Good day, ladies and gentlemen, and welcome to Roku Second Quarter 2019 Financial Results Conference Call. At this time, all participants are in a listen-only mode. If anyone should require assistance during the call, please press star then zero on your touchtone telephone to reach an operator. Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, today's conference may be recorded. I'd now like to introduce your host for today's conference, Tricia Mitchell, Vice President of Communications. Ma'am, please go ahead.
Thank you. Good afternoon and welcome to Roku's Financial Results Conference Call for the second quarter ended June 30th, 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&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, reflects management's views as of today, August 7th, 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, forecasts, 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 third quarter 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. 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 2018.
Now, I'd like to hand the call over to Anthony.
Thank you, Tricia, and thanks, everyone, for joining today's call. Our second quarter and first half results show the great progress we are making. I am particularly pleased we passed two significant milestones. The first is that active accounts exceeded 30 million. We reached one in five U.S. households, and our domestic scale rivals the biggest MVPDs. The second is that ARPU was above $20 on a trailing 12-month basis. ARPU has expanded 88% in the two years since we went public. Achievements like these show our strategy is working and our execution is strong. Q2 financial results also exceeded our expectations. We had the highest Q2 growth rate since going public, and we are raising our outlook for the full year.
Strong performance allows us to continue to reinvest incremental gross profit in ways that extend our strategic advantages and build even greater preference for Roku among consumers, content publishers, OEMs, and advertisers. Before handing the call over to Steve, I'd like to draw your attention to a distinguishing characteristic of our ad business. There is a growing understanding that having first-party customer relationships at scale is a fundamental advantage. Our ad business is thriving because we offer a superior solution providing precision targeting, access to premium inventory, unique sponsorships, and OTT reach that an individual publisher or third-party ad tech provider cannot match. The Roku OS was built to create value for advertisers and content distributors. We are proud of the value we deliver for their business. I'll now turn it over to Steve.
Thanks, Anthony. We delivered exceptionally strong results this quarter in both the platform and player segments. Before taking your questions, I'll walk through financial highlights and address our outlook. Please see our shareholder letter for the full financial details from the quarter. Overall revenue growth accelerated to 59% year-over-year, the highest level since Roku went public in 2017, as both platform and player segments outperformed expectations. Platform revenue growth of 86% year-over-year increased sequentially from 79% year-over-year last quarter. This was driven by increases in the estimated value of content distribution agreements based on improved visibility and performance trends, which resulted in a larger than expected recognition of revenue in the quarter. As a reminder, revenue recognition of our content distribution agreements can be lumpy quarter-to-quarter.
In addition, robust growth in advertising continued as Roku monetized video ad impressions once again more than doubled year-over-year, and we expect that trend to continue throughout 2019. The player revenue growth rate of 24% year-over-year increased sequentially from 18% year-over-year last quarter, driven by strong core retail channel sales growth. Player units were up 36% year-over-year, and ASPs were down 10% as we continued to optimize for account growth. Total gross profit of $114 million was up 47% year-over-year as reported.
Excluding the $8.9 million benefit in Q2 2018 from a release of accruals related to potential IP licensing liabilities that did not materialize, total gross profit would have grown 66% year-over-year, which is faster than the revenue growth rate. As anticipated, overall gross margin declined sequentially from 48.8% to 45.7% due to the continued mix shift to video advertising, the introduction of premium subscriptions, and our strategy of driving down player ASPs. OpEx in the quarter grew 60% year-over-year to $125 million, driven by a 33% growth in headcount and higher stock-based compensation. Excluding stock-based comp, OpEx was up 46% year-over-year, which was well below our revenue and gross profit growth rates. Our strong revenue and gross profit performance allowed us to deliver a better than expected adjusted EBITDA of $11 million in Q2.
We ended the quarter with $387 million in cash equivalents, restricted cash, and short-term investments, which included net proceeds of $81 million from the sale of Class A common stock in an at-the-market offering transaction during the quarter. With that, let's turn to our outlook for the full year. Please note that our outlook does not include the impact, if any, of new tariffs that may be imposed on foreign source goods, as there are still too many uncertainties related to the timing, scope, and level of potential near-term changes in this area. We, along with our partners, are taking steps to mitigate potential adverse impacts. Based on strong first half results and momentum in the second half, we are raising our 2019 revenue outlook to $1.085 billion at the midpoint, representing roughly 46% year-over-year growth, up from 40% year-over-year growth in our prior outlook.
