Ladies and gentlemen, thank you for standing by. And welcome to the First Quarter 2022 Roku Earnings Conference Call. I would now like to hand the conference over to your host, Conrad Grodd, Vice President of Investor Relations. Please go ahead..

Thank you, operator. Good afternoon. And welcome to Roku's first quarter 2022 earnings call. I'm joined today by Anthony Wood, Roku's Founder and CEO; Steve Louden, our CFO; and Scott Rosenberg, Senior Vice President, General Manager of our Platform business, who will be available for Q&A.

Full details of our results and additional management commentary are available in our shareholder letter, which can be found on our Investor Relations website at roku.com/investor. Our comments and responses to your questions on this call reflect management's views as of today only, and we disclaim any obligation to update this information.

On this call, we'll make forward-looking statements, which are predictions, projections or other statements about future events, such as statements regarding our financial outlook, our investments future market conditions and macro environment headwinds, such as global supply chain disruptions, inflationary pressures and geopolitical conflict.

These statements are based on our current expectations, forecasts and assumptions and involve risks and uncertainties. Please refer to our shareholder letter and our periodic SEC filings for information on factors that could cause our actual results to differ materially from these forward-looking statements.

We'll also discuss certain non-GAAP financial measures on today's call. Reconciliations to the most comparable GAAP financial measures are provided in our shareholder letter. Finally, unless otherwise stated, all comparisons on this call will be against our results for the comparable period of 2021. Now I'd like to hand the call over to Anthony..

Roku had a solid first quarter with platform revenue up 39% year-over-year, driven by higher content distribution and advertising revenue. This financial performance and our continued growth, even in a challenging operating environment, validates the strength of our business model.

From day one, the Roku platform has been built to operate at the center of TV streaming, meeting the needs of each participant in the ecosystem. For consumers, we provide an excellent experience with trusted discovery tools that allow them to find and watch content the way they prefer, whether that's via ad-supported or subscription services.

For content owners, we offer multiple ways to build and retain audiences and monetize content. And for advertisers, we have data, tools and technology that improves the return on every ad dollar spent. Ad supported streaming services are a huge and growing part of the streaming ecosystem, demonstrated by the continued success of the Roku Channel.

It was a top five app on our platform in the U.S. by active account reach for the third quarter in a row. And for the first time, it was a top five app on our platform in the U.S. by streaming our engagement.

The Roku Channel's expanding reach and engagement is being driven by the increased quality and diversity of our content portfolio and our unique ability to promote it as the platform owner. As a leading platform in TV streaming, we expect to continue to grow, both active accounts and platform monetization for years to come.

This quarter, we launched new ad products and we will present more ad product offerings and content to advertisers at Roku's first in-person upfront event next week. Today in the U.S., Nielsen reports that audiences spend 46% of their TV time streaming, while eMarketer reports that advertisers spent just 18% of their TV ad budgets on streaming.

Both of these will become 100% as eventually all TV and all TV advertising will be streamed. Roku is a leader in TV streaming with an established track record of platform growth and technology innovation. And we will continue to invest to capture the significant opportunities ahead of us. With that, let me turn it over to Steve..

Thanks, Anthony. Before taking your questions, I'll walk through highlights and discuss our outlook given the current macro environment. We continue to grow, adding 1.1 million active accounts in Q1 and ending the quarter with 61.3 million.

As expected, year-over-year active account net adds moderated, given the end of government stimulus payments that temporarily drove discretionary consumer spend in Q1, 2021. Additionally, ongoing supply chain disruptions increased U.S.

TV prices in Q1, 2022, resulting in industry-wide TV unit sales that were below 2019 pre-COVID levels for the third quarter in a row. Roku Player unit sales decreased 12% year-over-year, but remained above pre-COVID levels and the average selling price decreased 9% year-over-year. Engagement was high.

Roku users streamed 20.9 billion hours in the quarter, an increase of 1.4 billion from last quarter. In Q1, total net revenue increased 28% year-over-year to $734 million.

Platform revenue was up 39% year-over-year to $647 million, benefiting from higher content distribution and robust growth in advertising revenue, despite some continued softness in certain verticals. Q1 Player revenue declined 19% year-over-year, but was up 20% versus Q1, 2019 pre-COVID. In Q1, gross profit grew 12% year-over-year to $365 million.

Platform gross margin was 59%, which was down roughly 8 points year-over-year, reflecting a shift towards a greater mix of video advertising compared to a year ago period, which had significant growth of higher margin M&E and content distribution due to the launch of new services.

