I'd like to welcome to my stage Dan Jedda, who's the Chief Financial Officer of Roku, and Conrad Grodd, who's the Head of IR. Thank you guys both for coming. So I'm gonna ask you, Conrad, you're welcome to answer this, too. So Dan, what is the most impactful professional conversation of your career, and how did it change your path?
Well, first of all, thanks for having us.
You're welcome.
We're very excited to be here. I've been with Roku now for a year, so very excited to be... I think this is my second conference. Great to be here.
Love having you.
Yeah, great to be here.
Aren't you glad we're not talking about God? It could be worse.
Yes, it could. It's actually a really interesting question. Let me just think about that. So I would say... You know, I had a very memorable experience. I spent over 15 years with Amazon, then went on to a CFO role at Stitch Fix before coming to Roku. But I've known Roku for a long time, and I've known Anthony for a long time, since 2016. And to answer your question directly, I... You know, I'm trained, obviously, in the likes of Amazon, just being there for about 16 years, for the bulk of my professional career, and I would say that it changed me greatly, especially early on.
I could go back to the one conversation with a very high-level executive at Amazon was a discussion on the role that finance can play in a company and what a financial leader really the role they play. That really did shape me. In this particular instance you know comments were made that finance can be the largest hidden asset in a company if done well and that really resonated with me in the form of I think finance often can get pigeonholed into being scorekeepers budgets things like that. But really big financial leaders think long term. They think. They look around corners they anticipate and they always take a company-wide perspective.
Not any one division, not any one group, but a company-wide perspective, and that's really what I believe was something that resonated with me and really sort of dictated how I view finance. So I often do say, and I can say this unequivocally at Roku, is, I do believe finance can be one of the largest, if not the largest, hidden asset in any company, if done well. That just means thinking holistically. It means being analytical. It means looking at free cash flow, long term, not short term. And it means always anticipating, not just the current quarter, but in the years ahead. So that's always how I've tried to operate.
That's not just from a CFO perspective, that's from a tax perspective, from a treasury perspective, from an FP&A perspective, from an IR perspective. It's everything. So it's really that... I think that's probably the most important, really the important conversation that really steered the way I think of finance and what its impact can be on a company.
That's really interesting. Conrad, do you want to answer? Your option.
Look, I think we're here to hear Dan speak-
Okay.
So I think I'll-
Skip that one.
Send the ball back to you.
It's a hard one, so you don't have to answer it.
Well, look, I mean, I will say. All right, well, if you, you're gonna egg me on here. You know.
Put you on the spot.
You know, look, I was, I think, 19, and I was a little cocky kid, thinking I knew the world.
You're still a little cocky kid. All right.
But, I had this one mentor who said, "Conrad, you can always learn something from someone." And I had a hard time believing that, and so I went to a gas station, and I saw a gas attendant, and I said: "Well, what can I possibly learn from this individual?" And I just asked him: "How's your day?" And he says: "Great, I just got a bonus." And I said: "Why'd you get a bonus?" "We sold the winning lottery ticket.
Oh, my gosh!
I'm like: "Why is that a big deal?" "Like, we get 1% of the winnings." And so I learned something from that individual, and it really shaped, changed the way I look at people and appreciate, and how I collaborate. And so, you know, you can always get something from someone. So it's-
I hate people who say, "I never took advice. I never got any good advice." I'm like, What are you, like an island? Like, you're not a listener then. That's what it tells me. So that, that... Those are both great stories. Okay, so I think you guys, let's start with growth drivers. Like, what do you guys see as the key growth drivers of Roku? And Wall Street tends to have a short timeframe, so I won't use 2 quarters, but I will use 12-24 months. Key growth drivers over the next 12-24 months.
Yeah. That's a great question. So we've talked a lot recently about accelerating our platform revenue growth, which is one of our primary objectives. We've said it very explicitly in our last quarter results, how, how much we're focused on it. And so the question is, how are we gonna do that? Well, there's a bunch of different ways, and it's not to say we're not focused on growing our streaming households, what we formerly called active accounts. We are, and we'll continue to do that. But on the platform revenue growth, you know, we are so fortunate to have this asset called the home screen, where 120 million people every day come to visit. You turn on your Roku TV, you come to the home screen, we control that entire user experience.
And so people say: "Well, you know, what, what real assets do Roku have?" Well, there are companies that have big content budgets. There are companies that have big live sports budgets. We have, arguably, the best asset in that you tune in, you come to our home screen, where we control the UI, and we're utilizing that as the lead-in to everything TV. So we're back, but we're basically using that to push people into areas that they wanna watch, that we can monetize. We're using that to actually monetize itself. So for example, we launched our a content row across the top of the home screen. It was probably one of our first major UI changes in a while. I can't say when, but a long time.