We expect Platform revenue to represent roughly two-thirds of total revenue. We are raising our total gross profit outlook to $485 million at the midpoint, up from $470 million previously. For modeling purposes, you should continue to model full year Platform gross margins in the low 60s as a percentage of revenue, driven by the continued mix shift to video advertising and the ramp-up of premium subscription as the year progresses. We expect player gross margins to be in the low single digits for 2019, and similar to last year, we expect player gross margin to be the lowest in Q4. As a reminder, we are not optimizing for player gross profit as our strategy of trading player margin for account growth and Platform revenue growth continues to work well. Our strategy is to reinvest incremental gross profit in our business to further strengthen our competitive advantages and growth drivers.
Given our performance in the first half, we are raising our full-year adjusted EBITDA outlook to a range of $30 million-$40 million. We anticipate sequential increases in operating expenses from our continued investments in talent, product development, and sales and marketing efforts, as well as the impact of increased facility costs. The stock-based comp estimate for 2019 has increased to roughly $90 million from $75 million in the prior outlook, largely due to higher stock price and additional equity refresh grants. Depreciation and amortization and other net income of $10 million are reflected in our outlook for roughly $66 million of net income loss in 2019. Our Q3 outlook calls for 46% year-over-year revenue growth to $252.5 million at the midpoint and 47% year-over-year gross profit growth to $116.5 million.
We anticipate a particularly large sequential increase in operating expenses in Q3, primarily due to increased headcount related costs, facility costs, and timing of expenses shifting from Q2. As a result, we expect our adjusted EBITDA loss to be roughly $8 million in Q3 at the midpoint, and a net income loss of roughly $37 million, which includes stock-based comp of $26 million and $3 million of depreciation and amortization and other net income in the quarter. I'll summarize by saying how pleased we are with the performance of the business in the first half of the year and with the strong momentum we possess going into the second half. With that, let's turn it over for your questions. Operator?
Ladies and gentlemen, if you'd like to ask a question at this time, please press the star, then the number one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, you may do so by pressing the pound key. In the interest of time, we ask that you limit yourself to one question and one follow-up. Our first question comes from the line of Tom Forte with D.A. Davidson. Your line is now open.
Great. For my first question, I want to talk about for the OTT advertising market. I wanted to know if you thought if the increased focus on privacy, including at the regulatory level, was going to at all have a negative impact on advertising spending for OTT.
Hey, Tom. Scott Rosenberg here. Great question. On balance, we of course take privacy very seriously as a company, but we have a first-party direct relationship with our consumers, and it puts us in a unique position as a platform to both explain to consumers how their data is used and to control it. I'd just contrast that against third-party entities, intermediaries who don't have that direct consumer relationship and who are going to be more challenged to articulate and justify the uses of data. On balance, of course, we take it very seriously, but feel that as a platform with a first-party consumer relationship, we're uniquely positioned.
Great. For my follow-up question, I wanted you to give, I guess, a sense if you thought this was maybe a three-year potential, five-year potential, 10-year potential. As a longtime follower of the industry, for an extended period of time, there was a large disconnect between mobile usage and mobile digital ad spend as a % of total spend. You see it today in over the top. When do you think you'll see more parity between usage and % of advertising spend for OTT? Thanks.
It's a good question. I think that we're still at the early stages of the secular shift, the consumer TV habit moving to OTT. That move is very fast. You can see it in the growth of streaming hours on our platform. I do think it'll take more than three years to play out. That said, we're making great progress, as shown by our revenue growth, our ARPU growth. It really owes to progress in our ad products, measurement, proof points that they work, attracting TV ad dollars, as well as progress on the content distribution side of our business through things like Roku Pay.
At the end of the day, for us, this really is going to come down to proving to advertisers and content providers that Roku delivers incremental, substantial reach over traditional linear TV, and we are more effective at both the ad products we deliver and at helping content companies acquire subscribers.
Thank you. Thanks for taking my questions.
Our next question comes from Mark Mahaney with RBC Capital Markets. Your line is now open.
Great, thank you. This is Shweta for Mark. Two questions, please. The first one is on content distribution. Steve, could you please elaborate on the comment of increase in estimated value of content distribution agreements based on the improved visibility and performance trends, which led to strong performance in platform revenue as one of the reasons? Could you please talk a little bit more about that, what you mean by that? The second is on The Roku Channel. Last quarter, you said over 10,000 movies and shows, over two dozens of live channels, and over 30 subscription services. My question is, what is the team focused on most? Is it growing the content, ad inventory availability, product improvements, and you touched on machine learning and personalization.