Player margins continue to be pressured by supply chain challenges, as we chose to prioritize account acquisition and insulate consumers from higher costs. Q1 adjusted EBITDA was $58 million, and we ended the quarter with over $2.2 billion of cash and investments.

Looking to the second quarter, we anticipate total net revenue of $805 million, up 25% year-over-year. Gross profit of $395 million with a gross margin of 49% and breakeven adjusted EBITDA.

At a high level, we continue to navigate through a difficult near term macro environment, which includes impacts from and further uncertainties related to ongoing supply chain disruptions, inflationary pressures, and geopolitical conflicts. That said, we believe Roku is well positioned to continue to grow.

And we intend to invest in the huge opportunity in TV streaming and to maintain our leadership position. I'd like to provide additional color on each of our estimates. Total net revenue of $805 million reflects our expectations that the ongoing macro headwinds, I just mentioned, have the potential to reduce or delay ad spend in certain verticals.

However, we continue to improve our ability to monetize across our business, and we believe that this will be reflected in growing net revenue despite a very difficult comp. Recall that Platform revenue in Q2 of 2021 more than doubled year-over-year.

Gross profit of $395 million reflects our expectation that in our Platform business, we will continue to grow the portion of video advertising, which has slightly lower margins than other revenue streams.

And we expect that supply chain disruptions will continue to pressure the Player business, resulting in a negative gross margin, as we prioritize the account acquisition and absorb elevated costs. Together, we expect this will result in total gross margin of approximately 49%.

Finally, our outlook for Q2 adjusted EBITDA is breakeven, primarily due to our strategic commitment to invest in our business and the significant opportunity ahead of us. Recall that we curtailed spending during the early phases of COVID and then began ramping spending mid last year.

And we, therefore, expect OpEx to increase approximately 90% year-over-year. We also continue to expect full year adjusted EBITDA of roughly $150 million. As expected, we delivered solid performance in a challenging operating environment to begin the year.

We believe that the near-term headwinds are drove by the long-term opportunities in the secular shift to TV streaming and TV OS consolidation. The enormous value we deliver to consumers, content owners and advertisers will drive our growth. And for the full year, we continue to expect total net revenue growth of approximately 35% year-over-year.

We believe that all audiences, all content and thus all advertising will shift to TV streaming. We will continue to enhance our OS, our ad platform, and drive the Roku Channel flywheel with great new content. And we will continue to provide content publishers with the audience and tools to grow successful streaming businesses.

Operator, we'll now open it up for questions..

Thank you. [Operator Instructions] Your first question is from Shyam Patil with SIG..

Hey, guys. Nice job on the results. I had a couple of questions. First one, Anthony, can you talk a little bit about just your thoughts on Netflix introducing advertising and the potential opportunities for Roku? And then second, can you guys talk about what gives you confidence in the second half growth acceleration? Thank you..

Hey, Shyam. This is Anthony. Sure. I'll take the first question and then Steve can take the second one. So if I think about -- well, first of all, I'll just say that I can't comment specifically on what Netflix may or may not do. But except to say that they're a great partner.

We've been working with them since we launched the first streaming player in 2008. And then my thoughts generally on advertising, is that advertising is a way to lower the cost of a subscription streaming service, which makes services -- streaming services more appealing to consumers. I mean, as you lower the price of streaming, people stream more.

And so generally, advertising is good, because it lowers the cost of streaming and increases consumer interest in streaming. And I guess the other -- another comment I would make is that Roku is a streaming platform, which is a different business model than an individual streaming service. And sometimes people confuse the two.

But our business model and the way we make money is to connect consumers with content and with advertisers. And so anything that causes more streaming to flow through the Roku platform is good for us and good for our business.

More generally, I think we believe that more AVOD offerings will accelerate the movement of traditional TV budgets into streaming. Just to recap where we are there. The traditional TV advertising in the U.S. is a $60 billion opportunity. It's larger globally. And for the first time, the reach of TV streaming has surpassed legacy Pay TV in the U.S.

for adults 18 to 49. And yet most ad dollars for TV have not moved to streaming yet. Only 18% of ad dollars -- ad spend -- traditional TV ad spend has moved to streaming. Yet almost half of all TV time is streaming. And so it's going to be 100% of ad budgets moving to streaming.

So anything that accelerates that trend is also very good for our business model. So just in generally, I think ads as part of streaming services is good for consumers and is good for Roku as well.

And then Steve, if you want to take the second question?.

