Q3 2024 Earnings Summary
- Strong Platform Revenue Growth and Positive Outlook for 2025: Roku's management expressed confidence in continued platform revenue growth into 2025. Despite challenges in the Media & Entertainment (M&E) sector, Roku has experienced strong growth in brand advertising and deeper integrations with third-party platforms like The Trade Desk. They are leveraging innovative ad products and expect strong growth in platform revenue moving forward.
- The Roku Channel's Impressive Growth and Home Screen Innovation: The Roku Channel has been the #3 app on their platform by both reach and engagement for the third straight quarter, with streaming hours up 80% year-over-year. This significant growth is attributed to Roku's position as the lead into TV and their focus on home screen innovation, including the addition of new vertical ad categories and video ads on the home screen. This enhances monetization opportunities and drives user engagement.
- International Expansion Driving Future Growth: Roku is experiencing strong growth in international markets, particularly in Mexico and Canada, where the Roku OS is the #1 selling TV OS. They have over 85 million streaming households globally and expect to reach 100 million streaming households in the next 12 to 18 months. As they build scale and engagement in these markets, they anticipate significant future monetization opportunities.
- Stagnant ARPU due to lower-monetizing international markets: Roku's Average Revenue Per User (ARPU) remained flat at $41.10, as growth in international markets diluted overall ARPU. International ARPU is currently a fraction of the U.S. ARPU, and these markets are at different stages of monetization. This could limit revenue growth despite increasing streaming households.
- Ongoing challenges in the Media and Entertainment (M&E) sector impacting margins: The M&E sector is expected to continue facing challenges and is becoming a smaller percentage of Roku's platform revenue. Since M&E has historically been a higher-margin segment, its decline could negatively impact platform margins, despite growth in brand advertising.
- Dependence on non-recurring revenue factors raises concerns for future growth: Roku benefited from one-time factors such as $12 million in 606 accounting adjustments and strong political advertising spend in Q3, which may not recur in future quarters. The absence of these factors could lead to a deceleration in revenue growth in 2025.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Total Net Revenue | Q3 2024 | $1.01 billion, 11% YoY | no current guidance | no current guidance |
Gross Profit | Q3 2024 | $440 million | no current guidance | no current guidance |
Gross Margin | Q3 2024 | 44% | no current guidance | no current guidance |
Adjusted EBITDA | Q3 2024 | $45 million | no current guidance | no current guidance |
Platform Revenue Growth | Q3 2024 | 9% YoY | no current guidance | no current guidance |
Platform Margin | Q3 2024 | 53% | no current guidance | no current guidance |
Device Revenue Growth | Q3 2024 | 24% YoY | no current guidance | no current guidance |
Device Margins | Q3 2024 | negative low double digits | no current guidance | no current guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Platform revenue growth | • Q4 2023: Grew 13% y/y, driven by streaming services distribution (SSD) and advertising. • Q1 2024: 19% y/y growth to $755M, strong SSD but facing tough comps. • Q2 2024: 11% y/y growth to $824M, expecting slight deceleration for Q3. | • Q3 2024: Grew 15% y/y to $908M, supported by SSD and political spend. Expects 14% y/y in Q4. | Recurring. Growth remains steady; brand advertising offsets M&E softness. Slight caution into Q4. |
Media & Entertainment sector challenges | • Cited in Q4 2023, Q1 & Q2 2024 as pressured vertical due to lower marketing budgets, normalization post-pandemic, and cost-focused streaming services. | • Q3 2024: Still underpressure; M&E not growing at brand ads’ pace, but overall ad business remains resilient. | Recurring. Sentiment unchanged; M&E spending lags, but brand ads accelerate. |
Advertising expansions and programmatic capabilities | • Q4 2023, Q1 & Q2 2024: Expansion of third-party DSP integrations, new ad products (home screen units, marquee video ads), and strong programmatic partnerships (The Trade Desk, UID2). | • Q3 2024: Deeper integration with The Trade Desk, emphasis on no margin degradation from programmatic, testing new video ad units on home screen. | Recurring. Positive sentiment; ongoing expansions strengthen ad demand. |
International expansion | • Q4 2023: Growing active accounts internationally, #1 TV OS in Mexico and U.S., monetization lagging. • Q1 2024: Focus on select regions (Americas, U.K.), building scale first, then monetizing. • Q2 2024: Expects continued scale growth. | • Q3 2024: Focus countries remain the Americas & U.K., #1 streaming platform in Mexico, Canada, U.S. Monetization follows scale. | Recurring. Positive but staggered sentiment; scaling user base first, ARPU improvements to come. |
ARPU stagnation | • Q4 2023: Down 4% y/y to $39.92, international mix drags. • Q1 2024: Flat at $40.65 y/y, U.S. ARPU up, but diluted by international share. • Q2 2024: Flat y/y at $4.68, again citing int’l mix. | • Q3 2024: $41.10, flat y/y, U.S. ARPU rises while international dampens overall figure. | Recurring. Neutral sentiment; ARPU stable at the aggregate level but mixed by region. |
Device/hardware margins | • Q4 2023: Negative 13% but improved y/y. • Q1 2024: Negative 5%, expected to fall to negative low teens in Q2. • Q2 2024: Negative 11%, continuing investments in TV program. | • Q3 2024: Negative 8%, projecting negative high teens for Q4. | Recurring. Margins remain negative; near-term investment with expectation of future scale benefits. |
Home screen innovation | • Q4 2023, Q1 & Q2 2024: Emphasis on marquee video ads, curated zones (Sports, Food), and the home screen as key monetization asset. | • Q3 2024: Beta-testing video ads in marquee unit, expanding sponsorable zones like food/home. | Recurring. Highly positive sentiment; a central growth lever for user engagement and ad sales. |
The Roku Channel's growth | • Q4 2023: Not specifically detailed. • Q1 2024: Became #3 app on platform, 66% y/y growth. • Q2 2024: Gaining over 75% y/y. | • Q3 2024: Remains #3 app, streaming hours up 80% y/y, boosted by Olympic Zone and partnerships. | Recurring. Strong engagement; continues to expand reach and ad opportunities. |
Non-recurring revenue (ASC 606) factors | • Q4 2023: No mention. • Q1 2024: Positive 606 adjustments in prior year, shaping tough comps. • Q2 2024: $12M adjustments from subscription price changes. | • Q3 2024: Another $12M 606 adjustment, impacting year-over-year comparisons. | Recurring. Continued effect on quarterly comps, driven by prior subscription price actions. |
Competition from ad-supported streaming tiers | • Q4 2023: Viewed as industry maturation, beneficial for Roku as lead-in to TV. | • Q3 2024: No mention. | Previously positive for Roku; not referenced this quarter. |
Retail partnership risks | • Q4 2023: Addressed Walmart rumor, expressed confidence in strong retail relationships. Q2 2024: Focused on retail expansion (not specifically risk). | • Q3 2024: No mention. | Mentioned previously but no current update; likely stable. |
-
Platform Revenue Growth and 2025 Outlook
Q: How will platform revenue growth trend into 2025?