How are viewers spending their time on The Roku Channel when you compare ad-supported content, which grew really well, that you noted in shareholder letter, versus the subscription channels? Thank you.
Hi, this is Steve. I'll take the first question on the content distribution agreement. Just as a reminder, each quarter, we value the major agreements that we have. They're multiple element agreements. We have deal models where we have certain assumptions related to those. We're valuing the whole deal value, say, in a two or three-year deal. As a result, to the extent that we have positive performance trends and we have confidence that we have visibility into those potentially continuing, that will increase the value of the deal over time. When the deal value increases, then that incremental revenue is recognized in that quarter, which can lead to a comment we also made where on a quarter-to-quarter basis, those revenues related to content distribution agreements can be lumpy.
That was the situation we had this quarter, and so we had a greater than expected revenue recognition in there and the deal values in some of our deals went up, which is a great trend, but again, can be lumpy quarter to quarter in terms of how it gets recognized.
Steve, just a quick one. Can you quantify that, please?
Yeah, we haven't given a specific value on that, but it was definitely a contributing factor to the acceleration sequentially in the platform revenue growth rate.
This is Anthony. I'll take the question on The Roku Channel. I'd say overall, The Roku Channel is doing great. It's working well. Our strategy with The Roku Channel is in place, and The Roku Channel usage is playing out the way we expected. It's a great experience for customers. It's a great way for content publishers to increase distribution of their content or more effectively distribute their content. It's a great advertiser experience as well. Those three things together create this virtuous cycle that just drives more and more engagement in The Roku Channel, and that's what we're seeing. It's a top five channel on the platform. You mentioned premium subscriptions. We have AVOD, we have premium subscriptions, we have live content. Just like for example, I used The Roku Channel last week.
I went in and watched an episode of "Chernobyl" on HBO, and then I saw that "Die Hard" was there, so I ended up watching "Die Hard" as well. It's very complimentary. People come in for one reason and maybe end up watching something else. The strategy's working well for us. We're very happy with The Roku Channel.
Thank you, Anthony. Thank you, Steve.
Our next question comes from Laura Martin with Needham. Your line is now open.
Hey, guys. Can you hear me okay?
Yep.
Hi, Laura.
Great. These are excellent numbers. Those are awesome, and I love the EBITDA guidance upwards. Woo-hoo. Could not be more excited about that $40 million. Anthony, for you, what I'm really interested in learning is when you go into a new market, like I think you guys have announced Brazil, are there operating systems you have to displace because you're getting there later than when you went to China six years ago? Are you able to go into sort of where, again, it was owner-operated and you're going to go in and save these guys a ton of money. I'm wondering about sort of the pace. I know you have a roadmap from the U.S., but the pace of international rollout, is it harder than the U.S. or is it easier because you know exactly what you're doing and you're just going to bring their costs down?
That's the first one. Steve, for you, rev rec on Disney+, right? Disney did earnings yesterday. My understanding of rev rec, but tell me if this is wrong, is if you sell a Disney subscription, Roku controls the consumer name, you recognize the $7, you hold onto your distribution fee, and you pay out whatever, the $5 or $5.50 to Disney. Is that the rev rec? My last thing is, somebody needs to ask about these China tariffs and whether if these tariffs, I don't know who this is, but if these tariffs go through because they're on the list, how does that affect your business?
Hey, Laura. This is Anthony. I'll start. I'll take the question on international and tariffs.
Okay.
On international, it's a big opportunity, obviously. It's a 1 billion-plus TVs around the world. Regarding your question of, is it other incumbents we have to displace? In general, I would say international is still wide open. There's no leader yet in international, and license operating systems like Roku have not really started focusing on international in a big way yet. It's a big opportunity. It's wide open. Obviously, we've been super successful in the U.S., and our lead is growing there, and we're number 1. I believe that the technology we've developed, the skills we have, our strategy applies directly to international. We think we'll be successful there. But we actually haven't announced any countries. I think you mentioned Brazil. We haven't mentioned anything about Brazil officially. What I would say is that we're not ready to reveal our plans for international yet.
