Roku Q419

ROKU - Q419

Munarriz take:…
BreakerJohn take:…
CC transcript:…
CC recap (Starrob):…
Gaucho on guidance:…
Darth on ARPU:…
Historical metrics:
Historical financials:

Revenue 411.2M +49%

  • Platform Rev 259.6M +71%
  • Player Rev 151.6M +22%
    … platform 63% of rev
    Gross Profit 161.6M +44%
    Op Loss -17.4M
    OpEx 179M +68%
    Gross Margins 39.3% -140bps
  • Platform GM 62.5% -970bps
  • Player GM -0.5% -290bps
    Cash 517.3M

Player units +33% ^^
Active Accts 36.9M +36%
Stream Hrs 11.7B +60% -900bps
ARPU 23.14 +29%

FY19 Totals:
Revenue 1128.9M +52%

  • Platform Rev 740.8M +78%
  • Player Rev 388.1M +19%
    Opex 560M +38%
    Stream Hrs 40.3B +68%
  • crossed the $1B rev mark
  • they are now running Player segment at 0% margin
  • “highly effective” holiday promotion strategy lead to +33% unit sales but at -10% ASP for +22% rev
  • doubled monetized video ad impressions YoY
  • new ad formats and interactivity working well
  • Disney did home screen and banner ads for Disney+ launch (see screenshot in PR)
  • expanded into Brazil w/ TV and content partnerships…
  • heavy spending on initiatives thru FY19; opex +68%, or +56% w/o dataxu acq
  • will continue to invest in same 4 major initiatives in FY20
  • expect FY20 Opex of 905M; 60% of increase due to new headcount, new HQ, and dataxu acq
  • New “Are you still watching?” feature to close unwatched channels, partial roll out in Q419 (and is now fully rolled out now in Q120); causing drop in Stream Hrs growth of 10-15% but not affecting financials

Key focuses for FY19 (& now again FY20):

  • OTT advertising:
  • Acquired dataxu DSP (demand side platform) for $150M, integrating it into Platform segment
  • Added new ad types - brand banners, premium signup ads, sponsor curated collections, sponsor movie w/ “limited commercial interruption”
  • Added ad interactivity - add reminders for content, subscribe to channel, integrate w/ SMS
  • Roku Channel:
  • “an always-changing selection of free movies, shows, live news, kids’ TV, and more”
  • 56M active viewers
  • in top 3 of ad-supported streaming services in the US, top 5 in Canada
  • growing faster than platform
  • 40 Premium sub channels, 55 linear channels, Kids & Family section
  • utilize ML to personalize content selections
  • integrated with billing for one-click premium subs
  • allows for new ad capabilities and sponsorships beyond 15-30s ads
  • Roku TV:
  • added more TV brands for 15 total, incl Walmart brand Onn, TCL 8-Series
  • added soundbars, multichannel wireless speakers
  • added “Roku TV Ready” program for OEMs to easily integrate audio products
  • International:
  • in US, Canada, Mexico, and now UK and Brazil
  • launched in UK in Sept w/ tv from Hisense
  • launched in Brazil in Jan w/ tv from AOC (TPV/Phillips)
  • partnership w/ Globo in Brazil for Globoplay, streaming service for local content
  • 7 new TV brands added in Mexico for total of 9
  • 1 in 4 TVs sold in Canada, 1 in 3 TVs in US

CFO in CC: “We remind you that we are not optimizing for Player gross profit given our focus on device sales as an important driver of account growth. We believe that our strategy of trading Player margin for account growth and platform revenue growth is working well… our goal for 2020 is to continue to invest our incremental gross profit back into our strategic growth opportunities…”

Tidbit from CC Q&A on appeal to advertisers/brands: “…about half of our user base doesn’t have a pay-TV package in their home. So by definition, they’re not reachable through linear television. The other half tend to be very light linear TV viewers.”

Side note: the premium services keep on coming – new service from HBO (HBO Max) coming in May for $15/mo w/ HBO+WarnerBros content.

My stance: Platform rev +71%, and they had an especially strong holiday season on Player side. Slight loss in Players segment now, but I don’t care in the slightest - getting more users & usage is the critical part (+33% unit growth!). They are being adept in expanding internationally with tv & content partnerships (UK! Brazil!). Platform margins dropped due to all the initiatives in FY19 (bulk of 72%-62% drop happened 2-3Q ago and its flattened at 62% since). After the success of those initiatives, they are doing the same in FY20. I’m happy with their story - player units and active accts keep growing while ARPU rises from more ad impressions – and they have a lot of the globe yet to come. And with dataxu, they have integrated a mini-TTD for managing ad-buys for their customers, both on and off Roku platform.

Shareholder letter: We predict that by 2024 roughly half of all U.S. TV households will have cut the cord or never had traditional pay TV. … We have now entered the streaming decade when we believe consumers around the world will choose streaming as their primary way of viewing TV.”

Encouraging comment from RBC analyst: “Roku should benefit from this secular shift, especially as only 3% of TV budgets have transferred to OTT while 29% of audience is streaming videos, per Magna Global. And near-term, we see Roku benefiting directly from the Streaming Wars (eg record account adds) and from international expansion.”…

long ROKU ~8%