Good day, ladies and gentlemen, and welcome to the Q4 2018 Roku Earnings Conference Call. At this time, all participants are in a listen only mode. Following management's prepared remarks, there will be a question and answer session, and our instructions will be given at that time. If during our conference today you require operator assistance, press star and zero, and an operator will be happy to assist you. As a reminder, this conference call may be recorded for replay purposes. It is now my pleasure to hand the conference over to Mr. James Stanford, Head of Investor Relations. Sir, you may begin.
Thank you. Good afternoon, and welcome to Roku's Financial Results Conference Call for the fourth quarter ending December 31st, 2018. 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, the GM of our platform business, who will be available for Q&A. Please be sure to review our shareholder letter, which contains much more details than we will cover in the introductory remarks. The following discussion, including responses to your questions, reflects management's views as of today, February 21st, 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 future performance of Roku, including expected financial results for the first quarter and full year of 2019, and the future growth of our business. Our actual results may differ materially from those discussed in this call for a variety of reasons. Please refer to today's shareholder letter and the company's 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 the company's 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 2017.
Now I'd like to turn it over to Anthony.
Thank you, James, and thanks to everyone for joining today's call. I'll take a moment to highlight a few points from our shareholder letter. First, we had a great 2018 wrapped up by a strong Q4. 2018 revenue was up 45% from 2017, and our U.S. market share lead grew. I credit our success to a combination of the incredible talent of the Roku team, having the only purpose-built OS for TV, the unstoppable shift to streaming, and consistent excellent execution. Second, I am excited about our plan for 2019. We expect to pass $1 billion in revenue, two-thirds coming from our platform business. I'll conclude by pointing out three trends that cause me to believe we are still in the early days of our growth and why I expect our leadership position in streaming to continue. First, smart TVs are adopting a licensed OS, just like phones did.
Our OS, which we have been developing for the last 10 years, is the leader in this shift because it is incredibly user-friendly, yet powerful, and built solely for the TV ecosystem. Second, TV advertising is a $70 billion market and is in the very early stages of transitioning to streaming. We have built advanced features for advertisers into our OS, and independent studies show that Roku TV advertisements are more effective than traditional linear ads. Third, The Roku Channel has become a large aggregator of content on our platform, a change that benefits our users, content publishers, and advertisers. I expect The Roku Channel to grow from a relatively small share of viewing hours to a larger percentage.
Owning and operating The Roku Channel allows us to control the promotion and presentation of content and to monetize an increasingly large supply of video advertising inventory. With that, I'll turn it over to Steve Louden, Roku's CFO.
Thanks, Anthony. Our strong fourth quarter results capped off another great year. We executed well and delivered record results. Before taking your questions, I'll walk through operational and financial highlights and address outlook. We saw continued strong demand for players and TVs in the fourth quarter, which resulted in an incremental 7.8 million active accounts for the year and ending 2018 with 27.1 million active accounts. Our scale has expanded rapidly over the last several years. We added just under six million active accounts in 2017 and nearly eight million more in 2018. In addition to increasing our scale, we continue to see growing engagement on the platform, with 2018 streaming hours up 9.2 billion year-over-year to 24 billion. As we mentioned in our shareholder letter, Roku users streamed more in the last year and a half than in the entire prior nine years combined.
Not only are more people choosing Roku as their streaming platform, but they are also streaming more than ever. Please see our shareholder letter for the full financial details from the quarter, but I'll highlight a few items and provide our Q1 and full year 2019 outlook. Total Q4 revenue increased 46% year-over-year to $275.7 million, with platform revenue up 77% to a record $151.4 million, representing 55% of total revenue. Player revenue growth of 21% year-over-year again came in ahead of our expectations with another strong quarter from retail channels and a well-executed holiday season. Player units were up 30% year-over-year, and ASPs were down 8% as we continue to see strong demand for sub-$50 players. Our key financial performance metric is gross profit, which was up 53% year-over-year this quarter to a record $112 million, marking our first quarter above $100 million.
Gross margin was 40.7%, up 170 basis points year-over-year, driven by solid platform margins, partially offset by the impact of player promotional activity during the holiday season that drove high unit growth in active accounts. We had a record number of net new hires in the fourth quarter and ended the year with over 1,100 employees, up 36% year-over-year. We are attracting outstanding talent and believe the investments we are making in R&D, sales and marketing, and G&A are bolstering our market position now and strengthening our future growth opportunities. One of the key ways we attract talent is through competitive salaries and equity compensation. In 2018, we transitioned to an RSU-based comp structure and provided existing employees with their first post-IPO equity refresh grants. This created a step function increase in our stock-based comp, which increased from $11 million in 2017 to $38 million in 2018.
