Roku, Inc.

capitalize on the shift. That's the best news. Over the past couple of years, we've focused on building our programmatic capabilities and that investment is absolutely paying off. In an environment like this that demands agility and programmatic advertising is gaining share because I think, Cory, most of all, it offers the flexibility and performance that advertisers need and that enables them to launch their campaigns quickly and adjust in real time. So in the near term, we expect some of the high touch guaranteed business to be delayed or possibly scaled back in favor of more flexible, non-guaranteed programmatic buys but this trend really aligns well with Roku's strategic direction and our focus on programmatic excellence.

Thank you. One moment for our next question.

Our next question comes from Brett Navin with Bank of America. Your line is open.

Thanks for taking the question. I guess just as a follow-up to your comments there, I mean, it sounds like some of the more idiosyncratic drivers are able to offset maybe some macro overall weakness and I guess I'm just trying to think through how much of buffer do you still feel like you have with some of these idiosyncratic drivers? Should macro trends deteriorate a little further going forward? Thanks so much.

Hey, Brent, Dan will take that question.

Yeah, thanks for the question. Yeah, I know where you're going with this Brent and I'll just say that, as I said earlier, we've seen a shift. Charlie talked about a shift from guaranteed to non-guaranteed and that actually has been favorable to us in terms of driving more volume our way and so we see positives in that. We do have, we have a lot of initiatives. When we gave our guide last quarter, we talked about a lot of initiatives. We have a lot of initiatives going on in the subscription and in the advertising activities. We announced, we've talked a lot about advertising and new products and the new initiatives, the growth of our supply and now we're talking a lot more about subscriptions with the acquisition of Friendly and many more initiatives we have yet to announce. So I think some of these initiatives, we're gonna keep doing new things and these initiatives are gonna play out over time and so I do think like in the back half of the year, if there is a greater macro environment, some of our new initiatives should help to offset that. Obviously, we're not immune if there is a major macro environment, recession type, especially specifically in the ad market, but we also have tremendous secular tailwinds as the market continues to shift from linear to digital and now the shift that Charlie just talked about from guaranteed to non-guaranteed, we're also very well positioned. One thing I'll just add on this is, advertisers are asking more for ROI and measurement. That is a space we play very well in given all the initiatives we have to increase demand to our platform because we have the supply and increase our ability to measure that demand. These are positive tailwinds for us and so there's a lot of positives going on now and there'll be more that we discuss in the future.

Great, thank you so much.

One moment for our next question. Our next question comes from Sally Carzio with Kettenball Research, your line is open.

Thank you very much, good afternoon. Charlie, I think I have a question for you and it's about programmatic and the whole transition you're going through. What's the best way for us to think about the contribution of programmatic to platform revenue growth? Is this revenue that entirely incremental or is it some inventory that was previously sold direct and now executed programmatic so there's some cannibalization going on? And then programmatic guaranteed and open transitioning to open programmatic bidable, the same question, will it be accessing a completely incremental budgets or there is some offset that you're losing in direct? Thank you.

Thanks, Vasili, this is Charlie. It's a really good question and the headline is that our multi-year push to diversify demand is absolutely working. Some of the programmatic revenue we're seeing is clearly incremental, especially what we're seeing through our platform partnerships, that's what we call our channel sales business, that's entirely net new. But overall, it is a mix. Many enterprise and independent clients who previously bought Roku directly through IOs or insertion orders are now transacting programatically, particularly via programmatic guarantees, as you asked about, Vasili. One way to step back and think about it that might be helpful is to think of programmatic not as a buying category, but as a method of execution. It's really how advertisers choose to execute. Even just by allowing more buyers to use their preferred DSP, we're allowing them easier access to our inventory inside their broader DSP-driven campaign. We're making it easier for them to buy from us and that's even the case, by the way, when the business is sold directly by our sales team. Some of the advertisers who previously bought us directly, now they're using programmatic pipes and the clearest example of true incrementality comes from small and medium-sized businesses using our self-service product called Roku Ads Manager. Now, it's early days, but these are DTC brands, mobile app marketers and local advertisers and all those are net new to the platform. So, Vasili, at the heart of your question is a range of new and expanding partnerships, many of them truly incremental. Our strategy to diversify demand and meet advertisers where they wish to transact, our ability to prove performance through our 100% authenticated identity, our scale, the unique ad units we talk a lot about and our data interoperability and our investment in tools and measurement. All of this is helping our partners, particularly as they invest in data and they match their data with Roku's high fidelity signals. So, all of it's unlocking new revenue, it's deepening existing relationships as well and it's strengthening, I think, our position as the most performant and easiest to work with CTV platform.

