Ladies and gentlemen, thank you for standing by, and welcome to the Roku Third Quarter 2019 Earnings Conference Call. At this time, all participant lines are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Tricia Misfed, Vice President of Communication.
Thank you. Please go ahead, ma'am.
Thank you. Good afternoon, and welcome to Roku's financial results conference call for the 3rd Quarter ended September 30, 2019. I'm pleased to be joined on the call today with Anthony Wood, Roku's Founder and CEO Steve Louden, our CFO and Scott Rosenberg, GM of our Platform Business, who will be available for Q and A. Full details of our results and additional management commentary are available in our shareholder letter, which can be found on the Investor Relations section of our website at ir.roku.com. The following discussion, including responses to your questions, reflect Management's views as of today, November 6, 2019 only, and we do not undertake any obligation to update or revise this information.
Some of the statements made on today's call are forward looking and are based on our current expectations, forecast and assumptions and involve risks and uncertainties. These statements include, but are not limited to, statements regarding the future performance of Roku, including expected financial results for the Q4 and full year of 2019 and the future growth in our business. Our actual results may differ materially from those discussed on this call for a variety of reasons. Please refer to Today's shareholder letter and the company's periodic filings with the SEC for information about factors, which could cause our actual results to differ materially from these forward looking statements. You will find reconciliations of non GAAP measures to the most comparable measures discussed today in our shareholder letter, which is posted on our Investor Relations website at ir.roku.com.
And I encourage you to periodically visit our IR website for important content. Finally, unless otherwise stated, all comparisons on this call will be against our results for the comparable period of 20 Now I'd like to hand the call over to Anthony.
Thank you, Tricia, and thanks, everyone, for joining today's call. Roku is well positioned Our performance allows us to continue to reinvest in ways that extend our strategic advantages and build even greater preference for Roku among I'd like to share a few highlights from the quarter. We launched our new streaming player lineup in North America, Latin America and key markets in Europe. Earlier views have been positive. For example, CNET named the Roku Streaming Stick Plus the best overall streamer
for a
3rd year in a row. Our focus on TV streaming and our large highly engaged audience make Roku an essential partner for content publishers, advertisers and TV manufacturers. We build big audiences for major new services and brands. And when our partners succeed, we succeed. Just last Friday, Apple TV plus launched on our platform, and we expect others to follow soon.
Roku monetized video ad impressions faster than the ad impressions in the overall platform. We continue to be pleased with the growth of The Roku Channel. Finally, we recently announced an agreement to acquire DataZoo, a demand side advertising platform. While we work with many leading DSPs and will continue to do so, We believe the DataZoo acquisition will accelerate our OTT advertising roadmap and enable Roku to provide marketers a single data driven software solution to plan, buy and optimize their ad spend across TV and OTT. I'll now turn the call over to Steve to go through the financial details.
Thanks, Anthony. Before taking your questions, I'll walk through financial highlights and address our outlook. Please see our shareholder letter for more Financial details from the quarter. Q3 revenue, gross profit and adjusted EBITDA exceeded our outlook, driven by robust growth in our platform segment and continued strong demand for streaming players. Both revenue of $261,000,000 and gross profit of $118,000,000 grew 50% year over year and gross margin of 45.4% was similar to the prior quarter as well as the same quarter in the prior year.
Adjusted EBITDA of roughly breakeven And the net loss of $25,000,000 were ahead of our outlook due to better than expected revenues and lower than expected sales and marketing expenses, due in part to timing of retail and merchandising costs as well as headcount costs, primarily stock based comp Strong platform growth continued as revenue of $179,000,000 was up 79% year over year And Roku monetized video ad impressions once again more than doubled year over year. Player revenue grew 11% year over year driven by a 21% year over year increase in player units with ASBs down 9% year over year as we continue our strategy of attractive We ended the quarter with $388,000,000 of cash, Before turning to the outlook, I'll mention a new Roku OS feature that we began rolling out in Q3. This feature identifies when a channel has been continuously streamed for an extended period of time without user interaction. It prompts the user to confirm that they are still watching and closes the channel if the user doesn't respond. While we continue to expect Robust growth in our aggregate streaming hours as we increase active accounts and user engagement, we believe our 2020 year over year streaming hour growth rates are likely to be lower than 2019 growth rates.
