Posted by Roku
Roku had an outstanding first quarter, delivering better-than-expected financial results with strong business momentum. As a result, we are increasing our financial outlook for 2019. The strength of our brand, the scale of our active account base, the advantages of our purpose-built streaming OS, and the engagement of our users make Roku an increasingly important partner for content publishers, advertisers and TV manufacturers. The shift to streaming and away from linear TV and legacy distribution platforms has enormous momentum. We estimate that in Q1 2019 more than one-in-three smart TVs sold in the U.S. were Roku TVs, making the Roku OS the #1 selling smart TV OS in the U.S.
A few Q1 2019 highlights:
Total net revenue grew 51% YoY to $206.7 million;
• Platform revenue increased 79% YoY to $134.2 million;
• Gross profit rose 60% YoY to $100.9 million;
• Active accounts were up 2.0 million incrementally vs. Q4 2018 to 29.1 million;
• Streaming hours increased 1.6 billion hours vs. Q4 2018 to 8.9 billion;
• Average Revenue Per User (ARPU) was $19.06 on a TTM basis, up $1.11 vs. Q4, and up 27% YoY;
• Roku monetized video ad impressions again more than doubled YoY in the quarter.
Q1 results exceeded our outlook for revenue, gross profit and adjusted EBITDA, driven by strong operational execution, robust active account growth and the strengthening shift to streaming.
We saw strong Q1 sales for both Roku TVs and players. We estimate that Roku TVs sold by our OEM partners accounted for more than one-in-three smart TVs sold in the U.S. in Q1, as we gained significant market share. Meanwhile, Q1 player unit sales were up 21% year-over-year. Our strategy of offering players at appealing prices to drive account growth led to a 4% year-over-year drop in player ASPs.
Roku platform engagement continues to strengthen, as more content shifts to streaming and more consumers cut the cord. Per household streaming grew to an average of roughly 3.5 hours a day per active account, representing nearly half of average U.S. per-household daily viewing. Although streaming hour growth does not correlate directly to ARPU on a period-by-period basis, increased user engagement reflects our popularity and brand affinity and should drive higher monetization over the long run.
Q1 platform revenue grew 79% year-over-year, driven by broad-based strength across SVOD and TVOD distribution revenue shares, audience development revenue and video advertising sales. Q1 monetized video ad impressions across the platform more than doubled, and we expect that trend to continue throughout 2019.
We also had a strong quarter for The Roku Channel, which now offers access to more than 10,000 free ad-supported movies and TV episodes and more than two dozen live streaming channels. In Q1, we added Premium Subscriptions to The Roku Channel, which now offers more than 30 premium content services, including HBO, SHOWTIME, EPIX, and STARZ. We’re excited about the growth of The Roku Channel, which offers ad-supported content, live programming, and Premium Subscriptions all in a friendly, consistent UI, with a single login and one bill.
We ended the quarter with $290 million of cash, cash equivalents, restricted cash and short-term investments which included net proceeds of $98 million from the sale of Class A common stock in at-the-market offering transactions during the quarter.
Accelerating Industry Trends: The Biggest Networks and Talent are Moving to Streaming
Viewers and content publishers are shifting to streaming and away from linear TV and legacy pay TV services. U.S. cable and satellite TV companies lost more than 3 million subscribers last year – and they lost more than 1 million more in Q1 2019. Total live linear TV viewing hours among 18 to 34 year-olds is down more than 50% since 2010. And giants like Disney, Apple, AT&T, Viacom, Comcast and others are creating new streaming services, spending billions of dollars to create and license original content. For the first time, in 2018, Netflix received more Emmy nominations than any other content producer and tied HBO with 23 Emmys. A recent analysis by Pivotal Research Group estimates that streaming now makes up 1-in-6 TV hours among 18 to 49 year-olds.
Lost in the headlines is that all the new “direct to consumer” services, whether SVOD or AVOD need streaming platforms like Roku to actually reach their desired TV audiences. As the TV streaming market evolves, we see subscription-based and adsupported business models co-existing and attracting substantial consumer audiences, with revenue participation for Roku in both models. We believe the expanding roster of direct-to-consumer services makes the Roku platform even more appealing to consumers seeking increased content choice and control.
Roku provides content creators access to a vast and highly engaged audience, as well as sophisticated audience development tools to help content creators attract and retain viewers. Using machine learning, we help content partners target new audiences that are more likely to subscribe to their services. Roku participates economically in the growth of SVODs through Roku Q1 2019 Shareholder Letter 3 revenue-sharing, interactive display ads on the home screen, promotions in the new account sign-up flow, branded buttons on remotes and consumer promotion campaigns.
While SVOD launches have attracted the most attention, the AVOD sector also continues to grow. In recent months, Viacom acquired Pluto, and Amazon and others have expanded their free ad-supported content offerings. The expanded interest in AVOD raises the profile of the streaming advertising opportunity, benefitting Roku and the ecosystem.