Yeah, sure. Yeah. Thanks for the question. So in terms of how do we bridge from solid Q2 performance with revenue up 28%, our Q2 outlook, which is in the same ballpark and then reaffirmation of our view that the full year will be kind of mid-30s revenue-wise.

Like we said last quarter, one of the factors that's involved here is that the year-over-year comps are easier in the back half of this year. So just as context from 2021, if you remember, revenue in the front half grew roughly 80% in 2021 -- front half of 2021 versus in the back half of 2020, it grew 40%.

So that plus the robust growth we're seeing in the ad business and the relative growth Society for Cardiovascular monetization relative to peers, gives us confidence that that we're reaffirming that full year guidance. The other thing that we look at is just on a sequential increase basis, those are also in line with historical averages.

So we're obviously transitioning through near-term macro headwinds that dwarfed by the overall opportunity. And so we're -- we feel good about the continued growth of Roku and the thesis around the shift to streaming remaining intact..

Great. Thank you, guys. .

Thank you. .

Thanks. Your next question comes from Victoria James with D.A. Davidson. Please go ahead..

Hi. Thanks for taking my question. So we're getting a lot of questions from our -- from investors on the following, and we would appreciate your thoughts. What's the difference today between the state of SVOD and AVOD markets in the U.S.

when it comes to the level of consumer engagement for SVOD specifically? Like have we hit a saturation point when it comes to the number of subscribers for SVOD collectively? And then I've got a follow-up question after that. Thank you..

Hey, Victoria. Thanks for the question. This is Anthony. I'll start and then see if Scott has anything to add. First of all, I guess I would just say that, I think it's too early to say anything about saturation of SVOD. I mean, streaming is more popular than ever. It's still growing. It's a large global phenomenon that is still spreading around the world.

Roku has 60 million active accounts, but that's still tiny compared to the billion broadband households around the world that are all going to get their TV through streaming. So there's still a lot of room to grow and a lot of room for services to continue to expand as the world transitions to streaming.

I mean the dynamics are a little bit different in the U.S. versus globally. In the U.S., you've got this dynamic of Pay TV core cutting, consumers moving the streaming and saving money there, as well as having a better TV experience. And I think it's hard to say.

I don't think we know yet what's the level of spend that consumers will settle out with on the SVOD services in the U.S. We do know that AVOD services are increasingly becoming popular in terms of like integrating ads into SVOD services and giving consumers a choice of lower prices with ads versus higher prices ad-free.

And then all the way to services like the Roku Channel, which are 100% free and completely ad supported, which are very popular with the consumers as well. The Roku Channel is doing extremely well.

It's a top five channel on our platform by reach, and now it's -- sorry, it's a top five app on the Platform by reach and now it's a top five app on the Platform by engagement as well. It's doing incredibly well for us.

But if you look globally about the role of SVOD services, I mean, the way I think about it is streaming SVOD services are kind of the global version of Pay TV. Pay TV is mostly -- was sort of most of the U.S. phenomenon, although there's some pay TV internationally, but just not a lot, nothing close to in the U.S.

But SVOD streaming services are a way for the global market to quickly and easily access a great content selection akin to that of Pay TV, but at a much lower price and a better experience.

And so I think actually, there's a huge opportunity around the world, as I think most regions will transition from 100% free TV, which is the way it is in a lot of countries, to a lot of consumers around the world having at least one SVOD subscription and maybe more. So just in general, I think the streaming is more popular than ever.

There's a large number of TVs around the world that are going to become smart TVs. And we're not anywhere near saturation.

But I don't know, Scott, did you want to add something?.

Yeah. I just -- I'd like to double down on that, Victoria. We're nowhere near saturation. We mentioned the shareholder letter that we just crossed the point where streaming can deliver more reach than linear television, 46% of TV time's now on streaming. On our platform, we see 3.8 hours out of a daily diet of almost eight hours per U.S. household.

I mean just everywhere you look, we're nowhere near saturation in terms of consumers moving their television time to streaming. And I think if you -- then if you look at the business models of SVOD versus AVOD, we're also not near saturating there. Certainly, there are more mature services, whose growth has slowed down.

There are much younger services who are still very much in acquisition mode, and competing, not just with each other, but for the time that's still spent in traditional linear television.

We do see that AVOD has and for many years now and by AVOD, I mean fully ad-supported free like the Roku Channel or ad subsidized with a subscription, that category of apps has consistently been growing faster than SVOD, the pure subscription services, in part for the -- because of the reasons Anthony mentioned earlier, which is that free is a great price or subsidizes a great price.