Some of Roku's leading channel partners like Netflix To have a level of consistency across our platform, we do not expect this rollout of this feature to have a material impact on our future financial performance. With that, let's turn to our outlook for the full year. Reflecting our Q3 performance and the inclusion of DataZoo for part of Q4, we are increasing our revenue and gross profit outlook for the full year 2019. Our race revenue outlook midpoint of $1,106,000,000 represents roughly 49% year over year growth, up from 46% year over year growth in our prior outlook. We expect platform revenue to represent roughly 2 thirds of total revenue, including approximately $13,000,000 in revenue from Data We are raising our total gross profit outlook for 2019 to roughly $492,000,000 at the midpoint, up from roughly $485,000,000 previously.
For modeling purposes, we continue to expect full year platform gross margins in the low 60s percent driven primarily by continued mix shift to video advertising. For players, we expect player gross margin As a reminder, Q4 is seasonally our strongest quarter and is back end loaded with a significant portion of our revenues related to Black Friday through the end of the year. So Q4 is still heavily dependent on how the holidays stack up given a highly competitive retail So much of last year, given a seasonally higher mix of player revenues in Q4, the overall company gross margin is We have updated our 2019 Adjusted EBITDA outlook midpoint to $30,000,000 from $35,000,000 previously, reflecting continued investment in the business as well as roughly $5,000,000 negative impact to adjusted EBITDA in Q4 related to Data Zoo operations and DataZoo acquisition related expenses. We plan to publish historical pro form a financials related to the DataZoo acquisition prior to our next earnings call, which will provide some additional detail. Given the relative size of DataZoo and our integration plans, We do not expect to break out DataZoo going forward, but rather it will be included in our Platform segment.
As we have done previously, We plan to provide outlook for next year on our Q4 call. In Q4, we anticipate a greater sequential increase in operating expenses From our continued investments in talent, sales and marketing efforts, the impact of increased facility costs, as well as the inclusion of DataZoo. The stock based comp estimate for 2019 has decreased to roughly $84,000,000 from $90,000,000 in the prior outlook. Depreciation and amortization and net other income of $10,000,000 are reflected in our outlook for roughly $64,000,000 of net income loss in 2019. I'll summarize by saying how pleased we are with the performance of the business in the quarter.
With that, let's turn the call over for questions.
Operator? Please stand by while we compile the Q and A roster. Our first question comes from Ralph Schackart with William Blair. Your line is now open.
Good afternoon. Thanks for taking the question. 2, if I could. Just first on the EBITDA guide. Stephen, it sounds like perhaps there were some more In Q4, is there anything specific in Q4 that you'd call out for expenses because it looks like the guide even with the beat in contemplating Data Zoo was maybe decreased relative to prior outlooks, first question.
And second question, just on ARPU, I know that could bounce around, but it looks like it lagged account growth in the quarter. Any color you could add to that, anything from 606 you'd call out, that'd be helpful as well. Thanks a lot.
Yes. Hey, Ralph, it's Steve. I'll take the first one on EBITDA. So, as I mentioned in my remarks, part of the Q3 Overperformance on OpEx relative to our prior expectations related to the timing of certain costs. And so Similarly, Q4 reflects some lower some expectations in Q4 related to timing of Certain costs that are shifting in Q4, as well as the expected SBC difference.
In terms of the ARPU, the ARPU growth rate on a trailing 12 months basis has Been growing in a similar range in the high 20s 30%. So there's not anything in particular I would say in that. It's been on a fairly consistent ARPU year over year growth trajectory
as of the last couple of quarters. This is Anthony. I'll just add that at the beginning of the year, we set a goal to operate the business at roughly EBITDA breakeven For the year and we're on track for that.
Great. Thanks, Anthony. Thanks, David.
Thank you. Our next question comes from Vasily Karasyov with Cannonball Research.