Still a bit early. I would say that I personally am spending more time on international, and so for example, I'll be giving a keynote at IFA later this year.
Okay.
On tariffs. Tariffs are something that there's still a lot of variables around, but I'll try and provide some color to what we expect from tariffs. In general, tariffs might impact our future results depending on their exact timing, scope, rate, and other variables. We are, of course, taking steps to mitigate any potential impact of tariffs, as well as our partners are doing the same. For example, we're looking at relocating manufacturing over time. I think the big picture on tariffs is just that regardless of what happens with tariffs in the short term, it doesn't affect the size of our opportunity or our strategy or our execution, and there's still a huge opportunity in the streaming business.
Perfect. Thank you.
Hey, Laura. Steve, let me hit the rev rec question. Without talking about any particular deal, for SVOD service, there's 2 types of ways to recognize the revenue. If it's in the subscription services app and it's part of a multi-element content distribution deal, the subscription rev share there would be a net treatment. We would just recognize the portion of that monthly fee that we get in terms of our revenue share. That's traditionally how we've done it, and it's consistent with part of the content distribution revenue recognition. That can be lumpy over time because we don't recognize it as it's incurred. It's part of the deal value, and your expectations on the deal value can change quarter to quarter.
I will contrast that by saying, in general, the premium subscription business which we have within The Roku Channel, so if a SVOD service was part of that and we have 40-plus premium subscription partners within The Roku Channel, then because we're effectively the wholesaler there, then we recognize that on a gross revenue basis, say the total monthly consumer cost of that is revenue, and then the COGS are what we pay back to the content owner. That's a gross revenue treatment versus a net revenue treatment before. Both are good models in terms of driving incremental gross profit for Roku, but they're treated very differently.
Super helpful. Thank you very much.
Sure.
Our next question comes from Vasily Karasyov with Cannonball Research. Your line is now open.
Thank you. Good afternoon. I wanted to ask you about advertising pricing and CPM. Every quarter, you call out the improved monetization, but it seems from your language that pricing seems to stay stable. I think around a couple of years ago, you mentioned that your video CPM is slightly over $30. My question is two-part. Is it true to infer that your CPM hasn't changed much through this really strong advertising revenue growth, and even though you list all the data and the targeting capabilities improvement?
My question is, why do you choose to keep it where it is, and do you have pressure from your publishers because you rev share 50% back to them? Then do you think you're thinking about how your price, your advertising will change with Fire TV, given that they charge publishers 10% for advertising, and they said they will open to third-party demand, at least The Trade Desk. If you could tell me how you're thinking about that, and what we should expect, I would really appreciate that. Thank you.
Hey, Vasily. Scott here. We do continue to command premium CPMs. It's a function of it being a great product that provably performs better than the alternatives. More so though than the top line CPM, we're focused on dragging net more demand out of the TV ecosystem into OTT, by showing TV advertisers that they can buy not just using traditional currencies like Nielsen Digital Ad Ratings, but also buying on much more granular targeting characteristics, interactivity, better ways of measuring that advertising in OTT drive in-store purchases, for example. We continue to drive great pricing, but we're much more focused on the larger prize in our view, which is attracting TV ad dollars generally. With regards to your question about third-party demand and activity. I'm not sure I fully followed the question in the Fire ecosystem.
As you may know, Roku for years now has been an open IAB-based, standards-based ecosystem. We implemented the Roku Advertising Framework years ago, made it available to publishers as well as to our own media sales team. There are over 40 DSPs that are connected into the Roku ecosystem. We work in our own media sales with many of the biggest DSPs in the ecosystem. We think operating an open ecosystem, a data-driven ecosystem, is essential to the success of OTT advertising and are highly committed to it, and we think that the numbers demonstrate the attractiveness of our offering to advertisers.
All right. Thank you very much.
Our next question comes from Jason Helfstein with Oppenheimer. Your line is now open.
Thanks. Two questions. The guidance implies strong but slowing fourth quarter platform revenue. Given that Disney did not mention Roku on the earnings call, I think they listed Apple, Amazon, and Google, as far as initial launch partners, should we assume that there's no impact yet from Disney+, or ESPN+ on the full year guidance? The second question, and this has been coming up a lot with clients. It would seem logical that over time you would pay some type of revenue share to TCL. Can you talk about the puts and takes of that relationship? For example, would you agree to pay them a rev share if they're willing to support you more broadly on an international rollout, say in Europe and Latin America? Thanks.