Thank you very much.

One moment for our next question. Our next question comes from Justin Patterson with KeyBank, your line is open.

Great, thanks for

taking the question.

Could you talk more about the significance of Roku channel becoming the number two app on your platform in the US? How does that change your conversation with content providers just given that reach? And at the same time, how does that change the timeframe to really do deeper integrations with more DSPs? Since it seems like you've got a lot of supply there, that needs to be filled, thank you.

Hey Justin, this is Anthony, I'll start and then turn this over to Charlie. We have added maturity access across our entire platform. The Roku channel is part of it, it's obviously an important part of it. Like you mentioned, it's the number two app on the platform now by engagement. Globally, the Roku channel engagement grew 84% year over year. So, I mean, it's a powerful asset to have access to that large amount of inventory, engagement and reach. And that is a powerful asset for us. So, we're gonna continue to lean into that. But I'll let Charlie talk more about your question.

Hey Justin, I appreciate the question about the relationship with content providers. You know, we have an unmatched scale. We talk a lot about being the lead into television. And if you think about it, before anyone makes a choice about what they're watching, you know, we have a home screen that reaches households with over 125 million people in it every day, almost Super Bowl size ratings every day. And so, as content providers, they absolutely look at us for unmatched scale and to provide audience that guides people into their content. And then from our position, we get to root for all of television and really use our unique assets, our home screen assets to drive engagement. So, there's a really symbiotic relationship. And as they move toward performance and really have to watch every marketing dollar, as Dan said earlier, you know, we prove performance and we've invested in measurement and other tools that really make us very good at driving engagement, retention and subscription. So, that's the content provider side. In terms of what it does for the DSPs, we talk a lot about being able to meet advertisers' demands at every price point and all up and down the demand curve, if you will. And a great example of that, at the very top of that are, you know, our home screen units, which are unique and of unique broad reach. And also the performance signals we can send to our clients. We also have, you know, live sports and major league baseball and a lot of focused originals and content destinations. If that's at the top of the pricing curve, you can say we have the tonnage you described and that meets a lot of advertisers' needs and allows us to be flexibly priced. And all the way down the demand curve, you might see us send fewer signals and less specific programming opportunities and we can participate at the low end of the market as well. So with respect to your question about timeframe and DSPs, you know, to be as big as we are as an AVOD platform and the fastest growing, it really is a powerful one-two punch. And then the programmatic execution allows us to be the most performant as well.

And I just wanna add one thing to that. I agree with everything Charlie said, but also that tier C becoming, you know, a top five, then a top three, and now number two on our platform is really does showcase the power of the platform that we have. We do not have, you know, we have great content in tier C, but we're not spending billions and billions of dollars in content. What we have is an amazing platform and an amazing OS that helps us drive engagement to tier C. And it really does show the power of the platform. And, you know, we're gonna use that to drive subscriptions. We're gonna use that to drive advertising. We're gonna use that to drive friendly. It's now part of Roku. Like there's a lot of positives that that home screen and the entire UI can do in tier C becoming number two and relatively short order showcases that power.

Thank you. One moment for our next question.

Our next question comes from Laura Martin with Needham. Your line is open.

There are great numbers, you guys. Congratulations, let's us do Anthony or I don't like this one, but let's start with the hard one. So I understand that friendly drives your subscription revenue. However, I would like you to tell us why you think the virtual MVPD market is a transitory market and it's going to zero. And then staying on friendly for this question, Carly, can you talk about how it aids your bundle of ad services and why it doesn't look backwards into the linear TV space, which I think Wall Street thinks is dying, rather than stick to streaming, which is the growth aspect of advertising. So that's my first one is on friendly.