I wanted to ask you a question about your expectations in terms of relative growth of ad supported versus SVOD viewership, Given that you have Disney Plus you have Apple TV Plus, are you not worried or should we not be worried that Somehow impact advertising revenue growth. How do you think about what's going to happen in the next 12 to 24 months With viewing on your platform and what will be the puts and takes in between the SVODs and AVOD
And to our platform, we think they're good for Roku in a bunch of ways. They're obviously going to drive viewing overall on our platform or engagement, Which is good. We can discuss why, but engagement on our platform is very good for us. They're going to increase the interest And viewership moving from traditional TV to streaming, we think that eventually all TV is going to be And this will be the rise of all these new services will help encourage that transition. So we have customers that want to watch paid premium services.
We have customers that want to watch free Content, we have customers that want to watch both. And so we think all those business models are supported on our platform. We monetize all those business models. We see advertising Growing the fastest, but they're all generally good for our business. So I don't know, Scott, if you had anything you want to
add? Yes. So I'd
just like to add to Anthony's comment that We think our biggest competition is attracting linear TV ad spending out of linear into OTT. That's the competition. Today according to Magna, Only 3% of TV budgets are spent in OTT, but 29% of audiences are already there. That's the big opportunity. That's what we are focused And there can be lots of winners on our platform, including these new services.
So in other words, you think that the Conglomerates that are behind those AVOD apps that would be pushing advertisers to shift budgets and that's how you benefit In the long term?
I do think that in the aggregate, yes, the more attention and energy that's put into OTT advertising, the better for everybody. I think Roku especially is uniquely situated to serve TV advertisers as they move their budgets to OTT because we can prove incremental reach. We've got the To prove the measurement and effectiveness of that spending, we've got a first party relationship with our consumers.
Thank you very much.
Thank you. Our next question comes from Jason Helfstein with Oppenheimer. Your line is now open.
Thanks. 2, so first, Can you say if the guidance assumes any impact from Disney Plus, Apple Plus in the 4th quarter? And then there's just been a lot of still part of this question. A lot of questions just around the accounting treatment and particularly kind of in ASC 606. So we said Disney, for example, becomes a very large customer over a period of time, kind of how that flows into the numbers on a quarterly basis.
So any Helpful commentary there, I think would be helpful. And then can you just say what the impact, what you're assuming the impact of Datazoo is on gross profit in the 4th quarter? Thanks.
Yes. Hey, Jason, this is Steve. I'll take those. Yes, in terms of guidance, our outlook Does anticipate Apple Plus is obviously just launching. We anticipate others other services to launch soon.
So They are included. You noted the accounting 606 impact. I think a reminder that the in 606 these Multiple element arrangements are valued for the totality of the arrangement, which could be a couple of years. And there's different elements and different performance obligations. And so there isn't necessarily a direct one to 1 in immediate Revenue recognition, when these services launch or when we sign up people, it's more complicated than that and the timing Can be lumpy as we've talked about in different calls.
In terms of the impact of Data Zoo, we mentioned that The inclusion includes roughly $13,000,000 of revenue for a stub period in Q4 based on anticipated close date here soon As well as a $5,000,000 negative impact to the EBITDA, we'll be publishing some pro form a Financials related to the Datazoo acquisition between now and the next call and so you have more detail on the shape of the P and L there.
Thanks.
Thank you. Our next question comes from Laura Martin with Needham. Your line is now open.
Hi there. Can you hear me okay, you guys?
Yes, we can hear you.
Great. Thank you, Jason, for asking my accounting question. And I think, Anthony, you're on track to actually earn $40,000,000 of EBITDA this year, but forget that. So I want to go back To Data Zoo, Anthony. So I'm interested, are you going into competition with Trade Desk?
Are we pivoting the business a little bit so that Data Zoo isn't going to be capped And instead we're going to be a demand side platform and compete in the open Internet. I'm very interested in how you see data progressing over the 3 to 5 years. Let's start with that one and then I'll do my follow-up.
Okay, sure.
So we haven't closed the deal with DataZ yet or begun the integration. But with that Sort of disclaimer aside, it's a very strategic acquisition for Roku. It's in line with our strategy of how we expect the market to play out over the next several years. Today, our ads that we sell are mostly sold direct, but we think that ad buying is going to become more automated Over time and this acquisition's primary goal is to accelerate our roadmap for our ad tech. And I'll let Scott talk a little bit more about that.