Hey, Jason, it's Steve. I'll take the first question on the outlook. Yeah, we're really pleased with the performance of the Platform Business. I think Q2 it was an exceptional quarter, both in terms of Player and Platform segments exceeding the expectations. Certainly I talked about in another answer earlier about the lumpiness that can occur based on the rev rec, and that was a contributing factor to the acceleration we saw sequentially in Platform revenue in Q2. We have increased our guidance over time. A lot of it has to do with the relative quarter-to-quarter based on the lumpiness and the confidence we have in some of the business trends quarter-to-quarter. Just a reminder, we're growing very rapidly. The market's evolving very quickly. It's impossible to accurately predict these things at this scale.
We feel better about where the business is at versus our prior outlook, so we have raised the expectations for the back half of the year.
This is Anthony. I'll take the question on TV OEM. The Roku TV program is going well. It continues to be very successful for us. One in three smart TVs sold in the U.S. are Roku TVs. It's great to see our OEM partners taking market share. I would say to answer your question, we bring a lot of value to our TV OEMs across a lot of dimensions. We provide a very low-cost hardware platform. We have what we believe is the best software in the industry. We provide a lot of content relationships. We actually help market the products. We help retail, and there's lots of other ways we help them as well. We consider it a good partnership with our OEMs, and we're very valuable to them.
I would say in terms of the specifics of the commercial deal, that's just not something that we don't comment on commercial terms.
Great. Thanks. Very helpful.
Our next question comes from Benjamin Swinburne with Morgan Stanley. Your line is now open.
Hey, good afternoon. Scott, one of the things I was curious about is how much time or emphasis Roku places on things like buffering and ad completion and sort of ad product innovation from an advertiser perspective. I ask because in the OTT world, you do get sort of drop-off at certain points in the advertising, and I'm wondering if you think the 30-second spot is still the right product for OTT or if that needs to get shorter. How much you think Roku's differentiated in the eyes of advertisers around how quickly ads load and what % of those complete, some of those sort of blocking and tackling things that are starting to matter more and more to advertisers. Then I just had a follow-up.
Yeah. It's a huge part of our focus actually. It's a big part of why we got into the ad business in the first place, was not simply the revenue opportunity, but the chance to deliver a better ad product for marketers and a better ad experience for consumers. That's about the quality of the ad, the buffering, completion rates, and also new formats, interactivity, new sponsorship, brand integration opportunities. There's just so much opportunity in this space to create new touch points for marketers with the new TV viewer. We are very heavily invested in not just the consumer ad experience, but all the back end behind it, the targeting, the measurement, proving that OTT ads can drive true incremental lift in terms of site visitation, product purchase, retailer visitation. It's a huge push for us, and we do think it's a big part of our success.
Great. Sorry, go ahead, Anthony.
I was just going to say that we consider the ad experience part of the Roku platform, and there's a lot of effort in the Roku platform towards things like performance and customer satisfaction.
Makes sense. Just to follow up a little bit on a different topic, I think historically you guys have generated higher engagement and higher ARPU on active accounts that use your players versus the smart TV OS Roku-powered active account. I guess, is that still the case or is that gap narrowing? I'm just wondering, as your active account mix shifts more and more towards TVs over time versus players, if that has any impact on it or if actually there's some sort of mean reversion going on.
This is Anthony. I'm not sure about the mean reversion. Sorry. I would say it's more complicated than just players versus TVs. There's a lot of factors that drive engagement. Everything from the retailer that the device was sold through to the size of the screen to the model of the player. Those are all things that we're monitoring. In general, those are things we monitor, and we optimize, and we use when we're determining campaigns and so forth. Overall, all our devices have excellent engagement. Three and a half hours a day on average and growing. I would say, TVs, no matter exactly what the specifics of the engagement are, but they're a more strategic position to be in than a player. Player sales are obviously very important to us and growing nicely up 36% in terms of units in the quarter.
With a TV, we're the primary user experience for that TV experience. For a player, we're an add-on device. We obviously sell both, but we view TVs as more strategic.
Yep. Makes sense. Thank you.
Our next question comes from Matthew Thornton with SunTrust. Your line is now open.
