diversification and.
The small and medium sized businesses. It is incremental and these are early days, but we like to trajectory and it's really going to diversify our demand well beyond the top 500, advertisers, which is which is terrific.
Anthony Wood: Thank you.
Speaker Change: Our next question comes from the line of Rich Greenfield with light shed partners. Your line is now open.
Rich Greenfield: For taking the question just sort of it's one question, but sort of three parts humor me for it.
I'm curious how you think about the lifetime value impact of a roku active account.
Rich Greenfield: Scriber, who subscribe so at least one of these premium subscription offerings that you are talking a lot about in both your letter and on the call earlier.
Rich Greenfield: It feels like once you've subscribed using roku as youre sort of how you subscribe, but we think that has a real lock in effect that I was wondering if there's anything you've seen in terms of.
Rich Greenfield: What happens to people, we're getting different devices in the future not being an active accounts.
Rich Greenfield: How it changes when they have at least one subscription tied to roku.
Rich Greenfield: And sort of the other side of that is what happens for the provider, whether it's masks or any of your premium subscription partners what do they see much lower churn when they work work with Roku I know some have seen higher churn with Amazon.
Rich Greenfield: Just curious sort of what the experience has been with Roku and then lastly, just sort of tied into all of this is do you bundle. These subscriptions over time and create your own packages of multiple of these or how do you see that changing over time.
Rich Greenfield: <unk>.
Rich Greenfield: Hey, rich thanks for your question.
Rich Greenfield: Anthony let's see so.
Speaker Change: First of all I can't really comment on churn rates of different aspects of our business I would just say that on that point, we're very very focused on lifetime value churn customer experience.
Speaker Change: We're good at it and I think we understand it quite well.
Speaker Change: Obviously, we're always trying to get better, but it's a big area.
Speaker Change: Our data science and analytics.
Speaker Change: We're focused on our subscription business, we are focused on growing both premium subscriptions and our direct to consumer subscriptions for our for our partners. So we have teams working on both were happy when we get a new subscriber no matter, whether it's a premium subscription or a direct to consumer subscription I would say they both.
Speaker Change: Are generally positive in terms of retention because they both use a roku pay billing system and so against the consumer habit of using our billing system that they'll have a method of payment on file.
Speaker Change: But yes, I think in general we.
Speaker Change: Aspired to get higher.
Speaker Change: Segment of arc.
Customers.
Speaker Change: Paying for subscriptions through roku pay and through our billing system.
Speaker Change: It's an area I think.
Speaker Change: It's an area of big opportunity for us because.
Speaker Change: I would say if you.
Speaker Change: Compared to some of our competitors were actually a little bit behind on premium subscriptions I mean, it's a big business for us, but it could be a lot bigger if you compare it to say where some of our competitors are versus other areas of our business, where we're well ahead.
Speaker Change: Most areas of our business, we're well ahead of our competitors, but this is one area, where I think there is opportunity that were sort of below where we should be and where we will be.
Speaker Change: Thank you.
Alan Gould: Our next question comes from the line of Alan Gould with Loop capital. Your line is now open.
Hi, Thanks for taking the question I've got two.
Alan Gould: One can you give us an update on what's happening on your international expansion and secondly.
Alan Gould: Is M&A still a headwind or are we past the tough comps. There you may throw a third one and Dan was there any 606 adjustment in the quarter. Thank you.
Alan Gould: Yeah.
Alan Gould: [laughter].
Alan Gould: Hey, Alan Thanks for that single three part question.
Alan Gould: <unk>.
Alan Gould: Let's see.
Alan Gould: <unk> International expansion.
Anthony Wood: This is Anthony I mean, we're very pleased with our progress internationally, we're making great progress.
Anthony Wood: I mean, just to remind everyone. The primary markets, we're focused on right now.
Anthony Wood: Is the Americas, North America Central America, Latin America, and the UK.
Anthony Wood: We're number one we're not seeing a platform in Canada, Mexico, and obviously the U S. We're growing fast and will.
Anthony Wood: Latin America generally were higher growth is starting to accelerate in the U K. So we're making we're making good progress in the markets we're focused on.
Anthony Wood: I would say great progress.
Anthony Wood: Do that the normal ways, we're focused on.