We expect stock-based comp to increase to roughly $73 million in 2019. When compared with benchmarking data, we believe our stock-based comp is in line with our peers. OpEx in the quarter grew 67% to $106.8 million. Excluding stock-based comp, OpEx was up 49% year-over-year, which is more in line with revenue and gross profit growth. Adjusted EBITDA grew 70% year-over-year to a record $24.5 million in Q4 and well ahead of our outlook as a result of higher revenue and gross profit. With that, let's turn to our outlook for the full year. As you saw in our letter, the midpoints of our 2019 outlook call for just over $1 billion in revenues and $450 million in gross profit, each up roughly 36% year-over-year. Included in our outlook is platform revenue growth to roughly two-thirds of total revenue and roughly flat player revenue growth.
For modeling purposes, you should plan for full-year platform growth margins in the low 60s as a percent of revenue driven by continued mix shift to video advertising and introduction of premium subscriptions. For players, for modeling purposes, you should expect us to manage the player gross margin to low single-digit margins in 2019. We remind you that we are not optimizing for player gross profit given our focus on account growth and our strategy of trading player margin for account growth and platform revenue growth is working well. In prior forward-looking statements, we have consistently discussed managing the business to adjusted EBITDA breakeven, and our 2019 outlook reflects that continued approach. We are more confident than ever about Roku's fundamental competitive advantages and the huge opportunities that lie ahead, and we have carefully prioritized a robust list of opportunities to pursue.
While a meaningful portion of our OpEx is discretionary, we believe reinvesting gross profit back into the business is the right thing to do to drive long-term shareholder value. Our outlook calls for an $85 million net income loss in 2019 at the midpoint. As a reminder, this includes expensing $73 million of non-cash stock-based comp and $12 million of depreciation and amortization. Q1 is seasonally the lowest revenue quarter for the year. For Q1, we expect player revenue to drop nearly 50% sequentially and platform revenue to fall nearly 20% sequentially. For Q1, our outlook is for year-over-year revenue growth of 37% at the midpoint. Platform revenue growth of roughly 60% year-over-year includes a tough comparison with Q1 2018 from the delivery of a new product to one of our Roku Powered partners.
Excluding the impact of this item in the prior year, platform revenue growth would be more closely in line with Q4 growth rates. On the player side, our Q1 outlook factors in roughly high single-digit player revenue growth. Continued mix shift to video advertising is expected to be a drag on platform gross margin. When combined with single-digit player gross margins, our gross profit growth outlook for Q1 is roughly 39% growth at the midpoint. One of the challenges that The Street seems to be struggling with in modeling Roku is that our OpEx is not seasonal. Headcount-related expenses account for roughly three-quarters of total OpEx. We have been and will continue to grow headcount throughout the year.
As a result, Q1 OpEx is expected to be roughly $10 million higher in Q1 than in Q4, as we recognize the full quarter impact of the hiring that took place in Q4, as well as new hires in Q1. As a result, we expect to report an adjusted EBITDA loss of roughly $10 million at the midpoint and net income loss of roughly $30 million, which includes stock-based comp of $17 million and $3 million in depreciation and amortization in the quarter. We encourage you to factor in the seasonal revenue dynamics we have discussed and the sequential growth trends for OpEx going forward as well. I'll summarize by saying how pleased we are with the performance of the business by sharing a little perspective on where we have come from and where we are going.
In 2015, Roku had nine million active accounts and a $50 million platform business and a $6 ARPU. In 2018, Roku had 27 million active accounts with a $417 million platform business and an $18 ARPU.
As we look to 2019, we expect to achieve $1 billion in revenue, with roughly two-thirds of that coming from platform monetization. The fundamentals of our business, the difficulty in replicating our strengths, and our laser focus on streaming all give us confidence in our ability to deliver significant long-term shareholder value. With that, let's turn the call over for questions. Operator?
Thank you, sir. Ladies and gentlemen, at this time, if you would like to ask a question over the phone, please press star and then one on your telephone keypad. If your questions have been answered and you wish to move yourself from the queue, simply press the pound key. To all participants participating in today's Q&A session, we kindly ask that you please limit yourself to one question and one follow-up. Our first question will come from the line of Mark Mahaney with RBC Capital Markets. Your line is now open.
Great. Thank you. This is Shweta for Mark. Two questions, please. One, could you please talk a little bit about platform revenue and potentially providing any visibility within the platform revenue as it relates to content distribution and licensing? Two, on international strategy, it would be great to hear a little bit more about progress that you've made so far. Understood that the contribution will come next year, but where are you right now? What do you expect to do this year? Thank you.