Hey, good afternoon. Thanks for taking the question, guys. A couple quick ones if I could. I guess first, you guys talked a little bit about just the programmatic channel in the press release. Any update you can give us on just how that breaks out these days, just in terms of programmatic direct versus private marketplace versus kind of open exchange, which I assume is very small? Any color or just mix would be helpful. Just secondly, two accounting questions. Coming back to the deal rev rec. When you're working with an SVOD or virtual MVPD and they raise their price or change their own economics, can you talk about how that impacts you? Are you getting a flat fee per sub? Are you getting a percentage of subscription revenue? Just any color on how that changes. Similarly on the remote buttons.
Every time you sell a player or a TV, you've got the remote buttons that content producers can bid for. Is that a one-time rev rec upfront when the device is sold? I'm just trying to refresh my memory there. Thanks, guys.
Hey, Matt, I'll take your question on programmatic. This is Scott. We continue to be very invested in programmatic as a sales channel. It is not the majority of sales for us today. That's a function of the fact that most of the dollars flowing into OTT advertising today are coming out of TV budgets. We're here to trade with advertisers and help them buy the way they want to buy. We're big believers in programmatic and automation more generally. We've got a great stack to support programmatic buyers. In particular, we think our programmatic offering is uniquely situated in terms of the premium broad reach that it can deliver, as well as the premium targeting, the advanced proprietary targeting available because of the data that we have as a platform. Programmatic is growing significantly faster than our already fast-growing ad business.
As a sales channel, it's an important one for us. Steve, you want to?
I'll take the deal rev rec question. As I talked to her about earlier, in these content distribution agreements, we have multiple elements. Those could include, if you're an SVOD service, a rev share on the subscribers that we sign up for. It's not a bounty. The standard model is a rev share that comes in over time. In terms of how we make money, the accounting's a little different, though, because what we do is we look at the total value of the deal. Let's say we sign a 2-year deal. We're making estimates of how many subscribers we might sign up for that SVOD service or virtual MVPD.
If they have some requirements on spending on our audience development toolkit, which could be things like buttons, it could be display minimum guarantees on display ad spending, et cetera, then that goes into the mix as well. If we're getting advertising access, then that can be part of it. We value the entire deal, and there's expectations around how many subs we might sign up or other factors. It's not recognized upfront, it's recognized when the value of the deal changes, and when we meet certain performance obligations in the deal. It's not directly tied to the underlying business occurrence, if you will, and that's why it can be lumpy over time and can change each quarter as we revalue these assumptions for each of these major deals.
Our next question comes from Michael Morris with Guggenheim. Your line is now open.
Thank you. Good afternoon, guys. Two questions or two topics, if I can. First, on audience development and the opportunity there. It seems that there are going to be a number of new over-the-top services launched over the next 12 months, which should create some incremental demand. How are you thinking about meeting that demand? Assuming it does materialize, is it a situation where you can sort of expand your inventory to meet an increased amount of demand, or is it something where your inventory from kind of a display basis would be somewhat fixed and you would expect to see the value through some pricing power there? Second, in the shareholder letter, you called out sponsorships and the growth that you're seeing there. Can you maybe give us an example of a successful sponsorship that you saw in the quarter?
Maybe a little more detail on how that's building, how it's growing, some frame of reference for how big that is and can be. Thanks.
It's Scott here. With regards to your question about audience development, we are excited to say the least, about the coming services into OTT, and believe that we are an essential platform for these new services. Not just because of our scale, but because of the tools we've got to help these content partners build a big and vibrant audience on the Roku platform. We have a whole array of audience development ad products and capabilities, starting from when you're setting your Roku up to ads in the home screen, featured placement in the channel store, email units. We recently launched a video ad unit that lets you drive a download off of a 30-second spot. We continue to create new ad products like that to help our content partners build audience as they launch these services on the platform.
We also continue to innovate in the back-end technologies and machine learning technologies to better predict who's likely to subscribe to that service, which helps us not just deliver a better, more efficient product to the client, but be more efficient in our use of inventory in driving the results. In terms of your question about sponsorships, we're very active in creating sponsorships throughout the Roku user experience. For example, around the Super Bowl, we had an experience with TurboTax where we showed users all the different ways that they could watch the big game. That's just an example of a breakout experience. We had sponsors in and around the National Streaming Day as another example.
One of the great opportunities for us as a platform where we own the home screen is that we can craft these bespoke breakout experiences in partnership with the brand, helping them meet their objectives in terms of the content that they want to be cozied up against and whatever their KPIs are. We just think, at the end of the day, for content partners and for brands that are leaning into advertising in OTT, that we're an essential partner because of our scale and our data.