The home screen for Roku has been the same tiled home screen outside the left nav for a long time. We launched a content tile at the home screen. It's showing, it's a machine learning, algorithmic content row that is basically showing multiple variations depending on your preferences. And what that's doing is it's driving the right behavior. We're seeing very good results. It's increasing our daily reach, it's increasing our subscriptions business, it's increasing hours streamed, our streamers love it, and we're ultimately gonna monetize that experience. That's just one example. On the right-hand side of the home screen, we have a very popular marquee, what we call a marquee ad unit. It's been a static ad unit.
We announced, and Charlie talked about this at Upfronts, but we basically said on the call, "We're gonna put video in that ad unit." So now we're adding video to our home screen, so we can actually diversify that unit from being primarily M&E based to multiple verticals in the enterprise space. Think autos, which would love a video ad unit, and they will come in, and they will buy that ad unit, and so will things like theatrical. We'll get much more business from theatrical because we're adding video. That's just two examples we've announced.
We're A/B testing a whole slew of other ideas and initiatives, and we'll continue to evolve with this idea of growing both our ad business and our subscription business, which is the other piece that's a big business of ours. We have tens of millions of subscriptions that we monetize. We are very focused on driving that business. We have somebody who is now fully dedicated to that, and we're doing a lot of good things with our payments product called Roku Pay. We're doing a lot of things like with the home screen to drive subscriptions. So there are multiple avenues on how we're going to be able to accelerate our platform revenue growth.
The way I like to think about it is, it is an extraordinarily large and underutilized asset that we have, and there's 120 million people coming to this home screen. I mean, that is literally Super Bowl every day, coming to the home screen, and we're just getting started at monetizing it. I'm very excited about that.
Okay. Conrad, do you wanna add something he didn't mention, or did he cover it all?
No, I think Dan covered it all.
Okay, he covered it all. I would say that I think it is, as, as an analyst who covers mostly content companies that are brand-first companies, I think it is a frustrating experience for me, because I use Roku on all my TVs, to have static images on a company that only does streaming. It is a pure play streaming company, and the fact that Charlie is now, seven years after it's gone public, bringing for the first time, a video ad unit to the home screen, is the first time you're now brand consistent. Because if you're streaming first, you should be video first, even on your home screen. Even the very first touch that a customer comes, it should remind you as Roku is a streaming company. And everything's fixed tile. Like, what are you, Snapchat? Like, everything's a fixed tile.
I agree with the video pivot.
Yeah. Yeah, and we're also developing. So I totally agree, and there'll be more video that we continue to A/B test and we continue to roll out. Nothing I'm ready to talk about yet, but there's a lot of things that we're doing. It's going to be an evolution because we always A/B test everything. We wanna balance the streamer experience with the monetization. We have a lot of win-wins, but we also have a whole left nav that we can monetize as well. So when you think of our left nav, as we push people into experiences, things-
Like this home-
Exactly. So, exactly. So you have the food, the food experience, the home and garden experience. You have the, the sports experience, the NFL Zone.
Hubs.
Yep, the MLB Zones. All these zones are areas we control. I mean, they push you into a UI that we control, but we'll put our own content, we'll put you know, third-party content, we'll get the right experience, and we'll monetize all that with, again, potentially for video ads, with sponsorships. It pushes people into the Roku channel. It's... You know, I think one, you know, I love data points, so I have to throw them out there. Like, one of the data points that we talk a lot about is the growth of the Roku channel. We've often said that it's a top five app. We've been saying that for many years. This last quarter, we said it's a top three app on the platform.
Of course, it's very obvious who the top two apps are, but we're now number three. No longer top five, we're actually top three. We grew The Roku Channel by 66% this last quarter in hours streamed, and it's a top app. Well, how did we do that? We did that by our own user interface and putting great content and great experiences in there. But also, you don't—the Roku Channel, you don't just get there by pushing an app. You can get there to the app, but there's multiple ingresses that we deep link in the experience that push our viewers into this area that we monetize and will continue to monetize very well. Now, we've talked about, yes, we're undersold in that experience on video ads, but we have the supply.
We've talked about demand, we've announced a deal with Trade Desk, so we're working on the demand side of it, and I'm very optimistic with the monetization tools and products that we're now building. As Anthony talked about on the call, like 2023, big focus on cost structure, getting that right. We've done that. Cost structure's in good shape. It's not going to get out of control again. We're very tight on that. And now the focus-
That's what I love most about you and all Amazon CFOs. Free cash flow.
Now, the focus is on the monetization side, which is where, you know, the bulk of our energy as a leadership team is focused.