Hi, Laura. Hi. I'll make a couple of points here. First is, this is a natural progression of our strategy more generally to provide Advertisers with better planning and buying tools, our goal ultimately is to present a holistic TV and OTT Planning and buying solution for TV advertisers and help support them as they migrate their spending out of traditional linear TV into OTT. Our real goal in this deal is to both expand the business we do with current clients, give them new data and measurement products, prove More efficacy across a broader portion of their media and it also helps us work with a broader spectrum of clients who may want to participate more In OTT, then they can today and would value programmatic API self serve We are combining the unique advantages of Roku's first party consumer relationship, Our scale, our proprietary data and inventory together with some great talent, device graph technology, data science capabilities from DataZoom.
We do think that will present some unique opportunities to our buyers. But I do want to emphasize that being an open ecosystem And it's essential to how we operate here. It's both good for the ecosystem and good business. And so we Don't anticipate any slowing down of the work that we do with folks like Adobe, The Trade Desk, etcetera.
Okay. That's super helpful, Scott. Let's go to your gross margin. So your gross margins were a little light this quarter and also next quarter they're a little light. I just want to make there's a couple of good reasons that gross margins might be down.
The Roku channel has 50 Anything you guys are probably doing on the subscription revenue side, which is a diversified revenue source of Lower gross margin. Tell me what's going on with the gross margin line, please. Why is that under pressure?
Yes. Hey, Laura, it's Steve. Yes. In terms of gross margins, in our prior outlook and we mentioned it for Q4 that The platform margins would be in the low 60% range. So it actually was in that same range that we assumed it would be.
The primary driver is and we've talked about this phenomenon is the continued mix shift over to the video ad business, which tends to operate at a 50 plus percent gross margin versus some of the other components within platform that are significantly higher margin, Because there's little cost in our UI of some of these things like sponsorships or rev shares.
Okay. Okay. Good. And Scott, I guess Roku Channel continues to any is it any higher in the ranking than 5th?
It continues to be 5th in terms of reach and growing much faster than the platform as a whole. It's also growing As a contributor of ad inventory into our overall sale, we just launched kids and family this quarter. That was a great new addendum to our overall content offering. And our goal here is to keep feeding this virtuous cycle of Bringing more users in, that enables us to invest more in a broader array of content, which then, of course, brings yet more users in. And we're executing on that strategy Very well and it's an exciting growth story.
Scott, this ARPU up 30% is like blowing everybody else away in So you guys are doing great work on the CPM side. So congratulations guys. Thank you.
Thanks.
Thank you. Our next question comes from Ben Swinburne with Morgan Stanley. Your line is now open.
Thank you. Good afternoon. Just staying on the Datazoo topic, can you guys give us a sense for how fast that business is growing and whether you expect the integration of the asset into Roku to accelerate that Growth rate and I'll just ask my follow-up on the international side. Anthony, you noted that you announced some new Partnerships heading into the UK, can you just help us think about sort of the international opportunity in the context of what you guys have been doing in the U. S?
Is the Is this model broadly the same? How quickly might you start monetizing it? And you have to build audience scale? Just any help on thinking about that ramp would be great.
Hey, Ben, it's Steve. I'll take the first one on DataZoo. As Anthony mentioned, the deal hasn't quite closed yet and We haven't started the integration. So in terms of kind of overall aspects on integration and growth rates, We'll talk more about that in the next call, where we'll also be providing overall 2020 guidance. And then as I mentioned before, we will be publishing pro form a financials.
So you have a lot more Information soon regarding the historical growth rates of DataZoo.
Fair enough. Thought I'd try.
Yes, this is Anthony. I mean just to add to that, I mean the primary reason that we acquired DataZoo was for the talent and The technology to accelerate our technology roadmap. So, that's how it's really I mean, we already have a very strong ad platform, but this makes it even stronger. In terms of international, there's obviously a lot of potential international 1,000,000,000 TV households Around the world, it's a greenfield with a lot of potential. These big new services that are coming into the market like Disney Plus And Apple and already Netflix have global ambitions.