Is there any direct response or interactivity that you provide or can provide in those sponsorship partnerships?
Yes. There are lots of new ad formats that we've been developing and testing. For example, the ability to fire an email or an SMS off of a video ad is an example. That's an exciting new riff on a traditional ad spot, bringing interactivity to a 30-second spot. Our sponsorship experiences have similar capabilities. We view interactive as a still-emerging capability for TV advertisers. It's not a capability they've traditionally had, but it's an exciting new dimension to be able to bring to TV advertising.
That's great. Thanks a lot.
Our next question comes from the line of Mark Zgutowicz with Rosenblatt Securities. Your line is now open.
Hey, guys. Just a couple of high-level questions. First, on accounts. If you think about just the 100 million or so broadband-only homes, which you'll be slowly closing in on close to 40% here over the next 12 months or so. I'm curious sort of what you think about as addressable, and obviously acknowledging Fire and Apple TV, and sort of what that might imply in terms of the ceiling on your accounts, count growth. You've obviously had incredibly impressive growth over the last several quarters, but it'd be helpful to get your perspective there. Thanks.
Hey, this is Anthony. The way I think about it is, over the long run
Every TV shipped to a broadband household in the United States is going to be a smart TV. It's going to run a smart operating system, a licensed operating system. Things like devices, players will, over time, it could be some long period of time, but over time, will slowly fade away in importance because your TV will come with a great solution. What it really comes down to over time is, what's the market share? I think the addressable market is every TV household, every broadband TV household. The question is, what is our market share for TVs? I think the contenders are, we're number one, and our lead is growing. Samsung has Tizen, and then there's Amazon and Android TV.
Okay, thanks. Maybe just a follow-up on hours. Again, pretty impressive growth that you've been seeing there now, closing in on roughly four hours a day. I'm curious, a lot of your users pull at a much higher hourly usage rate, closer to five, six or even beyond that in terms of hours of viewing daily. Just curious, what is sort of keeping that number down is, and whether new ads that you're bringing in are sort of watching at, I guess, the numbers sub that daily rate, or if they're above that average daily that you report. Thanks.
Our next question comes from Tim Nollen with Macquarie.
Oh, sorry. Are we going to answer?
Can we answer the last question there?
The operator will answer that one.
Before we go to the next?
Yeah.
Yeah. Go ahead.
I think hours for a particular user vary a lot, right? For example, cord cutters watch all their TV on Roku. A Roku cord cutter, it's going to be a lot higher than three and a half hours a day on average. You have, on the other end, you have customers that are just watching the occasional movie, but watch most of their TV with their paid TV subscription. The trend we see is as more Americans cut the cord and as more content comes to streaming, the amount of hours viewed through the streaming platform grows.
Yeah, in specific answer to your question, Mark, older cohorts continue to grow in engagement, and each new cohort coming into the ecosystem is generally coming in at a higher level of engagement than the prior cohort.
On your first question, where you asked about market share, we have a great chart in the shareholder letter this quarter that shows market share and how it's changing.
Okay, thanks. Thanks, guys. I appreciate the color.
Our next question comes from Tim Nollen with Macquarie. Your line is now open.
Great. Thanks. I'm hoping to get a little bit more color on your international expansion. I gather you're not saying a whole lot about it yet, but could you help us try to understand if it's a bit more of a push on the player side or on the platform side, i.e., integrations with other TVs? My understanding is the market share of the OEMs that you're not in the U.S., is lower in many other countries. It might be a bigger opportunity for you to integrate with other OEMs. Just any color you could give us maybe on the split between player and smart TV integrations and the opportunity on the OEM side, please.
This is Anthony. We really don't have any more detail on international. We're just not ready yet to reveal our plans for international expansion and how we expect that to work.
All right. We'll have to make our own assumptions then. Thanks.
Our next question comes from the line of Shyam Patel with Susquehanna. Your line is now open.
Hey, guys. Thank you. I had a couple of questions. The first one on The Roku Channel. Can you guys talk a little bit about just kind of where you are with ad load there, relative to where you think it can be over time? Then, second question is, I know you don't guide to active accounts, but any way to kind of think about active accounts in the second half, especially given the press reports suggesting that you guys had a very strong Prime Day? Just wondering if there's anything to keep in mind there. Thank you.