And so consumers are drawn to having more choice ultimately when they can be offered ad supported sport services. So just definitively say we're nowhere near saturation in terms of consumer appetite for streaming..

Yeah, this is Anthony again. I think it's also important just as you start -- if you're thinking about Roku's business to remember that Roku's business is -- we are a platform that connects content consumers and advertisers. We're not an individual streaming service, but we are seeing across our entire platform, engagement continuing to grow.

And as well as, of course, the reason the platform continuing to grow. And the opportunity is huge, because just like we saw with phones where they consolidated around a couple of platforms, the way we saw before that with PC is consolidating around a couple of platforms. The same thing is happening with smart TVs.

Smart TV platforms like Roku are consolidating to a small number of TV platforms, I think it will end up being two or three. And Roku is the number one TV streaming platform in the U.S. We are now the number one TV platform in Canada. We're now the number one TV streaming platform in Mexico.

And if you think about that in the future, a world where everyone is -- everyone is using a smart TV, the smart TV is consolidated to two or three platforms and at hundreds of millions of dollars of subscription and advertising revenue flow through those platforms, mean that's it's a great business.

And it's a different business than in a single streaming service..

Thank you for the color on that. And then if I can just sneak in one more quick question.

Do you have any color on your current thoughts on the importance of both live sports and live news as it relates to Roku?.

I'll let -- Scott, do you want to take that?.

Yeah, I'll take it. I mean, sports is certainly a key driver for a number of the services on our platform in a key way that some of these services, whether it's Paramount, Peacock, Football or with the Olympics. It's an essential instrument content type that these services are using to draw viewers into streaming.

And in some ways, sports is the, the last pillar holding the traditional Pay TV bundle together. So as we see that on that, we feel more sports become available through streaming services, we'll see continued acceleration of consumers out of traditional Pay TV and linear viewership into streaming. News has moved more readily.

We've got some great news offerings in the Roku Channel. For example, ABC News, NBC, Reuters, we have a ton of offerings there. They do very well. And then there are standalone services as well. I think news has already moved and started to innovate and streaming.

Sports is more of a mixed bag with obviously some content still locked up behind more traditional linear services..

This is Anthony. I think sports actually is a great example of how Roku as a platform can be valuable to our customers, in the sense that sports rights are incredibly spread out across many different services.

And one of the important roles we play for our customers is to help them find and discover content across the platform as opposed to like going into every app and looking at what's in that app. So we have tools today like Universal Search. We have things called zones. We have a sports zone.

And those kinds of tools we're expanding to make it even easier for consumers to find out where the game they want to watch is playing right now across the thousands of services that are available on Roku as streaming platform..

Thank you. And your next question comes from Barton Crockett with Rosenblatt Securities.

Your question please?.

Okay, great. Thanks for taking the question. And thanks for having me on the call here with you. I wanted to ask a follow-up on the discussion about the environment and then a related question. In terms of -- just to dive into this, Netflix obviously is the dominant streamer in the area where you're dominant. They've hit a wall.

They're losing some subscribers. You guys are still growing accounts, growing hours. Where is the incremental usage coming from and it's not going into Netflix? I was wondering if you could talk about, is that going into AVOD or the new subscription services. Or just some color about what you're seeing there would be helpful..

Sure. This is Anthony, I'll start. And then Scott probably could add. Generally, what we're seeing -- if you look at you look at Roku as a platform, there's lots of different services that consumers can select to stream from. Streaming has never been more popular. The viewers have just a tremendous number of options.

And so -- and that's causing overall engagement across our platform to grow. Any particular service might be going up or down or whatever has some specific dynamics, but in aggregate, we're seeing streaming grow.

We've talked about the stat that if you look at the number of hours viewed by a typical household in the U.S., which is about eight, and you compare that to Roku's hours, we're about half of that. So there's -- and that's because consumers are using other ways of watching TV besides just streaming.

But they're switching more and more and more of their time to stream, so that's causing streaming hours overall to grow. As far as different kinds of categories, I mean, AVOD, ad-supported content, is a fast-growing category on our platform. The Roku Channel is doing extremely well, because it's free.

And the quality of the content is getting better and better. Everything from that catalog content all the way up to Roku originals and everything in between, we did an output deal with Lionsgate recently for movies. We signed a deal recently with A&E to access some of their content. So ad supported content is growing, but to content is strong as well.

There's just -- there's a lot of services.

So I don't know, Scott, do you have anything you want to add?.