Hi, this is Anthony. I will take the international question first, then Steve can talk a little bit about platform revenue. International, just in summary, Roku has more than 27 million active accounts globally today. Most of those are in the United States. We believe many of the assets we built for the U.S. market will help us expand into other markets. Clearly, streaming is a global opportunity with one billion households worldwide. Netflix has more international than domestic subs. In 2018, we started to invest more substantially into our international business. We created an international CU. We are in 20 countries today, there is a lot more we can do. We are adding more local content, expanding our relationships with international retailers, we think that we will start to see the results of this increased investment bearing fruit in 2020.
Then Steve, do you want to talk about
Yeah, sure. Hi, this is Steve. Yeah, in terms of the question of the platform revenue, we think of the platform segment as the segment that really speaks to our monetization strategy. In terms of the big drivers, one of the things we pointed out was that our Roku monetized video ad impressions more than doubled in 2018. That's one of the key drivers along with other parts of advertising and then the content distribution. In terms of the segment, there are a lot of those pieces of the business are interrelated in agreements and relationships regarding our content publisher relationships. So we look at that more on the ARPU basis overall, and then, like I said, the driver we've disclosed that we think is a key part of that is the video ad impressions that Roku monetizes.
Okay. Thank you, Anthony. Thank you, Steve.
Thank you. Our next question will come from the line of Mark May with Citi. Your line is now open.
Thanks a lot. I appreciate it. Is there any way that you can help quantify the amount? Just looking for more details around the international expansion efforts. Maybe two parts. Can you talk a little bit about what countries and the go-to-market strategy there, and is it possible to help quantify the amount that you're investing this year? How much is that effort dragging on EBITDA? Thank you.
Hey, Mark. It's Anthony. We haven't really outlined our international strategy at this point. We're not ready to do that. We also haven't broken out the numbers. I would just reiterate, we think it's a big opportunity. We are starting to invest in the team and projects. Again, we haven't broken out the amount, but international is probably one of the top four areas we're investing in, along with Roku TV, The Roku Channel, and international. We'll have more information as the year plays out.
Okay. Thank you.
Thank you. Our next question will come from the line of Evan Wingren with KeyBanc Capital. Your line is now open.
Thanks. I was just wondering on the platform business, can you give us a bit more insight into the components of the guidance for the year in terms of accounts for ARPU and sort of how you expect the seasonality to shake out of those mechanics based on what you know today? The follow-up question would be on The Roku Channel. You referenced adding features and content in the letter. Just wondering if you could provide a little bit more detail on what you're expecting there. Anthony, I think your comment was that it's a relatively small % today going to a larger %. Wondering if you could maybe box that in a little bit further for us. Thank you.
Sure. This is Anthony. Yeah, I'm super excited about The Roku Channel. It's a big opportunity, why don't you start with that, Scott can take that, maybe Steve can talk a little bit more about your platform question.
Hey, Evan. Scott here. The Roku Channel is off to a great start and has exceeded our expectations in many ways. It's already a top five channel on the platform in terms of the number of accounts it reaches each month. We started in late 2017 with about 1,000 free movies and TV episodes and have expanded that now to around 10,000. In September of last year, we added live news services with partners like ABC, Cheddar, PeopleTV. We've just launched and are still rolling out premium subscriptions with partners like Showtime, Starz, Epix and others. It's been a pretty dramatic expansion, not just of the consumers consuming inside The Roku Channel, but the content that's available. The Roku Channel is an essential part of our overall platform strategy. It's not just a major source of ad inventory for us, but it's a highly strategic one.
The power of O&O ad inventory as opposed to ads that we access within third-party channels are that we own that inventory outright. We think it's a best-in-class consumer ad experience in terms of ad loads, frequency, new ad formats. It affords us better targeting than is available to us in third-party channels, it allows us, because we're licensing the content and have the opportunity to promote it, to really fan the audiences that we know are in demand by advertisers. Finally, it affords us the opportunity to create new ad products, whether that's sponsorships or limited commercial interruption movies. Overall, we're very excited about the progress that we've made on The Roku Channel, we expect to continue to fan those flames.
Hey, Evan, it's Steve, just on your platform question. As mentioned before, the overall guidance for revenue for 2019 includes $1 billion of total revenue, two-thirds of that being in platform. In terms of some of the other components around ARPU and account, what I would say on there, right, is we've seen great growth in the active accounts, adding almost eight million accounts to 27 million right now. The streaming hour growth has been strong. We don't traditionally provide guidance on the key operating metrics and aren't doing that this time. In general, we're very happy with the growth path of the business. One thing I'll remind folks is the monetization continues to grow faster than the streaming hours and the active accounts, although there's not a direct correlation between those things.
