Roku, Inc. Q2 FY2025 earnings call

Roku's strategy to grow platform revenue is working, with 18% year-over-year growth in Q2. Video advertising on the platform grew faster than OTT and digital ad markets in the U.S. Launched Roku Ads Manager and integrated Frndly, which is being incorporated into live search and other platform areas. Executed monetization initiatives, investing in key areas while expanding EBITDA margins, expecting 180 basis point improvement in EBITDA margin year-over-year over 2024. Positive macro economy indicators from the upfront, with strong performance in TV advertising and sports. Focus on operational efficiency and balancing investment in platform growth with margin expansion.

Expect to be operating income positive in Q4 2025 and full year 2026. EBITDA margin outlook reflects an 180 basis point improvement year-over-year over 2024, with further margin improvement expected in 2026. Q4 op profit would be earlier than previous guidance. Share repurchase program of $400 million announced, with net share settlement ongoing.

Q: Can you guys talk about what drove the outperformance in 2Q and also the full year raise? And then second question, based on your outlook, it looks like you're going to become operating income positive in the fourth quarter. Just how should we think about the trajectory in 2026?

A: Anthony J. Wood and Dan Jedda discussed that the strategy to grow platform revenue is working, with 18% year-over-year growth in Q2. They expect to be operating income positive in Q4 2025 and full year 2026, with EBITDA margin improvement and confidence in sustained double-digit platform revenue growth while improving profitability.

Q: I wanted to ask you a couple about advertising. You highlighted the progress that you're making both with your third-party partnerships and then also now with Roku Ads Manager. So my question on that is, can you talk about what that progress looks like, whether there's cannibalization of other parts of the business and maybe how those 2 drivers are complementary to one another? And then my second question is just more broadly on the macro economy and what you're seeing. How are trends now in terms of demand and market health compared to where we were about 3 months ago?

A: Anthony J. Wood and Charlie Collier discussed that Roku Ads Manager and third-party partnerships are complementary. Ads Manager opens a new market for performance-based small- and medium-sized businesses, while third-party partnerships work well with demand-side platforms. On the macro economy, the upfront was very positive with strong performance in TV advertising and sports.

Q: I was just trying to unpack the platform growth a little bit between some things you had last year plus what you called out for Frndly. I think growth was about 20% in Q2, if I back out 606 in political and Frndly. So just wondering if that's the right number. And then I think it's implied around 18% in Q3. All those are pretty good. Just wondering if that's just kind of conservatism in terms of the way you're thinking about some of the same-store comp with maybe a 2 percentage point slowdown from quarter-to-quarter. And then secondly, just on the platform gross margin guide of 51%. Anything you can unpack in there for us? Is this just mix, especially as M&E, I think, is a smaller component of revenue given the strong growth in video? Or anything else going on the programmatic side that drives the platform margin outlook?

A: Dan Jedda discussed platform growth, stating that excluding Frndly and political, growth rates are steady. On gross margin, it's expected to be in the 51% to 52% range, with mix impact offset by efficiency and improvement.

Q: Following up on the gross margin. I think it implies though that the fourth quarter, we should see a higher gross margin than the 52% for the full year. So I was just wondering if there was anything you could comment on the leverage there. And then on the share repurchase authorization of the $400 million, is there a way we should be thinking about the timing and [indiscernible] about future opportunities to grow shareholder return?

A: Dan Jedda said Q4 gross margins should be higher due to volume leverage. On share repurchase, a $400 million program was announced with net share settlement ongoing, and capital allocation includes acquisitions, investments, and repurchases.

Q: The 2 assets that I think have pricing power are proprietary data and proprietary content you have both. The question is that becomes more valuable over time with the rise of LLM. So the question generally is, at what point do you think Roku can do more good as part of something larger than going stand-alone? That's my question for you. Charlie, hard question for you. So we have a Trade Desk deal that allows them access to the Roku channel and Amazon, which has exclusive rights to act for years to access the entire platform. maybe I have that wrong, if that's wrong, please correct. But why would you sign exclusive deals with anyone rather than open it out to bid? And two, why is the difference in deal structure between those 2 large DSPs?