Thanks. Hey Laura, it's Anthony. Thanks for that hard question. Yeah, well, I don't think it's that hard. I mean, so, you know, I agree that if you look at sort of cable subscriptions and their replication as virtual MVPDs that, you know, it's easy to think that and it's easy to believe that that's gonna not last as a bundle or as a market, you know, forever. But linear is a form of entertainment engagement that is very popular. And it's actually growing in popularity. On our platform, linear channels, sometimes people call them fast channels. You know, these are streaming linear channels. They're very popular and a huge form of engagement. There's a lot of people that like to just flip through the channel. And, you know, one way I can think about friendly is it's actually, it's a lot of brands that I think will stick around. Things like Lifetime, Hallmark, you know, A&E. Like these are brands that are popular. They have good content. And, you know, I don't think of them as a virtual MVPD. I think of them as linear channels that's in a paid tier that we can grow the paid tier of linear channels. And there's a, and linear channels are very popular in streaming as well. They're very popular in streaming. And they're very popular on our platform as well. And then I'll let Charlie answer your question about the bundle of ad services.

Yeah, thanks, Laura, for the question. I actually think Dan answered it in the last question, which is the power of our platform is staggering. You know, I'll answer this first as a programmer because I have the whole media business. So I've got the content side in that team and the ads team. And I look at the content team and the way they use the power of the platform to really elevate partners' content. And I think there are brands inside Friendly that will be elevated simply by being focused on by Roku. And that's exciting for us as programmers. And it allows us to do what we're here to do, which is root for all of television and provide a better lead in for it. So this is a good home for that bundle of services. And then on the ad side, you know, I actually think Friendly will benefit simply by being inside of our recommendation engines, being inside of our sales team. You know, both of these teams are so capable and able to elevate content that it's great to be able to do this for us alongside doing it for our partners.

I'd just like to quickly add on to that, that, you know, Friendly is growing and growing well. You know, we brought it in as a growth company and we do think that we can grow it faster. It also will be adjusted EBITDA margin accretive in its first full year for us.

Okay, my second one is on data. So Wall Street has decided that third party data is going to zero. And that first party data is basically the only thing that has most competitive advantage. You guys have world-class first party data, but you do not sell it independently to third parties, either to M&M, which would make easy sense because it's 80% margins, or even to iSpot Samba, to these guys that aggregate and actually make a living on selling CPV, let me call it on a smaller scale. So can you explain the logic of not bundling, really packaging your first party data for CPV and selling it to others for a revenue scale,

please? Yep, so Charlie, we'll take that.

Sure, Laura, first of all, I love the way you describe our data. You're absolutely right. We took a really unique approach to the upfronts this year. We spoke directly to each holding company. And the reason is, is because they are all solving unique problems for their clients that all come back to the same desired result, which is proving outcomes for businesses. And to have 100% authenticated audience, which Roku does, and to have unmatched scale the way we do with over half the broadband households, using Roku as their front door to television, it really is a differentiator. But I would step back and say, one of the terrific things about Roku writ large is that we still have more opportunities to exploit over time. But the way I think about our data relationships are this, which is we have a multi-billion dollar business and all the opportunity Dan and Anthony have been talking about on this call, and the best way to take care of our partners, which are the advertisers and the content companies inside of the media side of the business, is to make sure that we serve them and all the data that they're investing in, which is the missing part of your question, I think, is made only better and more powerful and the media more performant by matching it with our high fidelity signals. So for the short and probably the medium term, the best way for us to deploy the data is to create this remarkable differentiated platform that's growing as much as it is, and for us to hydrate their data with ours and improve outcomes for our customers. I talk a lot about how Roku has moved from building incrementality and we are now building fundamental, really the base of their performant businesses. And that's what I'm focused on, and I think that's the best use of our data.

This is Anthony again, I'll just add. Thank you very much. Sorry, I was just gonna say that, I mean, I think Charlie covered it, but just to be super clear about it, if you're an advertiser and you buy ads from Roku but you go through a third party DSP, those arrangements often have access to our data. I mean, those are targeting based on our data is part of those deals and it's part of the reasons advertisers wanna work with us. I'll also say though, like we understand the value of our data and there's a lot of activities going on to expand the way we monetize our data. We just haven't necessarily announced what they are or talk about them directly.

Thank you very much.

