ROKU, INC Q2 FY2024 earnings call

• Roku continued to build on scale and engagement, with 120 million US households starting their streaming journey on the Roku Home Screen daily.
• Q2 saw growth in Streaming Households (14% y/y), Streaming Hours (20% y/y), and Platform Revenue (11% y/y).
• Fourth straight quarter of positive adjusted EBITDA and free cash flow, with a target of positive adjusted EBITDA for 2024 achieved a year early.
• Focus on monetization initiatives including maximizing ad demand, leveraging the Roku Home Screen, and growing Roku-billed subscriptions.
• Diversification of ad demand with increased ad categories and units in the viewer experience, reducing reliance on the M&E vertical.

In Q2 2024, Roku's Streaming Households grew 14% year-over-year to 83.6 million. Streaming Hours increased 20% year-over-year. Total net revenue was $968 million, up 14% year-over-year. Platform revenue was $824 million, up 11% year-over-year, driven by streaming services distribution and advertising activities. Devices revenue increased 39% year-over-year, driven by the expansion of Roku-branded TV retail distribution. Platform gross margin was 53% year-over-year, while Devices gross margin was negative 11%, up six points year-over-year. Platform revenue contribution was significant, with Devices revenue also making a notable contribution.

• Anticipates total net revenue of $1.01 billion for Q3 2024, with gross profit of $440 million and adjusted EBITDA of $45 million.
• Expects Q3 Platform revenue to grow 9% year-over-year, with advertising activities expected to accelerate in Q3 and platform revenue growth to accelerate sequentially in Q4 due to monetization initiatives.
• Devices revenue expected to grow 24% in Q3 with margins in line with Q2's negative low double-digits, reflecting continued investment in Roku Branded TV program.

• Market-driven pricing changes impacting other streaming services, but Roku's diversified revenue streams (platform, advertising, streaming services distribution) mitigate this.
• Challenges in the M&E vertical, though M&E now makes up a smaller percentage of platform business, and Roku is well-positioned to benefit from any rebound or new entrants.
• Difficult year-over-year growth rate comparisons in Streaming services distribution due to price increases and previous adjustments.

Q: There's been commentary about excess supply of PC inventory and downward pressure on CPMs. What's Roku's view?

A: Roku is not impacted similarly as it's a streaming platform with diversified revenue streams. Growth is driven by streaming households, hours, and R&D for new monetization products. The Roku Home Screen is a key asset with 120 million US households starting streaming there daily.

Q: What lift is expected from UID partnership and integration with Trade Desk?

A: Roku is focused on accelerating platform revenue and growing relationships with third-party platforms. The UID integration with Trade Desk is early but progressing well, allowing precise targeting and data collaboration. Similar integrations with other platforms are expected.

Q: How does Roku's revenue guide for Q3 compare to previous quarters?

A: Q3 total net revenue is expected at $1.01 billion. Platform revenue growth is 9% y/y, with SSD having difficult comps due to price increases, while advertising activities are expected to accelerate. The acceleration in Q4 is anticipated from monetization initiatives.

Q: Thoughts on comping against own TVs and device margin?

A: Roku-branded TV distribution is expanding with partners like Target. Device margin was negative 11% in Q2 and expected to be similar in Q3. As scale increases, component costs should come down, leading to improved device margin over time.