So and we are making progress. Now we said in the past that the first thing we're going to focus on international is building our scale and then monetization will follow the same trend that we saw in the U. S. And building out the U. S.
Market. In terms of building out active accounts, we announced that the Roku TVs with Hisense coming to the UK. And we just launched in last quarter our new lineup of streaming players. It was the first time this was the first time that we launched Hi, Roku Express with a global launch in multiple countries around the world at the same time. So we are so that's an example of how we're Getting more serious about expanding our reach within the international market.
Thank you, guys.
Thank you. Our next question comes from Elliot Alper with D. A. Davidson. Your line is now open.
Great, thanks. I wanted to ask if you guys had any more plans on launching more apps outside of The Roku Channel. Does it mean content like The Roku Channel, but
This is Anthony. So the way we think about The Roku Channel is well, the way I think about The Roku Platform overall is its primary purpose is to distribute content You know, to viewers. And there's multiple ways if you're a content publisher, there's multiple ways to distribute that content. One way is to write a streaming channel and the companies Still doing that, obviously. Another way is becoming increasingly popular is to publish your content in The Roku Channel.
And so we're continuing to add more and more content See The Roku Channel and more and more content categories. So for example, we just had a kids and family, which was a great launch for us. The Roku Channel, we've continued to expand in multiple dimensions. There's at this point over 80,000 free and paid movies and TV shows. We've added live linear services like ABC News.
There's over 40 live linear services now. Premium subscriptions we added recently, so over 40,000,000 40 different premium subscriptions now like HBO and Showtime, nearly 30 kids and family content partners. So We think that you'll well, not we think, you will see more and more content coming to The Roku Channel, different categories, and you'll see it Integrated into different points in the UI. So that's really our approach for in terms of being a one stop distribution channel.
Great. Appreciate it.
Thank you. Our next question comes from Mark Mahaney with RBC Capital. Your line is now open.
Let me try 2, please. First, just on I think it was Ben who was asking about the way to think about the duration or the timing related to International and I guess revenue contribution or profit contribution from international, do you want to set out any help us with any expectations there? And then just back I want to ask the question this way. If you think about the revenue you get from Disney plus and Apple plus and everybody else who's launch, It seems like a slew of them. You think that's going to be showing up in your for you more as customer acquisition Ad revenue, subscription ad revenue, shares or advertising revenue share, like of those 3 buckets, Where do you think the impact to you from the streaming wars is going to be most likely seen?
Thank you.
So I'll take international. I think Scott will take your second question. We don't really have much more to talk about In terms of our plans for international that we've already disclosed, obviously, we have a lot of work going on under the covers, but we haven't announced any specific Timing related to revenue for international.
On these new service launches, Mark, Disney Plus, Apple, etcetera, We're excited. For us, this is ultimately about giving consumers even more options in OTT and we're partnering very deeply With these companies to help launch their services, acquire subs, drive engagement. And I won't comment on the economics of any specific partner except to say that Our relationships are multifaceted. We're mutually intended to drive the success of these services through the Roku ecosystem.
Maybe then one follow-up question for Anthony. Anthony, do you think it's possible that this could lead to a scenario whereby You could actually start seeing material revenue shares from Netflix. If the environment becomes a lot more Competitive, which it's clearly doing that may increase their incentive to actually start sharing economics with you. Any thought on that?
Well, we have business terms with almost all of our partners. But I don't want to comment about any specific deal or any specific partner. I will say That one of the benefits of, at least in our platform, for these content Partners that are launching these new services that are launching is that we have built into the platform a lot of tools for them to be able to promote their services and sign up subscribers. And so No. And they're taking advantage of those tools, right?
So it's kind of like when you go into retail, you pay a percentage of your Revenue to the retailer for placement on the shelf. And then there's a lot of other options that they have. If you want to be in the circular, you want to buy end caps. And so for us, With the subscription service, it's the same model. There's a rev share for customers that we sign up and that's going to continue to grow.