Okay. One of the things that, So let's stay on Trade Desk, 'cause I think one of the things, as you know, I have a, you know, I am Anthony's biggest, what's that called? A gadfly? Gadfly. So I've said, like: You don't sell out inventory, why aren't you tying into the DSPs who have lots of real-time demand? And so now you've announced this deal with Trade Desk. So you had Dataxu, and that was a DSP kind of idea, and now you've opened it up to Trade Desk and presumably Google over time. Can you talk about that? And so why not earlier? And then what are the challenges of that in terms of, information transfer?
Because I know a lot of one of the reasons that Disney and Paramount are saying they don't wanna do a The Trade Desk tie-in is because they really don't wanna share data. So can you talk about the preciousness you have over data and how that flows to The Trade Desk or not?
Yeah. So it's a good question. So we announced, I would say a year ago, as I was coming in, that we announced that we're integrating with multiple DSPs, and we have integrated with over 30, but that, that is just step one. You have to do far more than just open up to DSPs. You have to be able to make sure that the flow from programmatic is going to compete, whether it's private marketplace or just straight through the DSP on programmatic. And so our integration, our further integration, so we've been open to Trade Desk for a while now, several quarters, probably about a year, maybe, maybe three quarters.
But this most recent deal and why that's important is we are now fully integrated, and Trade Desk will be using our ACR data to help with better targeting, better behavioral data that will allow more volume to come through onto our platform, or at least that is how we're thinking about this. Because they'll literally be able to better target, use use, again, our data on our platform for advertising. So you are deeper integrated in the data side. It's not an exclusive deal. I would expect us to do more deals like this. And this just makes sense because the whole market is shifting to programmatic.
Okay.
So why wouldn't we open up our vast supply of video to further demand? Because we are now able to target better, again, audience targeting, behavioral targeting, et cetera. So this isn't, you know, this isn't like a data sale. It's basically utilizing our data to drive volume. And then, you know, we'll further integrate. We talked about iSpot. I'm sure you saw that announcement. We'll further integrate with measurement companies to ensure we're accurately measuring, that our advertisers can accurately measure the impact of the ads that come across our platform are.
And by the way, like, whether or not, that'll also allow us, like, if for some reason, our ads are not living up to where they should be, we can quickly, of course, correct that and use that measurement to ensure our ads are performing at the top of the industry, which is, of course, the goal.
Mm-hmm. And do you, do you use Magnite? Are, are you using Magnite?
We do.
Is there a... Okay.
Yeah.
I have a question. One of the things that The Trade Desk, and I'm talking about the old world now, not the CTV world, did is it was selling—and it wasn't The Trade Desk. I should say Google, the evil empire. Google was doing is they're saying: Okay, The Washington Post, we know how, you know, you charge a lot for your, this audience, so we're gonna go find you the same audience and charge a tenth. So when you talk about sharing data, is the data that you're giving to The Trade Desk enough that they can go and replicate the audiences they're buying from you at a fraction of the cost elsewhere?
Yeah. Yeah, that, that is something that, again, it's, you know, we will put in controls in place to monitor that. We are doing this as a partnership with Trade Desk. This is very, this is very much an agreement where we are shifting volume to Trade Desk. They are shifting volume. They're gonna ship volume to us. Of course, everything has to perform.
Yeah.
But no, I do not get worried about that. We'll manage that very closely. I get a lot of questions on pricing. Is this gonna impact pricing? We're gonna monitor that very closely. We have our premium inventory, we have our home screen to premium-type inventory. We'll protect that. We also have inventory that's less premium, and we'll see where the market goes on pricing, and we're ready to play in both sides, the premium, and more of the less premium spot. The good news is we've got ad inventory across the spectrum-
Yeah
of which we can fill. The deals, like Trade Desk plus iSpot, will help with the volume and shifting that volume.
Oh
We believe, over to us.
Fantastic. Okay, great. Great answer. NBA, so as the CFO, it looks like press reports have Roku being a winner of some of the NBA games, so let's call it premium sports. So as the CFO, can you give us your philosophy on premium sports as a cost basis?
I think you're referring to MLB.
I am talking about MLB.
Yeah.
Sorry.
Uh, um-
Got my acronyms mixed up.
Yes, yeah. So, yes, we recently announced a 16-game package, the lead-in, Sunday lead-in games for MLB, a big win, for Roku. This goes back to having being the lead-in to TV and having these zones and these events, if you will, that we can ultimately create an amazing streamer experience and also monetize. So we will have like an MLB zone that has both these games in it, but also other types of content. I'm not, I'm not quite sure what specific, whether it's clips, whether it's shows. It's very similar to our, our NFL zone, where while we don't necessarily have the rights to any one game, we have a lot of content in that MLB zone. We have the Rich Eisen Show that goes in there.