No. I mean just yeah, just simply the offer keeps getting better for consumers. We just see such a substantial investment in the services and the content that's going into them, that the appeal of what you can get on streaming just continues to get better and better.

And with advertising, it opens up more price points and more accessibility to more consumers, that's ultimately, Barton, the thing that's driving incremental streaming consumption..

Yeah. I mean, just for our viewers the golden age of TV. I mean there's just so many different options, so much competition, that just didn't happen before, between content providers for viewers. And so you just have lots of options is getting better all the time for them.

And then for services and for Roku as a platform, that competition is good for our business, because we provide a lot of tools that allow viewers to find content. I was talking about like searching across the platform, but -- and those kinds of user interfaces provide opportunities for us to put promotional impressions or ads, which we make money on.

And then we have lots of tools to allow content providers to build audience to -- everything from billing to promotion, and just other ways for them to build audience. So just for our business, the competition that's happening in streaming is good and for viewers is good as well..

Okay. And then just one other kind of topic that I wanted to address quickly, if I could. The consolidation of services. So obviously, top of mind with Warner Brothers Discovery.

And I'm just curious about what happens -- what -- you can talk about the contractual circumstances of consolidation to the extent that if one big service is buying a smaller service is it like we see in TV where the smaller service gets on the bigger services, more favorable economics.

If two networks are combined, is that just the loss of revenue from one of the networks or is there something different in your model that protects you somewhat? I was wondering if you could discuss..

Scott can take that question..

Yeah. Barton, what I'd say is that, back to Anthony's earlier point, our role as a platform is to help these services get in front of consumers to drive consumption.

And so in general, we're in favor of any development, whether it's the launch of new ad supported business models or the merger of companies that ensures that these companies can continue to bring bigger and better services to our consumers.

I won't comment specifically on our deals or relationships with Warner before the merger or Discovery, except to say we have deep enduring relationship with both parties. We expect it to continue afterwards. We've just launched discovery+ inside the Roku Channel.

I'm very excited about the potential there to deliver for our consumers, a great experience and extend the audience that Warner Brothers Discovery can reach with discovery+ through the Roku channel. We've got a robust relationship with both sides of the house in terms of marketing their content and services to our users.

So in general, a robust competitive ecosystem is good for us as a platform..

Yeah. And I would say -- I’d just add that actually -- I mean, the number of content services and the amount of content available through streaming is growing. What I think the consolidation that’s happening is around existing media companies consolidating to build better streaming services.

But those are generally new streaming services that didn’t exist before..

Thank you. And your next question comes from Shweta Khajuria with Evercore ISI..

Okay. Thank you very much. Let me try a few, please. One, can you please comment on the supply chain headwinds currently and when you think you'll start to see the headwinds sort of dissipate? Perhaps are you seeing that already? Where are you right now versus what you saw earlier in the year? That's question one.

Second is, possible to comment on the overall ad environment.

The demand trends that you're seeing right now, there have been conflicting -- there has been conflicting commentary from some of the other companies that have already reported on brand spend and perhaps potential weakness in brand spend, but you are reiterating your full year guidance for top-line growth.

So just talk to the demand trends that you're seeing for brand spend, especially. And then finally, just if you could talk about gross margins for platform revenue -- for your Platform segment as we think about the rest of the year, that would be great. Thanks a lot..

So Steve can take the first question on supply chain. Scott will take the second question on the overall ad environment. And then I guess Steve can also take the gross margin question..

Yeah. Hey, Shweta. Yeah, in terms of -- I'll talk about the supply chain impact mainly on the account acquisition side, and we can talk about -- Scott can chime in with some commentary on the monetization side. Yeah, the situation is similar to last couple of quarters.

So if you remember, starting in Q3, Q4 and now into Q1, we've had dealing with similar situations where we've got continued elevated pricing in terms of components as well as some availability challenges and then the kind of shipping and logistics costs and delays there.

Some of those portions have come off their all-time highs that we've seen, but in general, costs remain elevated. The Roku team is doing a great job of being nimble in terms of alternate sourcing and doing some reworking to make sure that we have availability on the Player side.

But in general, the situation is fairly similar in terms of the impacts of the TV industry and then how that impacts kind of our unit sales. So on the TV side, similar to the last couple of quarters, we can see that these elevated pricing of new TVs is causing the overall size of the market in terms of the units sold to be down.

And they're still down below 2019 pre-COVID level. So that's definitely a headwind for the industry as well as our TV partners. The good news is that our market share has actually gone up sequentially. So as we have inventory availability that's good with our partners. That has gone well. We're still the number one TV OS out there in North America.