While traditional linear TV ads still make up the bulk of TV ad budgets, TV advertisers are beginning to commit more ad budgets to OTT, and we expect this trend to gain even more momentum and eventually catch up with the shift in viewing behavior towards OTT. Roku accesses AVOD inventory through content distribution agreements that provide Roku with a defined split of available inventory (or video ad impressions), through access to inventory at pre-negotiated CPM rates or through aggregation points like The Roku Channel where we control 100% of the ad inventory.
Roku’s Brand Strength
Our brand strength reflects our commitment to delivering compelling, high-value user experience. Survey data shows that roughly 60% of consumers who buy Roku TVs say that the Roku brand was an important factor when selecting a smart TV. Meanwhile, brand awareness and engagement of The Roku Channel continues to grow. Roughly 40% of new users surveyed said access to The Roku Channel positively influenced their purchase decision.
The Roku brand also resonates well with retailers. We saw Roku player growth accelerate throughout 2018, and we’re seeing continued very rapid growth from Roku TVs in 2019.
Roku is the leading TV streaming platform for cord cutters. We estimate that more than half of our active accounts are “cordcutters” or “cord-nevers.” According to eMarketer, Roku’s share of cord cutters increased to 45% this year from 37% in 2018. Consumers continue to look for value and choice, and as a neutral platform we continue to capture a greater share of users seeking to complement premium subscription services with free ad-supported content. In a recent customer survey of Roku cord-cutters, 98% said they would never go back to a traditional pay TV package. This trend further reinforces our position with advertisers who are looking for unduplicated incremental reach at scale.
The Power of the Roku Platform
As a TV streaming pioneer, Roku has developed a unique platform that connects millions of users to the streaming content they love, enables content publishers to build and monetize large audiences, and provides advertisers with unique capabilities to engage consumers. We derive fundamental advantages from continually building and extending the Roku platform:
- Roku OS purpose-built for TV streaming. Roku OS is purpose-built to manage TV streaming, integrating our streaming software, APIs, user interface, advertising technology stack, billing services and data insight tools. We continue to invest significantly in the Roku OS, and we believe it is unmatched by other platforms.
- Delivering hard to reach unduplicated OTT audience. Our ad platform helps TV advertisers reach audiences that are increasingly unavailable through traditional TV advertising. Our ability to deliver unduplicated incremental reach is unique to the ad industry and great for advertisers. With the Roku platform, advertisers can focus on reaching their targeted audience instead of guessing who might be watching a particular movie or show. Most channels on the platform do not have the individual scale or reach to attract the attention of large advertisers, but by buying ads across the platform, they can achieve the scale they seek.
- Powerful data analytics engine. Users have a direct relationship with Roku. We provide their TV streaming home screen, billing services and content recommendations. We gain detailed insights about our users and their behavior on our platform. Our first-party data enables us to develop actionable insights to improve our user experience, as well as to enable our content publishers and advertisers to find relevant users and engage them.
- Neutral OTT platform. We are a neutral OTT platform, making us an attractive partner. We do not focus on competing with content publishers on our platform, but instead, look to partner with publishers to build their audiences and maximize our mutual success. Unlike rival platforms, we have not developed original programming and do not have our own subscription service or video on-demand store. Nor do we compete directly with our retailers or our TV brand partners. We also endeavor to build trust with our users by providing unbiased search results and recommendations.
- Ability to power TV streaming at low cost. The Roku OS is designed for exceptional performance using relatively low-cost hardware. This approach enables us to drive account growth by offering Roku players at great value to consumers. We also believe we will be able to continue to drive active account growth from our TV brand partnerships. The low bill of materials required to run the Roku OS enables our TV brand license partners to build smart TVs using our operating system that are more competitively priced. As smart TVs take over most of the overall TV installed base over time, we believe we can power a very large portion of TVs based on our unique solution for TV brands.
For 2019, we remain confident in our outlook for reaching over $1 billion in revenue, with our raised outlook representing roughly 40% year-over-year growth at the midpoint, up from 36% year-over-year in our prior outlook. Based on the continued strength of our Platform business, we now expect Platform revenue to represent roughly two-thirds of total revenue. We are raising our total gross profit outlook to roughly $470 million, up from roughly $453 million previously. We are still focused on investing in our business by managing the business to roughly EBITDA break-even in 2019, but with Q1 upside, we are raising our full year adjusted EBITDA outlook to a range of $10 million to $20 million.
Our Q2 outlook calls for 42% year-over-year revenue growth to nearly $223 million at the midpoint. Gross profit of roughly $101 million reflects continued strength of the Platform business. We anticipate sequential increases in operating expenses in Q2 and beyond from our investments in talent, product development, and the impact of a recently signed additional lease. As a result, we expect adjusted EBITDA loss to be roughly $7.5 million in Q2 at the midpoint.
Roku continues to execute well in a rapidly evolving marketplace that offers new opportunities to fuel our growth. As leading content companies continue to shift their focus to streaming, Roku’s purpose-built TV streaming OS is uniquely positioned to help them build, engage, retain and monetize OTT audiences. Our large and rapidly growing audience, rich proprietary data and powerful OS allow us to deliver more effective, targeted and measurable viewing and advertising along with unduplicated incremental reach. We are excited to bring the benefits of streaming to millions of customers today and many millions more in the years ahead.―TV Veopar Journal Bureau