One moment for our next question. Our next question comes from Matt Thornton with FB Insecurities, your line is open. Hey,

good afternoon guys. I guess two if I could, we'll first want the housekeeping one probably for Dan. Friendly TV, is that assumed in full year or two queue guidance or would that be incremental? That's the first question. Second question, as we think about tariffs and the impact on the devices business and volumes and the balance of the year, I'm just kind of curious kind of what you're assuming for the balance of the year in guidance and tied to that. How quickly can you move sourcing production warehousing? I'm sure you've got lots of different scenarios kind of planned out, so I guess, is that something that can get moved in days or weeks or is that months or quarters once we get final clarity on the end tariff rates? Thanks guys.

Yeah, hi Matt. Thanks for the question. When we gave full year guidance in February, we assumed several initiatives that have not yet launched in both our subscriptions and advertising activities. We mentioned at the time or I mentioned at the time that we're giving a full year outlook grounded in the best information we had at the time. Friendly was one of the many initiatives we've been working on and we're excited to have them as part of Roku. We're very confident that we can leverage the power of our home screen and platform and grow friendly subscriptions even faster. Again, it's one of many initiatives that we had at the time. So yes, Friendly is included. We have, as Anthony said, we have many other initiatives that we look at when we provide guidance. And so again, we'll update you more as those initiatives launch. And as I also mentioned earlier, we do expect Friendly to be adjusted even to margin accretive in the first full year. I think I'll turn it over to Mustafa for the tariff question.

Yeah, hi Matt. This Mustafa, look, we have a diversified manufacturing strategy already in place. We manufacture in multiple countries with multiple factory partners. So that provides us quite a bit of agility and flexibility and helps mitigate the impact of the tariffs. And our teams are continuing to work on optimizing the overall manufacturing footprint. And as things change, they are ready to be able to move quickly from one place to another. So that's sort of a part of our plan and they can just work on that. Based on the current tariff structure that's in place, we do not anticipate a material change to our devices gross profit dollars for the full year. And at the same time, we already implemented some small price increases. So we're passing some of the cost to the consumers. And we're continuing to monitor the environment, remaining flexible in terms of price increases or price increases as well. Just wanna make sure we stay competitive, but at the same time, continue to monitor the demand environment. And the other point around the demand and then some mitigating factor for us that's on the positive side is how we actually distribute our rural cooperative system to consumers. Our OS distribution strategy has three pillars. We use our streaming players that are made and sold by us. We have our first part TVs also made and sold by us under the Roku brand. And then we have the third party TVs that are made and sold by our Roku TV licensing partners. So not all of the tariff mitigation or the impact is carried by Roku. Some of them are carried by and mitigated by our third party TV partners. But more importantly, in case the TV prices increase due to tariffs and the demand softens, our streaming players are actually a great way for consumers to upgrade and extend the life of their existing TVs at a much lower price point. We have great selection of streaming players and their price point ranges from $20 all the way to $99. So they are a great option alternative for the consumers to upgrade the streaming.

Hey, Matt, this is Anthony. I'll just add quickly, one possible outcome of tariffs is that the overall TV unit sales decline or decline, I don't think they'll decline a lot, but they might decline slightly. I just think it's important to note that's unlikely to hurt our market share. We're well positioned, much better positioned than others given our significant penetration in over half of US broadband households. Also, our scale is continuing to grow in terms of households and we're on track to achieve 100 million streaming households, a milestone we set

to achieve a couple calls ago. Thank you, one moment for our next question.

Our next question comes from James Hanley with Jeffreys. Your line is open.

Great, thanks for the question. Dan, can you just walk us through how we should be thinking about the revenue trajectory for platform growth just for the remainder of the year? I know you'll have the tough political comp in the second half, but just any other puts and takes that we should be considering?