But There's also a lot of marketing opportunities and ways for them to build their subscribers and they're very effective, more effective than probably any other way they spend their marketing dollars. And so That's a big way that we make money from new content partners. Got it.
Thank you, Anthony.
Thank you. Our next question comes from Matthew Thornton with SunTrust. Your line is now open.
Hey, good afternoon guys. Thanks for taking the question. I wanted to come back to and maybe this is for Steve. If we think about the Q4, obviously, we've got a lot of new services coming. You can certainly see how they would contribute to your content distribution revenues, certainly audience development revenue makes a ton of sense, but You can also see because they're kind of the shiny new objects, they could pull some engagement away from other channels, including the Roku channel.
So you could actually see some headwind to video ad revenue. So my question is, is that something that's kind of contemplated in the forecast? And then secondly, given the ASC 606 accounting, Would we even see that? Would that even matter in the short term? Any color there would be helpful.
Thanks.
Yes. Hey, Matthew. This is Steve. So, yes, as I mentioned before, I mean, because of 606 and because these are multiple element arrangements and There are performance obligations. There is not an immediate necessarily an immediate and direct correlation between So the underlying actions like signing up subscribers or spend, from these services into that quarter's revenue.
So it's more complicated on that and that's why we often talk about the as a result of these 606 models and the treatment that the Especially the content distribution revenue can be lumpy. And so I would just make sure that people are aware of that fact, because there are Some big new services that are launching or will launch soon, but that won't necessarily connect into this quarter's revenue. We have factored those into the outlook. The outlook is strong. We did increase the outlook for the full year for revenue and gross profit.
The revenue at the midpoint is now $1,100,000,000 at 49% revenue growth at the midpoint. And so we feel pretty good about the business. But certainly, we want to make sure that people understand the accounting that underpins These services and
the deals that we have. This is Anthony. Let me just add a couple of points. These service these new services As well as existing services that have come on to the platform over the years, they're in no way negative for Roku. They're all just very positive.
We're an essential partner for these services. They'll drive more people to adopting streaming. We're the country's most popular streaming platform that will drive Roku viewers. There's lots of room to grow engagement on the platform and our primary competitor is not other services on the platform. The primary competitor is linear TV.
Most TV in the country is still regular linear TV and people are moving to streaming and cutting the cord and this will help drive that. So, they're all very for our business, they're all very, very positive.
Maybe I'll just ask one quick follow-up then, if I could. Avowed on The Roku Channel number 1, I guess just any changes there and just kind of what you're observing maybe other AVOD services across the platform. Are you Seeing any trend stable, up and any color you could provide there? Thanks guys.
Matthew, Scott here. Our goal is The Roku Channel and its ad load has not changed. We still believe that about half the linear TV ad load is the right recipe for monetization And consumer experience, in general, we think that that's going to be proven to be the case broadly across OTT that ads have got to get Smarter and fewer in order to hit that balance right. But every provider on the platform has a different mix of program to add time.
Thank you. Our next question comes from Shyam Patil with Susquehanna. Your line is now open.
Hey, guys. It's Ryan on
for Shyam.
So first, how do
you feel about your ad tech after the DataZoo deal? And do you think it might make sense to add some further technology on the supply side? And then secondly, how do you see the acquisition impacting DataZoo's Fire TV partnership? Thanks.
Hey, Ryan, Scott here. I'll take that. Data Zoo is a natural Progression, an actual step in the roadmap we've been pursuing. We had already started to provide planning and buying tools to advertisers To help proactively help them proactively plan their spending across TV and OTT, we launched Roku Reach Insights going into the upfronts To help advertisers basically simulate plan their spending across TV and OTT in order to optimize for reach and frequency, We wrote a partnership with Innovid this quarter to help measure reach and frequency and audience across a multiple video platforms. So we look at Datazoo as another important step in that progression that will help us not only activate our data and aid buyers in Allocating their spend more aggressively to OTT, but also prove the effect through better data science and attribution, which we think ultimately is a long term goal for as TV advertising dollars move into OTT.
