Roku 1st Quarter Results

Investment Analysis Clubs Saul’s Investing Discussions
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-Very strong Quarter from Roku. Not surprising with the major slowdown in ad spend last year. Advertisers continued to follow audiences and move budgets into streaming - Roku’s monetized video ad impressions more than doubled year-over-year. They are expecting tougher comps in the second half of 2021.

Q1 2021 Highlights

• Total net revenue grew 79% year-over-year (YoY) to $574.2 million;
• Platform revenue increased 101% YoY to $466.5 million;
• Gross profit was up 132% YoY to $326.8 million;
• Roku added 2.4 million incremental Active Accounts in Q1 2021 to reach 53.6 million;
• Streaming Hours increased by 1.4 billion hours over last quarter to 18.3 billion;
• Average Revenue Per User (ARPU) grew to $32.14 (trailing 12-month basis), up 32% YoY;
• Raised approximately $1 billion through an At-The-Market (ATM) stock offering

Strong Outlook

“Our Q2 outlook is for robust growth with total net revenue of $615 million at the midpoint (up 73% year-over-year) and total gross profit of $300 million at the midpoint (up 104% year-over-year). Strong gross profit grow this expected to outpace operating expense (OPEX) growth, resulting in Q2 Adjusted EBITDA of $65 million at the midpoint.”

Shareholder Letter:

https://ir.roku.com/static-files/8233f1fa-0263-4bb5-adb4-f05…

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Roku’s earning report is eye blowing! It’s definitely good news for Roku’s share holders that their revenue growth in short term seems pretty promising despite the headwind from COVID-recovery. But what I’m impressed by the most from their earning report is that they improved their gross margin to 56.9%!!! This is almost 1000bps improvements sequentially from 47% in Q4 last year!!!

I’m really curious to see what led to that improvement and whether this new level of gross margin can sustain.

Cheers,
Lufy

Long Roku 5%

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I’m really curious to see what led to that improvement and whether this new level of gross margin can sustain

Believe it is a function of fact that their software (platform) revenue has been, and continues to, grow faster than lower-margin hardware business.

Related to Roku and CTV in general, I thought this was an interesting article, and of MGNI, TTD, and ROKU, I took the ramifications of the article to mean that ROKU has a bit more of a buffer against things like Apple changing privacy terms or Google doing away with cookies.

In short, as CTV grows, Roku can get cuts of subscriptions and utilize their internal (acquired) DSP to monetize ads on their platform.

Whereas MGNI and TTD still need Netflix, Disney, HBOMax, and Amazon to offer an ad-based model in order for them to make any money off of those entities. In theory, ROKU benefits either way.

I think ROKU is pricey, but I took a flyer yesterday and added a bit today, as I think it should bounce. The good ER helps.

MGNI doesn’t have the same level of growth and stock grew too much in 2020 for me to think $31 is a “bargain” so I stayed away. I really want back in on TTD, but until/unless it falls into the $400s, I don’t think I can justify doing it.

https://www.adexchanger.com/tv-2/programmatic-meet-ctv-ad-te…

"DSP-traded CTV inventory will account for just $9.5 billion in advertising spend in 2021, according to Jounce Media, which represents a small piece of the TV advertising market. Meanwhile, hand-sold broadcast and CTV will total $142.9 billion.

Finding inventory to represent (if you’re an SSP) or buy (if you’re a DSP) can be tricky.

“The majority of the premium inventory is ending up in walled gardens, either controlled by the TV networks or Roku and Hulu,” said Jamie Power, chief data officer of Cadent, an addressable TV platform."

Doom

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It seems weird to combine CTV and broadcast spend when comparing with DSP traded inventory. Why add the broadcast spend? Seems like it would distort the picture.

I recommend anyone interested in the space to read the article you linked. What a complex industry.

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Because the larger figure represents (closer to) the whole TV-ad buying market size. Showing us how much smaller the playing field is for the independent SSP ad-selling platforms. e.g. Roku has their own ad-selling platform and is contractually getting ~30% of the ad-space on the VOD streaming platforms that are ad supported, on the Roku devices.

An independent SSP has a difficult time finding “content nee channels” to represent.