Yeah, I mean, we gave the Q2 guide, we gave the full year guide. I think Q3 and Q4 will have probably, there'll be probably a smaller growth rate in Q4 simply because of the very large quarter we had in Q4 of last year with 25% and it was, I believe, 19% excluding political. But essentially, I think you're really asking what Q3 and Q4 looks like. And again, I think that we'll probably have a slight sequential step down in growth rate in Q4, but we'll see and we'll update you. Again, we have many initiatives that we're working on and we'll update you on that on Q3 and Q4 when we report our Q2 results. Great, and maybe just a couple more. One reminder, I think one thing I, sorry, there is probably one thing I should remind you of is we did have a lot of 606 adjustments in FY24 and actually Q2 was the largest of the 606 adjustments at just over 16 million. We also had a fairly large 606 adjustment in Q3 and a much smaller one in Q4. We had no 606 adjustments in Q1, as we said. We didn't expect to have, nor do we expect to have, nor does our guide imply any 606 adjustments for Q2 or the rest of this year. So we are comping, especially in Q2 and Q3, some 606 adjustments. As a matter of fact, if you back out 606 in Q2, we have the same growth rates in the platform business, very close to the same growth rate as we achieved in Q1. So it's very close to that 17% if you back out 606 in Q2.

Okay, yeah, great. Appreciate the extra detail. And maybe just one more, just on home screen. We'd just love to hear how you're thinking about the growth drivers outside of the M&E vertical. And then, just curious if there's any verticals you'd call out where you've seen traction and others that you're looking to expand into just on home screen. Thanks.

Sure, James, this is Anthony, I'll take that. So yeah, just to remind everyone, our initiatives, our strategy to grow platform revenue, one is grow our ad business. And a big part of that is integration with third party DSPs, really embracing them as partners and deepening our integration with them. Another is focusing on our subscription business, which we think has a lot of room to continue to grow. And then third is just overall arching to really lean into the Roku experience. Users start their TV experience every time they sit down to watch television with a Roku home screen. And then there's a lot of UI elements that are adjacent to the home screen, aren't exactly on the home screen. And we have an iconic, simple, powerful home screen that's very popular with our customers. And there's just a lot of ways to continue to use that, to drive both subscriptions, as well as engagement and ad reach. And for example, and it's definitely not just focused on M&E. I mean, that's how our ad business started with the M&E vertical and the ads on the home screen. But the home screen is these days, it used to drive a lot of businesses besides M&E. So for example, we added, not too long ago, we added a single new row to the home screen with recommendations. And we're seeing that drive, significant increases in subscription signups, as well as significant engagement. I mean, it's one of the reasons that the Roku channel grew 84% globally year over year in the quarter. So that's just one example. But there's lots of other things we're looking at and testing on the home screen. It's really an area that we haven't touched significantly over the last, you know, in a long time, in several years. We now have a team working on it. We're testing lots of different experiences in the home screen. And I think it's gonna continue, we're gonna continue to roll out changes as we test them and they test positive. And it's gonna have a material impact on our growth. And Charlie wants to add something.

Yeah, you know, and James, from the ad sales point of view, you know, I mentioned earlier that the home screen reaches 125 million, or households with 125 million people in it every day. That kind of reach is so unique that it obviously has been a great place for us to partner with advertisers and inherent in your question, you know, it works really well for M&E. But I think in the letter, we put a picture of what we call our Marquee Video Ad Unit. And that one was for Hellman's. We've seen a lot of people who are pushing toward performance utilize the home screen, especially Marquee Video, some of the takeovers. We recently had one for the Simpsons that got a lot of, you know, viral support and social chatter. It's really powerful. And we're seeing it well beyond the M&E vertical.

Great, appreciate it, thank

you. The Rokey, when we think about the home screen, we also think about the Rokey experience more broadly. And it includes experiences that are actually engaging in their own right, like Rokey City, for example, which is extremely popular. And we just keep adding new features and new promotions inside Rokey City and new features for people to watch.

One moment for our next question. Our next question comes from Stephen Call with Wells Fargo, your line is open.

Thank you. Dan, if we could maybe just dig in a little more to what you're talking about with the platform revenue growth. So thanks for that, Matt, I was kind of getting to the same place that Q2 looks a lot like Q1 underlying. If we think about the back half of the year and we take out both 606 and political, is it logical to assume some deceleration just as you start to comp some of the DSP integrations and other things that you started to do towards the end of 2024? Or do you think that that, you know, kind of teens growth rate is sustainable for a little longer? Because I know there's a lot of work that is still ongoing. So we'd just love to get kind of a sense of that underlying, you know, growth rate, maybe more for the medium term. And then the 51% platform margins for Q2, that's a little bit of a degradation from what we've seen historically. Not a lot, but a little bit. Is that just mixed because you're growing Avod so much faster than some of the other parts of the platform revenue or anything else we should think about in the margin mix at platform? Thank you.