And we continue to compete well on that despite the headwinds on the TV side. On the Player side, similar to the last couple of quarters as well. What we've been doing is using our scale, our relationships and the flexibility to go ahead and absorb the price increases. Our increase in ARPU gives us more flexibility.

And like I said, the supply chain and operations team has done a good job of keeping that. So the Player unit sales, while they're down year-over-year, in part due to a tough comp based on the stimulus payments last year. What you're seeing is that they remain above 2019 pre-COVID levels. So that's kind of the impact.

In terms of how long that will continue, we think that situation will be similar. That's what we talked about in our outlook for Q2, that at least in the short term, those conditions will persist.

And certainly, there's a lot of uncertainty out there, not only around the supply chain, but continued pandemic impacts, especially in China as well as knock-on effects from the war in Ukraine.

So Scott, maybe turn it over to you on the ad side?.

Yeah, Shweta. On the ad side -- yes, absolutely. There's still some uncertainty out there. There are certain verticals that are more affected by supply chain than others. But we're still putting up very robust growth for the ad business. And that's largely because we're still early in the movement of budgets into streaming.

In the shareholder letter, we cited 46% of time spent in stream, but only 18% of ad budgets being spent. For us, that translates into hey, are we going to be able to grow this account 100% year-over-year or 40% or 50% year-over-year.

Our per account spending is up 50% year-over-year, and we see significant increased commitments across every one of our segments, our large customer segment, our growth performance segment, our M&E segment. So the uncertainty does affect us. But the magnitude of the shift is still very substantial.

We're still putting up very substantial growth figures. And we're going into the upfront next week. It's our first live upfront. We're excited about it, rolling out a bunch of great new content offerings, great new ad product, innovations. And we're bullish about our ability to drive yet further substantial commitments for the ad business..

Yeah. And then on the gross margin per platform. So in the quarter, platform gross margin was about 59%. That was down roughly 8 points year-over-year relative to Q1, 2021. The primary difference there is, it reflects the shift towards the advertising -- video advertising.

If you remember, in Q1 of 2021, we had extremely strong performance from M&E and content distribution side of the business related to new or recently new streaming services. So that was a higher mix, and those are very high-margin parts of monetization. So that change reflects the overall move toward video advertising.

And then we mentioned as part of our outlook, kind of a similar overall company gross margin to what we had this quarter. And that reflects that kind of continued mix of video advertising..

Okay. Thanks, Steve. Thanks, Scott..

Thank you. .

Thank you. Your next question comes from Ralph Schackart with William Blair. Your question please..

Yeah, thanks for taking the question. Scott and Anthony, a couple of times you've referenced in this call and others about the 18% of ad budgets that have shipped to the streaming and on this call, we're talking about 46% of consumers streaming time occurring in the streaming environment. I know the macro is tough.

But what are the conditions do you think that you would need let's say, we finally get through this macro tunnel to sort of accelerate that shift? And maybe another question to ask is, if you're not allocating larger budgets of streaming today, what is the holdup? Is it just that TV is sort of established and has more predictable measurement capabilities? But just sort of provide some color along that question would be helpful.

Thank you..

Hey, Ralph. This is Anthony. I'll take it from my point of view, and then I'm sure Steve probably has a better answer. But I just think the big issue is just people take a while to change behaviors. TV buyer, ad buyers have been buying ads a certain way for a long time. They understand it.

And the percent of the TV ad budgets that were spent on streaming, I mean not long ago, it was a lot smaller. The gap was even bigger. So the gap is starting to close. I think really what it is, is just time.

I mean, the other thing to kind of accelerate -- will accelerate things has in the past, is any time there's macroeconomic stresses on businesses, then they start to get more serious about how they should be efficiently spending their money. But I think this is just something we've seen before in other industries.

The transition of ad dollars to mobile, for example took a lot longer than it took for viewers to shift to mobile. But eventually, it catches up.

I don't know, Scott, did you have anything else to add?.

I mean, it's happening, it's just inertia. As Anthony said, it's a big industry with a lot of players, a lot of strategies. But it's happening and the CTV ad segment is the fastest-growing segment among all media, all advertising segments.

So I think we'll continue to see acceleration just because of this year amount of money is still locked up in linear television..

And if you think about ad growth generally from Roku's business point of view, there's a shift of traditional TV ad dollars to streaming in the United States. In the rest of the markets around the world, Roku is much more focused at this point in the life cycle on building active accounts. And we barely started monetization.