A: Anthony J. Wood and Charlie Collier discussed that Roku's first-party data is a powerful asset. With DSPs, each deal is customized to the partner's needs, and they work with all DSPs, not tying hands with exclusive deals. The difference in deal structure is due to each DSP's unique technology and approach.

Q: I wanted to ask on Roku Ad Manager and the SMB and performance opportunity in CTV. Just a broad question on market structure just compared to opportunities ranging from search and social to online display. Do you think performance marketers in CTV are likely to gravitate towards sort of platform direct opportunities, if you will, versus working by DSPs? And secondly, do you think the market is going to have sort of winner take most or take characteristics or be governed by sort of multi-homing costs where the earliest or the largest players in the market are likely to sort of earn outsized monetization? And then just second quick one on TRC. I just wondered if you could share streaming hours growth with respect to that.

A: Charlie Collier and Dan Jedda discussed that SMB and performance marketers are gravitating towards platform direct opportunities with Roku Ads Manager, seeing it as a new market. TRC growth in Q2 was around 80%, expected to come down but still grow well.

Q: My first one is just on Frndly TV. I just wanted to ask about maybe what are the early learnings so far as far as the cross-sell opportunity into your base of streaming households. And then my second is just on Walmart transitioning on SmartCast here before the holiday season. Just what tools do you guys have at your disposal maybe to mitigate some of those headwinds from a net add perspective for streaming households?

A: Dan Jedda and Anthony J. Wood discussed Frndly integration, with early learnings including adding Frndly to home screen and live TV search. On Walmart, Roku is confident in growing streaming households due to market-leading OS and brand strength.

Q: Various ad industry participants, supply side are concerned about the volume of connected TV advertising. But how are you managing the volume of ads out there to keep the inventory scarce and maintain the price in this kind of environment?

A: Charlie Collier discussed that Roku's scale, engagement, and unique ad placements allow them to manage inventory and maintain pricing, diversifying demand and meeting advertisers' needs.

Q: It's Rich Greenfield. Anthony and Dan, you've talked a lot about diversifying revenues towards subscription. Curious how you think about 2 things. One, the bundling opportunities of other services, other streaming services with Frndly now that you own it? And then two, as you think about using the home screen, you talked a lot about how you drive people to things like the Roku Channel and into places where you drive advertising revenue, but also starting to think about how do you drive subscriptions using that surface, like surfacing content that a subscriber might be interested in based on what they've watched before, but they don't have a subscription to so you can drive subscription revenue and sort of broaden out the subscription revenue of Roku over time.

A: Anthony J. Wood discussed using recommendations to drive subscriptions and bundling opportunities with Frndly. The home screen is optimized for both ad and subscription revenue through machine learning and viewer engagement.

Q: I wanted to explore a little bit more the Roku Ads Manager and the small and midsized business. given that I think you've launched this less than a year ago, I think it was in September of last year. And I was wondering if you could give us some sense of the materiality of that to you at this point. The last time you spoke, I think the suggestion was, I think, from the CFO, Dan Jedda, that there was great hopes about it, but it was still not material. Now你 seem totally much more kind of excited and interested in what you're seeing there. So我 was wondering if you could give us a sense of is this starting to really move the needle at this point? Is that a change from the past couple of quarters?

A: Anthony J. Wood and Dan Jedda discussed that Roku Ads Manager is in a new large market, with strong growth in advertisers and revenue, starting to move the needle.

Q: Were there any factors that held back platform growth in the quarter? I mean growth accelerated on a reported basis, 100 basis points, but it was against an 8-point easier comp. So just if it was kind of, I guess, any weakness that kind of played out in the quarter or anything that was held back? And then are you expecting any Amazon DSP revenue in the fourth quarter? Or at this point, that's more for 2026?

A: Dan Jedda said there was no specific weakness in the quarter. On Amazon DSP, integration is ongoing with expected completion towards end of Q3, with impact on Q4 difficult to predict.