Anthony Wood: Lots of new Roku TV partners, we have new Roku TV partners in Brazil, Colombia, Chile, and Peru for example in U K, we're expanding the number of royalty part TD partners as well as retail distribution partners.
Anthony Wood: So I would say <unk>.
Anthony Wood: Internationally, most markets, except for maybe Canada.
Anthony Wood: We're still focused primarily on scale of streaming households, and less so on monetization of that that will come.
Anthony Wood: And I think last quarter, we said, we expect to reach $100 million streaming households, and in the next 12 to 18 months. We're on track to do that international is a big part of that so it's going well.
Speaker Change: I don't know Dan do you want to add anything on international Yes, Let me just I'll just add a little bit to that as Anthony said like we're in different stages of our scale and monetization on the International front, you mentioned, Canada, where we are actually very focused on monetization is growing very well, we're actually hiring more locally in Canada, even to double down in that area.
Speaker Change: In Mexico, we actually have scale, we've reached scale and I think we're over 40% of broadband penetration in Mexico, and we are really now starting to turn our focus on monetization, we havent monetize in any meaningful way there because of the market and now that we've got the scale that is going to be a focus point for us.
Speaker Change: Going forward and then in other countries like Brazil, and what we'd call. The rest of Latin America, we are in our growing scale face and so we're not actively in any big way monetizing those areas yet, but all of this will come over time, and we would expect as both our scale continues to grow and as important.
Speaker Change: As these markets move to digital advertising that we're going to be in a great position to take advantage of that especially given our number one position in like Mexico.
Speaker Change: In other areas of.
Speaker Change: Latin America, and South America, So we don't.
Speaker Change: Some time I would expect that international revenue does become a more meaningful part of our net revenue overtime as we continue to build the scale and ultimately get to the monetization side of the business.
Anthony Wood: On M&A ill turn it back to Anthony.
Anthony Wood: You want to take the M&A.
Anthony Wood: M&A is something we're really good at.
Anthony Wood: We continue to improve their roku experience units that I mentioned earlier.
Anthony Wood: And actually we've diversified beyond M&A so.
Anthony Wood: Those units from revenue from non M&A brands.
Anthony Wood: Supporting all of those roku experiences on the platform is healthy and we see a ton of advertisers.
Anthony Wood: Coming in where it was just M&A before.
Speaker Change: Anthony mentioned the Roku.
Anthony Wood: Marquee video ad.
Anthony Wood: I will say, we're not reliant on M&A.
Anthony Wood: <unk>.
Anthony Wood: Business results like we used to we're not reliant on any one category like we used to be many.
Anthony Wood: Is going well and we see opportunity for.
Anthony Wood: For strength in the category going into 2005.
Anthony Wood: To the last question I'll take the last question on 606, there was a very small $6 six adjustment in Q4.
Anthony Wood: I think I mentioned earlier like we do not expect 606 adjustments going forward. Our guide for 2025 does not.
Anthony Wood: <unk> does not have any 606 adjustments in there just given the way we've structured our agreements in the accounting policy. We're applying we apply against them. We don't believe 606 will be.
And our numbers on a go forward basis.
Anthony Wood: Okay. Thanks for taking the questions.
Speaker Change: Thank you. Our last question comes from the line of Barton Crockett with Rosenblatt. Your line is now open.
Barton Crockett: Okay, great. Thanks for taking the question.
Barton Crockett: I guess I was curious about some of the news for overnight so.
Barton Crockett: One of your business partners. The trade desk was talking about some disappointment in their trends and raises the question about.
Barton Crockett:
Barton Crockett: Their relationship with you, which you guys had called out last quarter as a source of strength and just this DSP channel generally where.
Barton Crockett: There is some competitive kind of gyrations.
Barton Crockett: And I'm just wondering if you could comment on the health of that relationship and the health of Dsp's generally with you guys.
Anthony Wood: Hey, Barton this is Anthony.
Anthony Wood: Just make a comment and I'll turn it over the Charlie I think just in general I think we have a great relationship with the trade desk is the very.
Anthony Wood: Productive business relationship.
Anthony Wood: We're obviously, a very large supplier of that inventory for the connected TV thats important to their business. They're also helping bring us additional demand. So it's a mutually beneficial relationship.
Speaker Change: I don't I don't really follow.