In terms of seasonality throughout the year, we did mention in the comments that, a reminder that there is quite a bit of seasonality on a quarter-over-quarter basis. We mentioned that platform, we expect it to decline about 20% quarter-over-quarter. Seasonally, Q4 is the heaviest quarter both from player and platform. Just a reminder to everyone, not just when you're looking at Q1, but throughout the year to study that quarterly seasonality, because I think Q4 has been the strongest quarter, and sometimes the seasonality can be a bit disconnected there.
This is Anthony again. Let me add a couple of comments about streaming hours and monetization. The way I think about streaming hours is, they're loosely coupled to monetization, and over time, they're probably more tightly coupled, but monetization tends to lag streaming hours. The streaming hours are, I think, an important indicator of how important Roku is to our customers and to their lives. That's how I think about it. One stat there that I like is that Roku users streamed more hours in the last 18 months than in the previous nine years combined. Customers are streaming. One of the drivers of the ad business is, I would say there's two drivers. The one important one is that viewers are moving to streaming and advertisers are following, but they haven't caught up yet. I think we said this consistently, and it's still true.
A lot of viewers are shifting to streaming, advertising dollars are still relatively small compared to the number of viewers that have shifted. We are starting to see that change. For example, our monetized ad inventory last year more than doubled, and we expect that to happen again this year.
Thanks, Anthony Wood.
Thank you. Our next question will come from Jason Helfstein with Oppenheimer. Your line is now open.
Thanks. Kind of a two-part question with a little add on. When we talk to senior people at some of the bigger agencies, both on the TV buying side and on the digital, and we ask: How is OTT doing? How is Roku doing? They still universally say how difficult it is to buy OTT, not referring to you specifically, but broadly. What are you trying to do to simplify the buying process on your own and potentially with other industry initiatives? The second question, and I think this keeps coming up, is the sustainability of that $30 CPM, particularly since there is inventory that can be bought around you at prices lower than $30, kind of how you're addressing that.
I know you made some moves toward the end of last year around data, maybe elaborate about that, about what you're doing with data exclusivity. Lastly, a question we continue to get, and I think you get, is about increasing transparency around video advertising specifically. I think the commentary in this shareholder letter was pretty consistent with the last shareholder letter as far as it doubling year-over-year. If there's any plans to expand further transparency around that? Thank you very much.
Jason, Scott Rosenberg here. I'll take the first two of your seven-part question here. Great question, though. We're making great progress on the street with the ad community. We're in the early stages of a secular shift out of TV linear ad spending into OTT. I think Roku is driving this transition better and more smartly than anybody in the market. One of the most essential ways that we do that is by showing advertisers the reach arithmetic, the number of users who've left linear, who are now in OTT, and only reachable on the Roku platform. Multiple third parties will tell you that well more than 10% of TV viewing is happening in OTT, yet nowhere near 10% of TV ad budgets are yet spent in OTT.
Said another way, if you're a brand that is still spending 100% of your budget in linear, you're wasting more than 10% of your budget. We are regularly in market, helping advertisers understand that reach arithmetic and plan around it. Just two quick examples I'll offer, by way of example, both Baskin-Robbins and RE/MAX in the latter parts of last year, bought with us. We showed them that respectively, 86% in the case of Baskin-Robbins and 81% in the case of RE/MAX of Roku users never saw their linear TV ad, and that when they invested with us, they delivered, again, respectively 10.6% incremental reach and 9.2% incremental reach over their linear ad buy.
That kind of planning tool, that kind of research is the elixir, the kind of data that the buy side is looking for in order to get through this transition that you're referencing, and I think Roku is unique in showing them that math. With regards to your question about the sustainability of rates, we continue to command premium rates. That is, at the end of the day, a testament to the significant increases in demand for OTT and ultimately a proof point of how powerful and how much better Roku media performs relative to linear TV. Steve, do you want to take the question around?
Yeah, sure. Jason, in terms of video advertising and transparency, one thing I'll note is, as part of our monetization strategy, as I mentioned earlier to the Q&A, the platform segment is the segment that connects to the monetization strategy. One of the things that is the key driver of that is this Roku monetized video ad impression. That's something that we haven't specifically talked about the trending on that, and that is the key driver. Certainly understand that there's a thirst out there. But one of the things for us is that, there are a lot of components within platform that are all very interconnected with these relationships we have within the ecosystem. We wanted to highlight that Roku monetized video ad impressions because that is a critical driver.
Thank you.