We just recently, in Mexico, launched ad sales, but almost no ad monetization in the rest of the world. That's also going to be -- I mean the whole world is going to switch to streaming and all TV advertising switch to streaming.

And the other big pool of ad dollars that I think is not fully tapped into yet is performance-based advertising or the kinds of ad dollars that are spent on digital advertising. I mean, if you look at traditional TV advertising, it was Nielsen demographics. It was -- there was no way to directly measure how effective your ad is.

In the case of connected TV, in the case of Roku specifically, we've invested a lot in our ad stack over the years. And we have a very high quality, high tech, big data, targeted measurement performance based advertising stack.

And so we are starting to see performance-based advertisers and digital advertisers starting to move to our platform, and there's a lot of room to grow that as well..

Okay. Thanks, Anthony. Thanks, Scott..

Thank you. Your next question comes from Steven Cahall with Wells Fargo. Your question please..

Thanks. Maybe first, I think that platform ARPU in the quarter was up around 20%. The hours per account were down a little bit. I know it's a really tough comp as there was still some lockdowns going on last year. But nonetheless, I was wondering if you could just maybe help us deconstruct that ARPU a little bit.

So it seems like either you got really good pricing or maybe you had some content sales or other bounties that you might have had in the quarter. So I'd love to get a little more color on just ARPU. And then, Anthony, I got a quick follow-up for you..

Okay. Well, actually, ARPU was $43 in the quarter, up 34% year-over-year.

But Steve, I don't know if you want to add any more color to that?.

Yeah, you're right. Yeah. So for trailing 12 months, roughly $43, up 34% year-over-year. Yes, we continue to see great progress on monetization. That's obviously the three big parts of that are the advertising business, the content distribution, revenue shares as well as the media and entertainment spend.

And so from a year ago, we've seen a shift more to the video ad business, but all three aspects of that have been making good progress. And we continue to innovate on the ad side and obviously have our Upfront coming up next week, while we'll announce even more.

And then we continue to see good progress partnering with the content publishers on content distribution revenues and media and entertainment. So those -- that ARPU is not necessarily directly correlated with the streaming hours.

As you mentioned, streaming hours on an active account per day -- streaming hours per day is a little bit down year-over-year, but that's still is a bit of a difficult comp just given where we were in the COVID and lockdown cycle a year ago.

We feel pretty good about how that's been growing over time, minus some of the demand blips in the lockdown phases. But just a reminder, that's still roughly half of the average U.S. TV household in terms of their total time viewing. So there's a lot more opportunity on both the engagement side with streaming hours as well as on the ARPU potential..

Thanks for that color. And then, Anthony, I mean, you seem really convicted on this notion of operating systems, consolidating down to just a couple of players. Yesterday, there was the announcement by Comcast and Charter that they're going into this market in a little more aggressive way than they had been in the past.

So I guess, how do you kind of think about the risk that, that market rationalization takes quite a long time. It's obviously baked into a lot of your investment guidance for the year. So when do you kind of think we might be coming through to that rationalization where you might enjoy stronger economics? Thanks. .

Well, I think -- so if you just think about competition for a second, we've got over 60 million active accounts and growing fast. We're the number one TV selling operating system in the United States. I mean, a few years ago, Roku TVs didn't even exist. Now we're the number one selling TV OS in the country.

And we gained -- our growth in TV program gained market share sequentially quarter-over-quarter in the latest quarter. So every region we compete in, active accounts are growing, and we've been competing effectively against big, strong companies for years. We compete with Google, compete with Amazon, and we compete effectively.

And the reason we win in these markets is because where -- we built the only purpose-built operating system for TV. We're incredibly focused on streaming, it's all we do. And we've got a great team. And our A team comes to work every day to build the best streaming products in the business.

The way we grow active accounts, we sell streaming players, and we sell -- when we sell licensed Roku TVs or we don't sell them, but Roku TVs are in the market, which we license. And both of those are -- both TVs and streaming players are critical strategic assets for us in terms of growing our active accounts.

If you look at our competitors, there's competitors that only do TVs and then there's competitors that do both players and TVs, but they're really strong and only one or the other, whereas one of the key things about Roku's success is we're very strong in both streaming players and smart TVs. Both of those assets are doing well for us.

So I think if you just -- in terms of why is it going to continue to consolidate, it's because the amount of money that goes into building a competitive TV streaming platform is very large and growing. I mean we're funneling all a big chunk of our gross profit back into building the strength of our platform.