We're pretty passionate about our low ad load on The Roku Channel. We run at about 8-minute target ad load per streaming hour in The Roku Channel, and I think more so than, if this is what you're suggesting, lifting that ad load, we're much more focused on how do we deliver even better, more effective ad products within that load. I think we've made great progress on that.
Yeah, the biggest driver is just ad TV dollars moving to streaming. That swamps things like ad load and CPM.
Yeah. Hi, this is Steve. On number two, we don't provide any outlook on any of the key operating metrics. In terms of active accounts, we passed a great milestone in the quarter in terms of we passed 30 million active accounts for the first time, ending at 30.5 million. Certainly, we've seen continued robust growth in both Roku TVs and players. We've been very happy with the increased scale that we've been building over time on the active accounts. As well as on the monetization side, we hit another milestone as well with ARPU getting above $20. Both the increasing scale and increasing monetization is progressing nicely.
Yeah, I'd just add that our strategy is working. You can see it in the results and our strong execution. Roku TVs are doing well and Players doing well.
Great. Thank you.
Our next question comes from the line of Rich Greenfield. Your line is now open.
Hi. Thanks for taking the question. Maybe if we just step back for a second. Anthony, you made a comment about as cord-cutting picks up, people spend more time streaming, and I think everyone probably on this call would totally agree with that. I guess what I'm curious about is, as they stream more and as all of the apps that we see that are launched already this year, but we're also, I think a lot of people are talking about how many apps are coming from major media companies over the next year. As people spend more time streaming, do they actually spend more time using more apps? Is it really like a mobile phone where you tend to use the three or four apps that dominate 80%, 90% of your behavior?
How lopsided is it, even as you add apps, you just tend to spend more in your favorites versus actually increasing the number of different apps that you use? That's question one. Then two, you had that chart on market share, which is very helpful in the investor letter. Just curious, when you lose a customer, when somebody walks into a Best Buy or a Walmart and buys a Fire TV or an Apple TV, what do you attribute the number one reason why you're losing that customer to a competitor's device?
Hey, Rich. Nice to hear from you again. I would say on your app question, I think the big picture here is that we believe there's too many apps. There's thousands of apps on Roku, and that's just hard for customers. That's one of the strategies behind The Roku Channel. It's also one of the reasons we think just in general, there's going to be some content consolidation in the industry. For us, our goal is to allow any publisher, whether it's a humongous content publisher or whether it's a mid-size or a long tail, to be successful on our platform. One of the ways we're doing that is allowing them to distribute their content through The Roku Channel, where we provide a unified experience with machine learning and recommendations.
That eliminates the problem for those publishers, that it's hard to get viewership in their apps. In terms of why do we lose customers, I'm not really focused on that. We're focused mostly on getting more customers. Active devices in the U.S., we're ahead of all our competitors. We have a third more active devices than the number 2 player. We're the number 1 streaming platform in the United States. We're just focused on keeping our customers happy and bringing in more customers.
Just to follow up on your first answer, because I think it's really important. When someone's making a trade-off, I'm the new NBC streaming app, I'm Disney+, I am HBO Max, and I'm going to market. The choice to just be in the App Store versus to be embedded in The Roku Channel. You obviously spoke to the benefit. Is there anything that the publisher is giving up or any reason why they wouldn't want to be part of The Roku Channel versus simply being in the App Store?
Well, first of all, they don't have to decide. We allow both. It's pretty common. ABC News, for example, is a very popular brand in The Roku Channel. They also have their own app. What the data shows is that they get more streaming in The Roku Channel, and it's usually incremental. I think the main reason to not do an app is it's just difficult to build audience. It's expensive. It takes an R&D team. It takes a direct-to-consumer experience, including customer acquisition, churn reduction. It requires machine learning. It just requires a lot of expertise that is hard to build. That's why we are seeing publishers increasingly opt into using just The Roku Channel. The overall economics are going to be better for them.
Thank you.
I'm showing no further questions in queue at this time. I'd like to turn the call back to Mr. Wood for closing remarks.
Thanks. We had another very strong quarter, and we are pleased with the outlook for the full year. The company is executing well, attracting outstanding talent, and becoming stronger in fundamental ways. While we passed two big milestones in account growth and ARPU, we are still early in the far-reaching changes that will reshape how the world watches TV. Thanks again for your support, and happy streaming.
Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program, and you may now disconnect. Everyone, have a great day.