I won't comment on the Amazon Fire TV partnership except to say that DataZoo is an omnichannel DSP and our focus with it With the Datazoo asset and the people, the capabilities is really to enable our advertisers to spend smartly in OTT and to better measure the effect in terms of reach, in terms of ROI as they move TV ad spending into OTT.
Thank Our next question comes from Mark Zekatowiak with Rosenblatt Securities. Your line is now open.
Thank you. Maybe just a follow-up on DataZoo. I'm curious how it will work alongside your network sales team. So if we think about Sort of non direct business, will this run will you have sort of immediate take rates or the standard DSP model and And sort of run that through the agencies at a sort of immediate take rate on sort of lower end longer tail type inventory. That's on DataZoo.
And then maybe just a follow-up on gross margin. As you look at 4Q and potentially into 2020, I'm just curious if there's any Changes in the pieces there, obviously the pieces are content distribution, audience development and video, maybe specific to content distribution, are you seeing The Roku Channel, that content distribution business ramp faster, which is potentially putting A little bit
of downward pressure on gross margin. Just maybe some puts and takes there. Thanks. Mark, I'll take your question on DataZoo. You're right that DataZoo is ultimately a platform or tools play and so it is a different model generally than a media sale.
The The power we think though is we're already in a position where we're something of a category captain with our advertisers advising them not just on their spending with Roku for Roku Media, but on Roku more broadly with our publishers and across OTT generally. And so DataZoo is a new tool in our toolbox that will help us
Steve, do you
want to take the
Yes, sure. Hey, Mark, it's Steve. Just in terms of the GP. So In terms of 2020, we'll be providing guidance on that on the next call. But we did mention for Q4, We expect platform gross profit to be in the similar range of the low 60s sequentially.
And then we talked about the guidance around player gross profit operating around 0 for Q4 just given the Promotional environment, which is similar to prior years where that's been kind of the lowest quarter usually. But in general, the biggest thing to think about in terms of the gross margin trends has just been within platform has been The increased mix of the video ad business as the video ad business continues to grow fast, that tends To be at that 50 plus percent gross margin level versus some of the higher ones as I mentioned earlier. And then within TRC, As Scott mentioned earlier, TRC in terms of a source of Roku monetized video ad impressions is growing faster Then the network as a whole, but really the margin difference is more around video ads versus other parts platform versus a specific TRC, non TRC mix.
Okay, great. Thank you.
Thank you. Our next question comes from Ziv Israel with Merrill Lynch. Your line is now open.
Thanks for taking my questions. So maybe first on gross margins. How much of the year over year decrease in platform margins is due To a higher mix of premium subscriptions, if at all. And then you mentioned the investments driving some of the change to your adjusted EBITDA guide. What areas are those investments in?
Any call there would be helpful. And I have a quick follow-up.
Thanks. Hi, Ziv, It's Steve. Just on your first question with gross margins. We didn't we have mentioned previously that the premium subscription business Because that has that is on a gross revenue treatment that's good for revenue and gross profit dollars, It does show up as a lower margin. In terms of this quarter, we mentioned in the prepared remarks that the primary driver of the Sequential gross margin change was around the mix shift in the video ad business.
So that's the key driver there. In terms of investing in the adjusted EBITDA, as Anthony mentioned earlier, We had a goal that we set out at the start of the year that we were going to operate around EBITDA breakeven just given our strategic position and that it's early days With a big opportunity, the four investment areas we talked about are around the ad business, Roku TV, The Roku Channel, and then international. And in terms of Q4 specifically, it's really in the form of More talent, sales and marketing, as well as some of the other options that we have to kind of secure our position going forward.
Yes, this is Anthony. Let me just add. In terms of investments, I'll give you some examples of products and services that we shipped in Q3 That we're investing that we weren't talking about necessarily before, but we're investments that we've made prior to Q3. So for example, we launched Roku TVs in the UK With Hisense in the quarter, we did our 1st global launch of players around the world. We refreshed our entire player lineup.
We launched kids and family, a new content category in the Roku channel. We launched smart sound bars, a new product category, a new way for us To build active accounts and we did a lot more than that. So we are pushing our business forward on multiple fronts and these are all areas that are going to pay off in the future.