Thank you. Our next question will come from the line of Ralph Schackart with William Blair. Your line is now open.
Good afternoon. In the shareholder letter, you laid out sort of four areas of reinvestment in 2019 between advertising, The Roku Channel, Roku TV, and international. Just curious if there was one area in particular that you might have some outsized investment in 2019, or is it going to be evenly spread? Just a follow-up to that question would be, occasionally you provide an update in terms of what % of your hours are ad-supported, and just seeing if you could perhaps provide an update to that stat. Thank you.
Hey, this is Anthony. I'll talk about the investment areas. The four that we outlined in the letter are our top four. There's other areas that we're also working on that are also, we think, high ROI. We haven't broken out how much we're spending on each area, but they're listed in order of how much we invest and they're not that too far apart. Sorry, what was the second question?
Yeah. Hey, Ralph. This is Steve. I'll take that. We don't have a specific update to the ad-supported hours. Obviously there continues to be strong interest in that, and certainly with the growth of The Roku Channel, continues to speak that free ad-supported content is a strong interest for consumers. Certainly, I think a lot of the industry is catching up to us in terms of understanding that that's a key component of the OTT offering.
Okay, great. Thank you.
Thank you. Our next question will come from the line of Laura Martin with Needham. Your line is now open.
Hi, can you hear me?
Yep. Hi, Laura.
A couple things. I think the first one, Anthony, if I add up your operating expenses in 2018, it gets to about $340 million. You're projecting $1 billion of revenue and zero EBITDA, which means you're going to add $250 million, I think, to that cost structure, which around numbers is nearly a double. Okay, not quite. Steve would demur. Can you double your cost structure practically in a year looking at these investment categories that you're making?
Yeah. Hey, Laura. It's Steve. Why don't I take a crack at that and Anthony can add some color on the top. Just in terms of the guidance, we're excited about the top-line guidance of $1 billion, as you mentioned. That's a huge milestone for us. Our total gross profit guidance for full year 2019 is around $450 million-ish at the midpoint. Our outlook does anticipate running around adjusted EBITDA. One thing to note on that, I think your math is a bit off when you look at the 2018 OpEx number versus what the implied OpEx is for a gross profit guidance of around $450 million. It is a increase, certainly. One of the things I'll just note on that is that OpEx increase includes a significant year-over-year uptick in stock-based comp, which is non-cash.
That's going from $38 million in 2018 up to $72 million, as well as there's another $12 million of depreciation and amortization on that. That's about $85 million of non-cash in that number. We certainly continue, as we mentioned in my prepared remarks, we certainly do continue to grow headcount. We grew headcount in 2018, and specifically in Q4, we had a record hiring as well. That headcount grew 36% year-over-year. We'll continue to hire around that same pace in 2019. Between the full-year impact and some of the investment areas, that will be an increase. We think there's a great opportunity out there. We're the leading streaming TV platform in the U.S., and Anthony talked a few different ways about some of our key investment areas around ads, The Roku Channel, Roku TV, and international.
We think it's the right time to continue to invest into the opportunity and to strengthen our advantages.
Yeah, this is Anthony.
Anthony? Yeah.
I was just going to add that we have created some fundamental strategic advantages for us. The reasons that we win in the market, things like our purpose-built OS, our large engaged user base, The Roku Channel, our ad platform, and low BOM cost, et cetera. We just believe it's the right call at this point to keep investing, both to grow those advantages that we've already built, increase our lead, but also create new opportunities. There's a lot of opportunity in streaming right now.
Okay. All right. My next question is, you say in the press release here that you had three million U.S. households cut the cord, and you added 8 million. By implication, that implies the other five million, in your mind, are being added to the big bundle. That's the first A. And then B, do you still think you have 10 million cord cutters that can't be reached on linear TV that are just on Roku/OTT?
Yeah. I think what we said in the letter is that the industry had three million cord cutters in the U.S., and that we added-
Yep
Eight million active accounts.
Yep.
Some of those, obviously, we didn't add eight million cord cutters. We said historically, roughly half of our subscribers are cord cutters, and the rest are, I would characterize them as cord shavers. It's a mix of that. Your second question, I think it was one for Scott.
There's 10 million?
Oh.
Do you still have 10 million cord cutters?
Cord cutters remains a key targeting segment for us as we're working with advertisers. As I mentioned earlier, the opportunity to reach consumers who've cut or shaved the cord or basically who are simply no longer reachable through a linear ad campaign is why advertisers invest with us.
Are you using 10 million, Scott?
Yeah. We've never broken out the exact number. We have said roughly half of our viewers, plus or minus, are cord cutters or don't-
Do not have a traditional paid TV subscription.