A: Management stated that platform revenue growth exceeded expectations in 2024, particularly in the second half of the year, with a 15% year-over-year increase in Q3. They anticipate strong growth in 2025 but cautioned that it may not accelerate from current run rates in all quarters due to factors like comping price increases in subscription services and the absence of significant political ad spend expected in 2025. Further guidance will be provided in upcoming quarters. -
OpEx and Investment Plans for 2025
Q: How will operating expenses evolve to support growth next year?
A: Operating expenses are expected to be slightly down year-over-year in 2024, excluding impairment and restructuring charges. For 2025, management anticipates a modest increase in OpEx as they plan to make incremental investments in areas like monetization initiatives and international expansion, while ensuring they gain leverage and maintain cost discipline. -
Impact of Trade Desk Integration and Programmatic Advertising
Q: What is the expected benefit from the Trade Desk partnership?
A: The integration with the Trade Desk began in mid-August and is already showing a positive impact. It's expanding the number and types of advertisers and helping Roku grow share of wallet. Management views programmatic integration as a significant opportunity to serve the entire demand curve at multiple price points without sacrificing margins. -
Changes in Key Performance Metrics (KPIs)
Q: Why remove streaming households and ARPU from KPIs?
A: Management explained that with a significant portion of streaming household growth coming from international markets that are in different stages of monetization, these metrics are no longer representative of platform revenue growth. Total ARPU has been flat due to the mix of lower-ARPU international users, obscuring the true performance in the U.S.. They will now focus on metrics like streaming hours, platform revenue, adjusted EBITDA, and free cash flow. -
Home Screen Monetization Opportunities
Q: Which advertising initiative will drive growth more next year, home screen video or partnerships?
A: Both are seen as significant opportunities. The home screen video ads are considered an enormous opportunity, with the Video Marquee unit moving from beta to general availability and receiving positive client feedback. Innovations on the home screen are expected to enhance monetization through new ad units and sponsorships. -
Margin Outlook and M&E Impact
Q: How will margins be affected by M&E challenges and growth initiatives?
A: Platform gross margins are expected to remain relatively consistent at around 52% in 2025, excluding the impact of accounting adjustments. While Media & Entertainment (M&E) spend is expected to remain challenged, Roku has been optimizing brand advertising margins to offset this impact. The focus on growing non-M&E advertising and diversifying revenue streams is helping to maintain margins. -
International Expansion and its Impact on Growth
Q: How is international expansion contributing to growth?
A: Roku is growing streaming households in international markets like Mexico, Canada, and the U.K., though these markets are at different stages of monetization. Management is confident about reaching 100 million streaming households in the next 12 to 18 months. While ARPU in international markets is currently lower, the focus is on building scale and engagement to drive future monetization. -
Self-Service Ad Platform and Generative AI
Q: Are you integrating generative AI into the self-service ad platform?
A: Management is exploring ways to integrate generative AI to enhance the self-service offering and drive platform revenue. The recently launched Roku Ad Manager is a self-service platform targeting small and medium-sized businesses, and integrating AI is seen as a significant opportunity to improve advertiser experience and effectiveness. -
Roku-Branded TVs and Impact on Partnerships
Q: How are Roku-branded TVs performing, and what's the impact on partners?
A: Roku-branded TVs are doing very well, with positive user feedback and expansion into more retailers. The introduction of Roku TVs has not negatively impacted partner-branded TVs; instead, Roku shares technology and learnings with partners, enhancing the overall ecosystem. Roku-branded TVs remain a small portion of overall distribution, with partners continuing to be the main distributors. -
The Roku Channel Performance and Distribution
Q: Have you considered distributing The Roku Channel on non-Roku devices?
A: The Roku Channel is the #3 app on the Roku platform and is performing strongly. While it is available on other platforms like Samsung and Amazon Fire TV, the economics are more favorable on Roku's own platform. The focus remains on leveraging Roku's position as the leading streaming platform to drive viewership and monetization of The Roku Channel.
Research analysts covering ROKU.