Yeah, thanks. Thanks, Stephen, for the question. Let me take the second part of that question first on the 51% guide. And maybe I'll talk a little bit about the full year guide of 52%. And so in February, we mentioned platform gross margin would be 52 to 53%, which is roughly in line with our prior year margins when you exclude 606 adjustment in FY24. And within Q1 and into the first month of Q2, Charlie talked about this. We've seen a greater shift from the guaranteed to the non-guaranteed. And therefore, just much more on the programmatic side, given the uncertain macro environment. We view this as a positive as we're able to meet the advertiser along any point of the CPM demand curve. I mean, Charlie talked in detail about why the shift does have a positive impact on us as we're able to measure the higher ROIs, et cetera. But that mixed shift from guaranteed to non-guaranteed does have a modest impact on margins within our advertising and platform segment. That's why we're guiding to 52% for the full year. It's a very modest mix impact. We'll see if the non-guaranteed versus guaranteed stays where it's at now, or if it goes back to more, let's just say pre-macro environment levels in H2, that would have a slight positive impact on margins. But right now we're expecting that trend to stay where it's at, which is why we're seeing 52% margins. I've said it many times, I do believe that we can maintain and in fact grow our margins over time on a mix adjusted basis and within mix. Because we've got a lot of positive initiatives going on that can help margins as well as all the volume and increase in platform revenue that we discussed. To the first part of your question, I absolutely believe team growth rate is sustainable over the longer period of time. And I do believe that if you back out 606 and political, you'll see that growth rate in the back half of the year as well. The only caveat would be maybe Q4 is a slight deceleration because there was so much volume after political in the month of December, but that may happen again. And we're in a great position if it does happen again to take advantage of that given our supply. So even once you back out political and if you back out 606, you'll see that we are growing in that 15 ish percent range. And I firmly believe

that's sustainable. Next one. Hello, Michael, your line is open.

Thank you. Can you hear me? Yes, I can hear you. Are you guys there? Oh, great, thanks. Conrad, are you still there? We're still here. Go ahead. Go ahead.

Thank you. I just wanted to get an update on the Q4. So, Dan, I'm just wondering, in the fourth quarter letter, you thought you'd grow 12% this year and now you're saying it should be flat. So I know you've had a good start to the year, but so what's your view on just device demand over the year and why the flattening of the outlook versus where you were just a couple months ago?

This is Dan. I'll turn this over to Mustafa and Dan, but I'll just say overall, we're not focused on device revenue. We're focused on growth in Roku using households. And those come in large part from our partners, our TV partners, but also our own devices. But you can lower prices and sell more devices and get more households. So I'll let Dan talk about revenue, but it's really not something device revenue, but we're just not focused on that. We're focused on device unit sales, and especially through third party partners, and also growth, which results in growth in Roku households. That's our KPI.

Yeah, Anthony's absolutely right. And thanks for the question, Michael. We are not focused on device revenue. Device revenue now can be very lumpy because it's driven by our first party TVs, which we recognize revenue on, as opposed to our third party OEM based TVs, we don't recognize revenue on. Players, we've always recognized revenue on, and that is actually fairly steady for us. And we've got good margins on that, et cetera. But on the first party TVs, it can be very lumpy, depending on the quarter, depending on what our actual cell, what we call our cell is to the distributor. And so it's not something that we pay a ton of attention to. What we look at is our units, our market share in terms of units, and our streaming households, which are growing in all countries, including the US. We think it'll continue to grow in all countries, including the US. Anthony mentioned we're on track to hit 100 million streaming households. So we feel very good about that. And that's again, why we guide to platform revenue is because that is where we monetize those basically over 90 million streaming households that we currently have. So device revenue is just very difficult and very lumpy in the short term. And it's not something we particularly pay attention to. It's more about the unit volume that we ship.

Okay, thanks, Les.

Well, ladies and gentlemen, this does conclude the Q&A portion of today's conference. I'd like to turn the call back over to Anthony

for closing remarks. I'd just like to say thanks to our employees,

customers, advertisers, and content partners, and thank you for listening.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.