Paul, this is exactly the current problem for TTD as their other segments ex-CTV are all growing slower than CTV, some of them is much slower or even declined in the current pandemic time.
There are lots of things to like about ROKU, but the revenue growth likely isn’t what it seems. At least one reason gross margin is falling is due to increase gross revenues. If gross revenues are a higher percentage of total sales this year compared to last, revenue growth has an “inorganic” component to it. It isn’t apples to apples growth. It seems ROKU has been increasing the percentage of gross revenues versus net.
Now ROKU does seem better suited to weather the storm of falling ad prices compared to TTD. ROKU has other forms of revenues (subscription) than just ads unlike TTD. Other than Dataxu, ROKU is a pure CTV play.
However with ROKU, gross profit growth is concerning. That growth has been consistently falling and was 39% this quarter while platform revenues where most profit is generated was 73%. That will be the metric to watch since revenues can’t be relied upon much. I’m not suggesting ROKU is doing anything underhanded. They just don’t give us a net/gross breakdown so all we can rely on is GP.
ROKU’s operating margins had been trending in the right direction and took a big step back this quarter to lower than any of the past 8 quarters.*
On the other hand, TTD is very profitable. The gross profit growth and gross margins have been quite steady. Margins range around 75%. EPS growth was huge this quarter.
About the markets each company serves, pure play CTV is certainly growing faster than the rest of the ad market so ROKU gets a notch there. TTD scores points by having a wider purview for advertisers, zero conflict of interest, likely better monitoring of ROI, ability to adjust campaigns quickly, etc…
To summarize, I definitely like ROKU and definitely don’t like they way profitability is trending.
Interested in what others think.
A.J.
*I only value ROKU on Platform Sales viewing Player as pass through. I calculate OpM by taking out GAAP expenses and adding back SBC.