Yeah. More accurately, they don't have a traditional paid TV subscription.
Okay. That's half of that $27 million. My $10 million's way too low by now, I guess. That's what that'll imply, right?
Yes.
Okay, cool. Best Buy Amazon, there was a lot of headlines earlier in the year that because Amazon was doing an exclusive with Best Buy and they're introducing a new 4K TV, that that might hurt you. Did you see any impact on that in the fourth quarter? Or did your Best Buy perform just as well for Roku as it has in prior years?
We don't break it out by retailer, but we were very happy with both our player sales in retail in general across the board, and also our OEM partners sold a lot of Roku TVs. We're also very happy with that. Over one in four smart TVs sold in all of 2018 were Roku TVs. Best Buy specifically, you can get a TCL 6-series right now, which is CNET's Editors' Choice for $550. It's a 55-inch TV. It's great. It's an awesome TV. We do sell a lot of TVs at Best Buy.
Okay. Finally, TCL reorg. There were a lot of headlines earlier in the year that the TCL reorg might negatively affect you. Have you seen any negative impact from TCL? Sounds like not from your prior answer.
No, there's no impact. There was a lot of confusion around that, it had no impact on us or their dedication to the TV business.
Perfect. That's just what I needed. Thanks so much, guys. Congratulations on a great quarter.
Thanks.
Thank you. Our next question will come from Ben Swinburne with Morgan Stanley. Your line is now open.
Thank you. Good afternoon. Anthony, just picking up on the tvOS part of the business. You talk about the house brands being increasingly uncompetitive in the market. Are you expecting or should we expect a significant ramp in your share of smart TV sales in 2019? Is that sort of underpinning part of the guidance, or is this sort of assuming kind of status quo with the partners that you have? Any color you could give us on the outlook for new partnerships on the OEM front would be helpful. Just as a follow-up on a different topic for Steve, can you help us at all on the OpEx in 2019? How much is tied to your international plans where we're really not seeing any revenue yet?
Just might be helpful to sort of understand kind of the underlying non-international OpEx trends, even if it's qualitative, would just be interested in how substantial that is this year.
I'll go first. This is Anthony. Regarding our TV OS. You asked about our outlook. I would say that our outlook obviously incorporates kind of all aspects of what we expect to happen to our business over the year, including growing monetization and including growing active accounts. I would say in terms of active accounts, I mean, one of the best things that happened to us in 2018 was our market share in players. We believe we're number one in market share in players in the U.S., and we believe that market share actually grew in 2018. We believe the same is the case for TVs, that we believe we're number one in market share for TV OSs, and we believe our market share grew.
Most of that growth, the biggest untapped segment of TVs for which might end up licensing our OS are TVs that are, I'm not sure what you called it, but those TVs are using what we call homegrown operating systems.
Sorry. Yeah, you said house brands.
Right.
Sorry about that. Homegrown, house brands.
Yeah. Right. House brands. Yeah. Homegrown, meaning a software stack that the TV company made for their TV.
Yep. I got it.
That's still the majority of TVs out there, and I still believe that those TVs over time will end up moving to a licensed OS. In the licensed OS, we are the number one licensed OS, and we have a large lead there. I think, again, our growth in active accounts will come from players. It'll also come from TVs, and if you dig into the TVs a little bit, it'll come from TV companies getting more shelf space for their Roku TVs, for their Roku OS-based TVs. One of the factors that drives our business is that our partners all tend to be partners that are growing market share in the TV space. As they grow market share and they get more SKUs at retail, that grows the number of Roku TVs out there. That's one factor.
Another factor is we do regularly add more OEMs, but we're not ready to talk about any new OEMs at this point.
Thank you.
Thank you.
Yeah.
And our-
Oh, go ahead, Ben.
This is the operator. Moving on to the next question.
Oh, sorry.
No worries. Our next question will come from the line of Tom Forte with D.A. Davidson. Your line is now open.
Great. I wanted to talk a little about your long-term investment spending beyond 2019. I was wondering, when you think about your investment spending, how much of it, if any, do you consider to be maybe short-term and strategic versus long-term in nature, like your international investment spending? Thank you.
Hey, Tom, it's Steve. I'll start. I think on our roadmaps, we have a mix of short-term feature capability adds and then longer-term capabilities or new product categories that we're working on. It's always a mix. I think there is a material amount of OpEx that goes to stuff that will not pay off in this year, and it is a mix of stuff that traditionally or generally will hit in the next year or two. I don't have a specific breakout, but we are managing the business for the long term, and we do have a vision where we think we're going, and we're putting resources against that. One thing just to clarify, based on that earlier question is, sort of this longer-term investment is not just happening in brand new categories or newish categories like international.