It's very hard for -- certainly for a new player. Like it's hard for you to imagine how they're going to be successful given the long number of years that we've invested in our platform and our competitors have as well. But also just you have to amortize that cost across a larger and larger installed base to be competitive. Scale is super important.

So it's the exact same phenomenon. I mean in PCs, there used to be lots of different PC operating systems. In phones or usual lots of different phones software stacks. Now there's only a couple. The same thing is happening in TVs..

Thank you. .

Thank you. Our last question comes from Vasily Karasyov with Cannonball. Please go ahead..

Well, thank you. I have a quick one and then a more substantial one. The quick one. Can you please tell us how fast they monetized with ad impressions during the quarter? I'm sorry if I missed it in the letter.

And then my second question is about your relationships with major apps that were launched in recent years and how they evolve overtime? So if I look at the disclosures, they show that spending by your biggest platform customer grew 39% last year after a significant growth in 2020. So obviously, relationships grow in years after an app launches.

So can you give us some color on how the revenue mix changes over time between distribution revenue and M&E? And then speaking of M&E, how do you see the M&E revenue dynamic change as an app goes from the initial subscriber acquisition phase to control and subscriber retention? Thank you very much..

Steve? You are muted..

Hey, Vasily. Yeah, just in terms of Roku monetized video impression, we didn't denote a specific number on that. Obviously, the ad business continues to grow. And as we said, we're mixing more into the video ad business.

In terms of kind of the rev mix between content distribution, M&E, I'll give some thoughts and then Scott can give more color on the dynamics there. But what we see overtime and certainly, we talked about the shift from last year into video advertising. So that's becoming a bigger mix of the platform overall.

But when you think about the kind of revenue specific to the content publishers. We obviously had a situation late 2020, early 2021, where you had a lot of new services, a lot of especially legacy media companies who were pivoting their focus towards streaming.

That was very helpful in terms of short term revenues related to the launch of those services. But what you really see is that we have the most engaged audience. We have significant reach with our 60 million plus active accounts. And we have industry-leading tools to help them grow their business.

And then increasingly, what's important is that they will need to drive engagement and retention of those account bases. And so that's the shift that you're seeing in terms of spending specifically on the M&E side.

So we've been sort of moving that business for a long time even before some of the players that have reoriented that way, where that's all going.

They're going to have large bases, they -- my analogy is the need -- many of them need to start thinking like scale wireless carriers in terms of focusing just as much on the engagement and retention as they've historically focused on building new subscriber basis..

So would it be fair to say that an app can spend more in the second year after launch with you than in the year when they launch?.

Hey, Vasily. This is Scott here. I mean what I'd say is that our -- generally, our relationship with these app partners deepens overtime. And it's not just a function of their marketing, their M&E spend with us, it's multifaceted. It's buttons. It's revenue shares from their subscription services. It's collaboration on advertising.

It's marketing trades between the companies.

When we keep getting bigger as a platform, we keep improving our toolset and the partners look to us, especially after they get live and they see the performance of our platform in terms of the ratio of new subscribers and engagement that we can drive relative to other platforms, they tend to lean in and engage more deeply with us, not just monetarily, but strategically.

We just announced the dynamic linear ad beta work that we're doing with Discovery Paramount, AMC Crown. There'll be more to come is just an example of where there's yet another lane to collaborate with these big partners on. I think you're also probing the M&E category itself. And yes, generally, partners do increase their spend overtime.

And it's not just for user acquisition. Even as partners hit saturation and very few of our partners actually have, they need to keep driving engagement and driving retention. There's clear precedent from the traditional TV world where up to about a quarter of all air time, all advertising time, is used to cross-promote shows.

And obviously, linear TV is not growing. And so the importance of the services investing in marketing, collaborating with us to feature their content organically in the paid form in our experience doesn't diminish overtime. They've got to keep competing for consumer retention, driving tune in, which drives loyalty and engagement.

And this is even more important in a streaming world, where the traditional tactics of cross-promoting across different properties and content is harder than it was traditionally. They look to us as a platform to help continue driving tune in. So Vasily, I hope that answers your question..

Yes. Thank you very much. .

Thank you. And that ends our Q&A session for today. I will turn it back to Anthony Wood for his closing remarks..

Thanks. I want to thank our employees, customers and partners for a solid quarter. We have built the best TV streaming platform for audiences, content publishers and advertisers alike. And we're focused on continuing to be the innovation leader among streaming platforms..

Thank you. This concludes today's program, and you may now disconnect. Thank you..