Okay. Thanks. That's helpful. Just quickly on Delazu. As you grow in programmatic and it becomes a bigger How do you see that impacting maybe the overall profitability of the platform segment?
Do you expect higher or lower CPMs on programmatic This is the more direct relationship type of business. Thanks.
Well, we look at it primarily as a vehicle to Continue bringing significant new demand into the ecosystem from TV. I think that's the main and first cut Of the strategy behind data, we do anticipate that programmatic as well as other forms of automation, API based buying, self serve will become a growing Heart of OTT, it's still a minority of total spend. Magna Global has Commented that there'll be about $5,000,000,000 in OTT spending in 2020. Majority of that will not yet be programmatic, but over time, We see that growing very significantly. We also look at these technologies as a way to onboard a broader class of advertisers Who would have invested in TV, but for difficulty in accessing it or the inability to prove ROI.
That's really the power here for us. So I wouldn't characterize Datazoo in terms of pressure on margins or pricing as much as a broader array of clients and an acceleration of spending into OTT.
Okay. That's helpful. Thanks.
Thank you. Our next question comes from Michael Morris with Guggenheim. Your line is now open.
Thank you. Good afternoon. A couple for me. Can you Share how streaming hours that you guys are able to monetize with advertising, how those hours are pacing Relative to that growth in overall hours streamed, is it growing faster or more slowly? Can you share how much Of your available inventory that you have access to that you're delivering at a premium CPM, you talked about this gap between Sort of dollars in the industry and streaming in the industry overall, does that look a lot like how much you monetize relative to what you have access to?
And then on the international side, you guys just mentioned the global player launch and refresh again. Were there any new markets there or Were there expanded sort of retail partnerships, more inventory, anything you can help us with specifically on how that moves you forward Based on those comments you made, Anthony. Thanks.
Hey, Michael, I'll take your first two questions. First, I'd describe this as a funnel. Ad supported viewing is growing faster than underlying than the total platform viewing. And then our monetization of advertising on
the platform is growing faster than that.
So we are growing So we are growing in some sense our share of our participation in advertising On the platform significantly, as we've commented before in prior earnings calls, we're generally we generally would not characterize the business As supply constrained as much as demand constrained, we're in the process of bringing over As primarily driving that demand function, we have in the case of the Roku channel as well as Our ad supported channel distribution agreements access to sufficient inventory to support that very aggressive growth. Anthony, you want to take the question on international?
Yes, I'll also just add monetized video ad impressions more than doubled In the quarter, the ad business is doing really well and yet most of that TV ad dollars has not started to move over to streaming yet. So still a big opportunity for us. In terms of international, I think we've covered most of the points there. I mean, we launched our new streaming player lineup In the United States, obviously, but also Canada, Mexico, Latin America, the UK and a few other countries as well. I guess I would say our the main way I think about our international expansion is not about adding more countries because we were already in most of those countries.
It's about Bringing more focus and more dedicated resources to international being more competitive, international accelerating the active account acquisition in international markets. That's really what we're
So does that mean hiring people on the ground in those markets? Or what kind of resources are you Speaking of
Yes, that involves hiring more people in market, that involves writing more partnership deals, that involves more manufacturers that are Focused in specific regions that involve content partners for specific in region. It involves more engineering and And talent inside Roku focused on international. We think our strategy that's worked for us in the U. S, which is TV's players, works internationally as well and that the technology we've built also works internationally. We just need to take the formula and apply it More aggressively, international markets, and that's what we're starting to do.
Is the runway for players outside the U. S. Longer, early in the lifecycle Then operating systems in the TVs, Roku branded TVs?
I think both players and TVs are Great opportunities for international expansion.
Okay. Thank you.
Thank you. I'm not showing any further questions at this time. I would now like to turn the call back over to Anthony Wood for any further remarks.
Thanks. We had another good quarter and we are pleased with our outlook for the full year. Roku is getting stronger in fundamental ways. We are executing well. Our streaming devices continue to stand apart, and we are attracting impressive content publishers and advertisers to drive our platform segment.
The world is transitioning to streaming faster than ever, and we are well positioned to capture the benefits. We look forward to the holiday
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.