Even in our existing businesses, be it on the player side or TVs or advertising, there is long-term investments that are happening on capabilities that won't pay off in this year, certainly much less maybe a year or two. This is Anthony. I'll just add.
Great. Thanks.
In the letter, we called out four specific areas. I mean, there are other areas that we're investing in. Roku advertising, The Roku Channel, and Roku TV were three that we called out, and those are examples of areas that are already very important to our business, but that there's still a tremendous amount of room for innovation, and we're still in early days in what's possible in those categories. Those are examples, which are actually our top three areas. They fall in both categories. They're both important today, and they're both important in the future as well.
Great. Thank you.
Thank you. Our next question comes from the line of Matt Thornton with SunTrust. Your line is now open.
Hey, good afternoon, guys. Thanks for taking the question. A couple of quick ones if I could. I apologize if I miss these, but did you talk at all about the active accounts, the percentage that came from TV versus players? If you could give us any update on how that trended this quarter. I know it's usually kind of above or below 50% roughly. Secondly, similarly on the platform business, in the past you've quantified advertising as a percentage of platform, roughly 70%, give or take, and then within advertising, video versus audience development and sponsorships. Again, any quantification there? Then just third, housekeeping on the players. The fourth Q number was very strong. The outlook for 2019 is very strong.
I'm just curious if you're seeing any of that strength driven by whether it's speakers or the Roku Powered white label program, or if that is pure just retail players driving that strength. Any color there would be helpful. Thanks, guys.
This is Anthony. I'll take the player question. Steve can take the other first two questions. Just in terms of players, I would say that the drivers there are that people are streaming more than they used to, and they're buying streaming players. That's a big driver. Our market share is growing as well. That's helping as well.
Yeah, Matt, just on the first two, in terms of the mix of active accounts, similar to before, 50-plus % of the new accounts are coming from licensed sources, which is predominantly TVs. TVs as a contributor to new accounts continues to be very strong. As you mentioned, the player business especially, the holiday season on the player side was great, 30% year-over-year unit increases. The player business is doing very well, as Anthony mentioned. In terms of the platform biz, the disclosure we mentioned this time, we're focused on talking about the Roku monetized video ad impressions that more than doubled in 2018, and we think that will more than double again in 2019. We're focused on that driver and just talking about the platform overall, and our monetization strategy. No updates on those other things.
Thank you. Our next question comes from Michael Morris with Guggenheim. Your line is now open.
Thank you. Good afternoon, guys. A couple questions. First, how does Viacom's acquisition of Pluto TV impact your business, if at all? If Viacom were to sell Pluto inventory directly, for example, would that have any impact on your revenue and profitability? Maybe more broadly on that, just what's your view of competition in that AVOD space right now? It seems like any time we get a headline that says that Amazon might want to participate in that, people seem to worry about The Roku Channel, and I'd be curious your take on competition there. I do have one on vMVPDs, if I could.
Hey, this is Anthony. In terms of the Viacom Pluto merger, we don't comment on third-party acquisitions. I guess just in general, there's a lot of M&A activity in this space because I think streaming is obviously becoming even more important to both new streaming companies like Roku as well as the incumbents. I'll let Scott talk about your AVOD question.
Yeah. We're excited to see all the activity in this space. We are the original in terms of bullishness on AVOD, both in terms of its value to consumers and its importance in the OTT business model. We see AVOD growing very nicely on our platform and clearly a growing recognition in the industry of the importance of AVOD. Just a quick reminder on how we monetize an AVOD. As a content owner, there are really two ways onto our platform. You could publish an app and then work with us to promote that app through ads, through Featured Free. Roku participates in that process typically by selling a portion of the inventory. You could syndicate that content directly into The Roku Channel, in which case we drive the promotion and awareness of that content and the monetization and share back with the content owners.
Ultimately, we win in both models and view ourselves as a key partner for any entity in the space who's going over the top with an ad-supported business model. The winning factors here, in our view, in the end, ultimately, are having a direct relationship with the consumer and the rich data that flows from that in order to power targeted advertising and power the marketing of that content. Roku has these fundamental advantages as a platform, we think it makes us an essential partner to anybody in the AVOD business.
Thank you for that. Maybe if I could follow on that a little bit, on virtual MVPDs, can you help us understand how they benefit you? If a consumer signs up for a service away from the Roku platform but uses Roku as the primary interface, do you have a relationship that allows you to monetize that? Are you able to monetize any portion of their live advertising inventory and is that material for you, if so?