It is an enormously complex industry, I agree.

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Yes, that’s a great question. It looks to me like Roku is winning in the connected TV world as they have a large user base and a complete end-to-end system for advertisers. This is what stood out to me.

Average Revenue Per User (ARPU) grew to $32.14 (trailing 12-month basis), up 32% YoY;

  • Advertisers continued to follow audiences and move budgets into TV streaming, with Roku’s monetized video ad impressions more than doubling year-over-year.

  • We completed the acquisition of Nielsen’s video automatic content recognition (ACR) and dynamic ad insertion (DAI) team and technologies, which will accelerate our launch of an end-to-end linear ad replacement solution in partnership with programmers.

  • We launched our advertising brand studio to help marketers tell their stories using the unique benefits of a streaming platform: marketers can go beyond the traditional 30-second TV ad spot to amplify big moments through advertiser-commissioned short-form TV programs, interactive video ads, and other branded content on The Roku Channel.

  • In Q1, total TV streaming ad impressions delivered through OneView nearly tripled year-over-year, while total impressions on the Roku platform (sold by Roku or its publishers) more than tripled.

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Golfcaddy,

“Yes, that’s a great question. It looks to me like Roku is winning in the connected TV world as they have a large user base and a complete end-to-end system for advertisers. This is what stood out to me.”

How do you see this affecting mgni?

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First-time poster to the forum here…. I have been thinking about the following two posts:

“Our Q2 outlook is for robust growth with total net revenue of $615 million at the midpoint (up 73% year-over-year) and total gross profit of $300 million at the midpoint (up 104% year-over-year). Strong gross profit grow this expected to outpace operating expense (OPEX) growth, resulting in Q2 Adjusted EBITDA of $65 million at the midpoint.”

“But what I’m impressed by the most from their earning report is that they improved their gross margin to 56.9%!!! This is almost 1000bps improvements sequentially from 47% in Q4 last year!!!”

After thinking about this, I have a question – if the net revenue is projected to be $615 million and gross profit $300 million, then the gross margin is back to ~49%. I am interested in Roku only if they continue to trend towards accelerating platform revenue compared to player revenue which has a much lower gross margin. Based on projections for Q2, it seems like the product mix is trending back towards the lower gross margin product.

Thoughts on why gross margin is trending back down for Q2 projections? Is this seasonal? How essential is the player revenue for the overall business?

Thanks,
G

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Quotes from earnings call:

“Just a reminder, the platform segment has a number of different businesses, some of which are higher margin, some are lower margin in part due to the accounting treatment, whether they’re gross or net. And in Q1, what we pointed out was that the combination of these new direct-to-consumer services, strong media and entertainment spend that we talked about earlier, those are high-margin activities, along with 606 deal model increases to the lifetime value of the deals for several of our content distribution deals also pushed the mix of that business up, and that’s a high-margin business.”

“So a lot of times, the margin trending in any given quarter has to do more with the mix and how the relative growth is working within different parts of the platform.”

“Looking forward on that front, we did say that we thought the gross margins for the Platform segment in Q2 in the back half of the year would be more in line with 2020, because we see that outperformance in the content distribution activities in Q1 normalizing throughout the rest of the year.”

-Junomean2
Long ROKU

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In addition to what has been posted, the following is pertinent to gross profit.

ROKU is expecting negative gross profit on player sales in Q2 and increasingly negative GP in the 2nd half FWIW.

Player margins haven’t generally been negative and this is a short term concern if any concern at all. The player biz is almost equivalent to free advertising anyway. That is not the business we are interested in.

So Player margins will also negatively impact the overall number, but who cares.

GP growth will still be excellent next quarter. Since Q3 ‘20 GP growth has bee incredible and while it may abate to a degree, there is nothing to worry about today on that front.

AJ

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Long-term: Roku is an over better and more defensible business than MGNI. It’s very impressive what they have been able to do.

Short-term: This is bullish for MGNI as it shows connected TV adoption is accelerating. Disney/Hulu is a unique property that ad buyers want. But the MGNI ER will tell us all we need to know. If they report is bad in any way, I may dump MGNI for Roku.

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