Speaker Change: Trade desk and their stocks I don't know I don't honestly, even read the earnings I'm not sure what's going on there, but I'll just say that I think our relationships is generally good I mean, we are but we're focused on.
All demand side platform.
Speaker Change: We want to be as diversified as possible trade. This is an important partner, but theres lots of other big DSP is out there and we're working with all of them. So I don't know Charlie do you want to Dennis.
Speaker Change: Demonstrate we have integrations now with every major demand and supply side platform and we're working really diligently not just too beyond them, because we've done that but to optimize those relationship and drive marketing results. So Anthony you're right trade desk is a great partner, but not only are we expanding partnerships, where we're building deeper integrations.
Speaker Change: With all of them and this will drive more demand.
Speaker Change: Growing the number of advertisers, we serve and the types of advertisers we serve.
Speaker Change: And I think youre seeing signs where.
Speaker Change: During share of wallet.
Speaker Change: Earlier, we mentioned the Roku channel being up 82% year over year. So we have a lot of inventory and more importantly, we have a lot of high fidelity signals that make us a great partner not just for the dsp's, but for agencies and inevitably for marketers, which is the most important so we'll continue to do more more integrations.
Speaker Change: With the DSP and SSP is expand our ability to serve the entire demand curve as I said earlier at multiple price points, So really barton and the macro what's happening is that we're driving incremental revenue and partnerships and as we do so I think youll see us ensure our inventory is available to advertisers in whichever platforms are easiest and.
Speaker Change: Most efficient for them to activate and Youll see us ensure that our data in our inventory partnerships are optimized which makes roku inventory more visible programmatically and all of these partnerships are becoming more and more accountable to our clients so really.
Speaker Change: The highest level, we're driving better performance for advertisers across all sorts of platform relationships and this should lead to deeper partnerships and more meaningful investment for roku.
Speaker Change: Okay, and then if I could just ask one other thing.
Speaker Change: The news.
Speaker Change: Trade Wars tariffs.
Speaker Change: Does this mean anything for you guys is there any risk on devices from the tariffs in China any impact on advertising flows I know foreign was cautionary about what steel could do to autos.
Speaker Change: The de Minimis kind of fact ecommerce.
Speaker Change: Are you seeing anything.
Speaker Change: Yes. This is ethylene can comment on that but let me just also just wrap up on traders trade us I'll, just say that just in summary, they're a good partner, we enjoy working with them and it's a mutually beneficial relationship I don't think thats going to change.
Speaker Change: In terms of tariffs.
No.
Speaker Change: I mean, well I'll, just say at a high level, we don't believe tariffs.
Speaker Change: There's a lot of different rumors about tariffs or discussions about tariffs, but in general from what we can tell we don't believe the tariffs will have a material impact on our business.
And I'll turn it turn it over to MS staff at the maybe explain a little more detail why that's the case.
Speaker Change: Hi, Barton this is Mustafa speaking look.
Speaker Change: While tariffs could have a broad impact on the industry in general.
Speaker Change: The impact on Roku will be minimal.
Speaker Change: Manufacturing of our first party products is already diversified around the world. So we are not really overly impacted by a single country concentration for example, China concentration.
Speaker Change: And also we believe that.
Speaker Change: Higher on TV price actually may need to be raised to compensate for tariffs impact.
Speaker Change: This actually could move some customers into the value segment, where we're really strongly positioned so we may see some benefit from the tariffs in general.
Dan Burton: Yes. This is Dan Burton I, just wanted to add to what Mr. <unk> said from a device.
Speaker Change: <unk> like any impact on our gross margin related to tariffs, we believe would be immaterial and we don't expect any impact on the platform revenue side of the business to your point on certain verticals, there's always that possibility that certain verticals are impacted in general, but again, we're very well diversified Charlie talked a lot about that earlier so.
Speaker Change: We don't see any issue on the platform side right now as it relates to tariffs.
Speaker Change: Thank you guys.
Speaker Change: Thank you I would now like to hand, the call back over to Anthony Wood for closing remarks.
Anthony Wood: I'd just like to thank our employees customers.
Anthony Wood: <unk> and content partners and thank you for listening.
Anthony Wood: This concludes today's conference call. Thank you for your participation you may now disconnect.
Anthony Wood: Okay.
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