This is Anthony. I would just say in general virtual MVPDs are great for Roku, and I'll give you some specific examples of how. One is they convince some people move to streaming for a variety of reasons. For many people, a virtual MVPD is sort of the thing they need to move to streaming. It drives more streaming usage on our platform, which means that Roku is more relevant to our consumers' lives. If they sign up for the subscription service through Roku, we generally get a rev share. That's our general subscription business model. If they sign off of Roku, we don't generally get a rev share, but there are ways we monetize. For example, virtual MVPDs are customers of ours for our audience development business.
They are often buying promotion placement in Roku's user interface or other audience development products that we sell. They're big customers of audience development, even if the customer comes off of Roku. We have a variety of ways we participate on the advertising front with our partners, including virtual MVPDs, and those don't always have a direct relationship to where the customer signs up for the service. In general, they're great customers and partners for us.
Great. Thanks for the answers.
Thank you. Just as a reminder, ladies and gentlemen, if you would like to ask a question over the phone, please press star and then one on your telephone keypad. Our next question will come from Rich Greenfield with BTIG. Your line is now open.
Hi. Thanks for taking the question. I got a couple. One, just a quick follow-up. Just to be clear, Anthony, in that vMVPD answer, there's no ad revenue share that you get. Out of the time that a YouTube TV or a Hulu Live, you're not sharing any portion of that ad revenue stream, even if you can help them sell ads, that isn't currently happening. Do you think that's an opportunity over time to help them?
Hey, Rich, Scott here. I'll comment on that. Without getting into the details of any specific virtual MVPD partnership, I will say that we do have partnerships where we are helping with monetization of their ad inventory.
Have you ever qualified how much, Anthony just mentioned on the platform side, that you're getting some form of benefit when somebody signs up for a YouTube TV or a Sling or whatever it may be through the Roku platform. Have you ever qualified how much of platform revenue is advertising versus non-advertising?
Keep going.
Yeah. Hey, Rich, Steve. Yeah, we don't have an update on that.
Okay. Just final question. There's obviously this massive wave of shifting to streaming, and it seems like every single media company or even tech and media company is now talking about streaming. Apple's coming in, Warner, NBC, Disney, everyone's doing it. Some, like NBC, are obviously moving in the ad direction, although a lot seemingly are not moving in the ad direction. How do you think about the mix between advertising and non-advertising? Obviously, Viacom is making a big bet on the ad side, but where do you see that shaking out, or do you think just that the overall trend towards streaming works in your favor, even if there are a lot of non-ad supported apps coming?
Yeah. I founded this company on the belief that all television was going to be streamed. It wasn't that many years ago when there was no streaming, then the only streaming was Netflix. It took a long time for the incumbents to embrace streaming, but they have. That's very gratifying to see every major media company in the world developing streaming strategies, which is great for us because we're the leading streaming platform, so that helps our consumers, it helps our business. We've said before that on Roku, advertising is the fastest-growing content category. We believe that, just like in the sort of legacy world of linear TV viewing, the business model is a mix of subscriptions and advertising. We think that same business model applies to streaming as well.
Yeah, I'll just add on to that.
Very helpful.
Rich, that our view is we win in either case. Certainly over the last year, there's been a growing awareness of the opportunity around ad-supported OTT, and that's what's causing all the activity we see in the space. We're particularly bullish on our ability to add value as AVOD grows as a category, both as a seller and an enabler of the kind of advanced ad capabilities that these parties are going to need to succeed in this next generation of TV advertising.
Thanks very much, guys.
Thank you. Our next question will come from Mark Mahaney with RBC Capital Markets. Your line is now open.
Thanks for putting us back on the queue. Quick question. Steve, can you please clarify, maybe we didn't hear it right. The Q1 revenue guide for platform revenue, you mentioned down 20% sequentially and for player down almost 50%. If we do that based on Q4 numbers, it is still coming below your lower end of Q1 guide. Can you please clarify that? Thank you.
Yeah. Well, again, those are directional sequential guidance to give you a little bit of sense of the mix. I would focus on the actual revenue outlook range in terms of where we think we are going to end up.
Okay. Thanks a lot.
Thank you. This concludes our question and answer session for today. It is now my pleasure to hand the conference back over to Mr. Anthony Wood, CEO, for any closing comments or remarks.
Thanks. Around the world, the business of TV distribution and advertising is changing more rapidly than ever. At Roku, we're laser focused on this opportunity, and the fundamentals of our business are strong. I'm super excited about our market position and plans for 2019. Thanks for your support and joining our call today.
Ladies and gentlemen, thank you for your participation on today's conference. This does conclude our program, and we may all disconnect. Everybody have a good day.