Q1 2024 Earnings Summary
- Roku expects to accelerate platform revenue growth in 2025 by focusing on three key opportunities: maximizing the Roku home screen, growing Roku billed subscriptions via Roku Pay, and expanding programmatic advertising capabilities. CEO Anthony Wood highlighted that the Roku home screen reaches U.S. households with nearly 120 million people daily, offering significant untapped monetization potential, including adding video ads to the home screen and integrating personalized content recommendations.
- The Roku Channel has become the #3 app on the platform by both reach and engagement, with engagement up 66% year-over-year, representing a strong opportunity for increased monetization. By enhancing programmatic advertising capabilities and expanding relationships with over 30 third-party DSP partners, Roku aims to close the gap between engagement and monetization on the Roku Channel.
- International expansion presents significant growth opportunities, as Roku is seeing stronger growth outside the U.S., including achieving a 40% market share for Roku TVs in Mexico. With a large number of broadband households outside the U.S., Roku's focus on scaling and engagement in international markets is expected to drive future growth, with monetization efforts such as launching the Roku Channel in Mexico underway.
- Roku's platform revenue growth is expected to slow down in Q2 2024, with guidance indicating very high single-digit growth rates inclusive of ASC 606 accounting adjustments. Excluding these adjustments, growth would be in the low double-digit range. This slowdown is due to challenging year-over-year comparisons and could raise concerns about sustaining platform growth momentum.
- Device gross margins are expected to decline further from negative 5% in Q1 to negative low teens in Q2, reflecting the continued expansion of the Roku-branded TV program. The devices segment remains unprofitable, and the company anticipates margins to remain at similar levels going forward, potentially impacting overall profitability.
- Average Revenue Per User (ARPU) was flat year-over-year, primarily due to an increasing share of streaming households in international markets where ARPU is lower. This mix shift suggests that growth in higher-ARPU regions like the U.S. may be slowing, potentially leading to pressures on total ARPU and monetization.
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Platform Revenue Growth Outlook
Q: What are the drivers of expected acceleration in platform revenue in 2025?
A: Anthony Wood highlighted three key areas for driving platform revenue growth in 2025: enhancing the Roku home screen, expanding programmatic ad capabilities, and growing Roku Pay subscriptions. They are focusing on making the home screen more engaging and monetizable, reaching households of nearly 120 million people daily, adding video ads, and integrating personalized content recommendations. Programmatic ad capabilities are being expanded with third-party platforms, and they are increasing expertise in-house. For Roku Pay, they are integrating SVOD content more throughout the platform to boost subscriptions. -
Operating Expenses Guidance
Q: How should we model operating expenses for the remainder of the year?
A: Dan Jedda explained they expect full-year operating expenses to grow in the low single digits off a base of approximately $2 billion, excluding the prior year's impairment and restructuring charges. While H2 OpEx will be higher due to seasonality in sales and marketing, overall OpEx growth will remain low. -
Device Margins
Q: Why are device margins expected to weaken from Q1 to Q2?
A: Dan Jedda noted that the sequential change in device margins is due to the ramp-up of Roku-branded TVs, which initially have lower margins. As they scale and improve cost structures, device margins are expected to improve over time. They anticipate margins similar to Q2 levels in the near term as they grow this program. -
ARPU Trends
Q: How should we think about ARPU trends going forward?
A: Dan Jedda stated that ARPU was flat year-over-year due to the mix shift towards international markets with lower ARPU. However, U.S. ARPU increased on a trailing 12-month basis. As they continue to monetize international markets like Mexico, Canada, the U.K., and Germany, overall ARPU should improve over time. -
Profitability and Cash Flow
Q: How are you thinking about sustained levels of profitability and free cash flow?
A: Management is confident about sustaining and growing adjusted EBITDA and free cash flow. They have had three straight quarters of positive adjusted EBITDA and guided to $30 million for Q1. Being CapEx-light, adjusted EBITDA is a good proxy for free cash flow, and they expect both to continue growing. They also implemented a net share settlement to offset dilution, reducing share issuance by one-third. -
Home Screen Evolution
Q: What's the strategy behind evolving the home screen and its impact on monetization?
A: Anthony Wood plans to evolve the iconic home screen while maintaining its differentiation. They aim to enhance user experience and increase monetization by integrating content recommendations, adding video ads, and introducing new experiences like the sports experience. The goal is to balance user engagement with revenue generation without transforming the home screen into just content recommendations. -
Active Account Growth and International Expansion
Q: Where do you see more active account growth, U.S. or international markets?
A: Anthony Wood sees stronger growth outside the U.S. but believes there's still room for growth domestically. They are focusing on specific international markets like Mexico, where they achieved 40% market share for TVs, as well as Canada, Brazil, and the U.K. They are seeing great progress in these countries and plan to add more over time. -
Programmatic Advertising and DSPs
Q: What progress have you made with third-party DSPs and programmatic advertising?
A: Charlie Collier stated they have expanded relationships with over 30 partners, including notable DSPs and others like Instacart and Cox Auto. This strategic pivot towards an open ecosystem is increasing programmatic ad spend as a percentage of total video investment. They are committed to flexibility and believe this will be key to reaccelerating platform revenue growth. -
Sports Content Strategy
Q: Does acquiring sports rights directly make sense for Roku?
A: Anthony Wood indicated that, while they don't comment on rumors, the primary focus is helping viewers find sports content across streaming services. They see the main opportunity as being the go-to platform for discovering sports events and monetizing that experience, rather than acquiring rights directly. They also produce some content like The Rich Eisen Show and integrate it into the sports zone. -
Advertising Trends
Q: What are you seeing in terms of macro advertising trends and SMB advertiser initiatives?
A: Charlie Collier mentioned they are focusing on diversifying demand across all verticals, including small and medium-sized businesses. The expansion of programmatic advertising with third-party DSPs is helping increase diversity of advertisers. They believe this focus will contribute to reaccelerating platform revenue growth into 2025 and beyond.
Research analysts covering ROKU.