Again, this is a combination of an experience that we can monetize, as well as be an amazingly positive streamer experience. Our streamers love these zones 'cause they go in, they might not even know what to watch or where to watch. They go into these zones, they see where the games are, they click on them. They might subscribe to one of the subscriptions that we monetize, which has games.
Yeah.
Yeah, exactly, and we'll monetize that. They might see clips. They're gonna spend time in a UI that we control. And it's ultimately about an experience. And it's not just MLB. Like I said, we have NFL, we have the food experience, we have the home and garden experience, which is sprinkled with original content, third-party licensed content, other content from other companies that we partner with, that is the overall goal. So yes, we're just getting started with sports because guess what? Streamers love sports. A lot of it's migrating over. We'll continue to play in it, but we're gonna play in it in very niche areas from a live perspective, but create these amazing experiences that will monetize from the you know, from sponsorships and ads, et cetera.
Okay, so it sounds like you're creating consumer hubs in passion areas. You need some anchor tenant programming that pulls people, and then you're gonna basically fill, like, a hub, create a hub, a fandom hub-
Yeah.
around certain types of content.
I think that's right. We call them experiences. You know, we signed a deal with NBA recently for an NBA FAST Channel. That's very popular. We'll have G League games in there, in addition to all the content of the NBA FAST Channel. So yes, there's multiple ways that we play in sports, that are some exclusive, some non-exclusive, but again, it's all about creating experiences, as Charlie talked about in upfront, being that lead-in to what our streamers wanna watch, whether it's sports, whether it's content-
Mm-hmm.
Whether it's a subscription. We are the lead-in to everything because, again, you start the Roku experience on the home screen.
I think, as Dan mentioned before, it creates ingresses to The Roku Channel, right?
Yes.
So the Sports Zone provides that as well. You know, we extend our deal from the NFL to NBA to now Major League Baseball. Within the NBA, we have a FAST Channel where you can get highlights in The Roku Channel. So there you have another ingress to go to The Roku Channel. Again, I think one thing that people fail to realize is The Roku Channel, like, there's this whole saying that media is king in content, but what makes Roku really powerful with The Roku Channel is our ability to bring people into The Roku Channel, many touch points that you have on the home screen, and that's really powerful.
Okay. Let me do some questions from the audience. We have a lot of time left, but any questions from the audience at this point? Yes, yes, sir.
Fantastic. Dan, Conrad, to the extent you can talk about it, what are the plans for rolling out The Roku Channel, the channel internationally?
Yeah, it's a great question. So we have a strategy of what's called scale, engage, monetize. The scale piece is growing the streaming households, formerly called active accounts, streaming households. The engagement is putting amazing content on there so people continue to watch hours. And of course, the monetize, we've talked a lot about that, is how do we monetize now that we've got the scale and engage? So we are at different aspects of the scale and engage and monetize internationally. For example, in Mexico, where we're the number one player, it's going extraordinarily well. The Roku Channel, I think, launched about 15 months ago, so The Roku Channel is there, and is growing very well and is a top app. And we're monetizing with both distribution deals that we're, but we're also now monetizing with ads.
We're actually just starting to monetize Mexico. Canada is doing very well. We're monetizing well. The Roku Channel is doing well in Canada. UK and Germany are starting to grow. Brazil, we're just getting started in Brazil. We're doing well in Brazil and what we call the rest of Latin America, but we're in that scale phase, where we're just getting active accounts going. So it really depends on the country. But the idea is, like, The Roku Channel is international. Of course, when we do agreements, we try to get rights to all our countries. That just makes sense, and then we launch them. We get the engagement going, then we're gonna come on top of that and monetize it, depending on where it is.
Just one quick follow-up. The scope of the channel store, so the subscription apps available as you roll out, what does that look like?
Yeah, that's a great question. So, you know, we do have both what's called premium subscriptions, which is what you referred to as channels, which is really part of the Roku experience. And then we have, you know, direct-to-consumer subscriptions, which is basically, you know, it goes, most of it goes through our payments product, but it's a direct-to-consumer. And so we are investing in that premium subscription business, mostly to start within the U.S., but it will expand. I think the market is just far more mature in the U.S. Obviously, there's a company that's an absolute leader in this. It happened to be the company I worked for previously.
But we are in a unique position to really help with that, because again, when you think about it, being controller of the home screen and how you start, again, pushing, the right subscriptions is something we can do. And again, we've got great partnerships with, you know, all the content companies, most of them running through our payments product, so we control that experience to some extent. So I am very optimistic. This goes back to that comment Anthony made about focusing more on subscriptions going forward. You know, I think we've underinvested in subscriptions, and we still have tens of millions of subscriptions, and we've underinvested in it. Now we are actually investing more, so we are going to see more functionality.
You're going to see more focus on subscriptions, both premium and D2C, subscriptions, and you're gonna see that grow on Roku.
On the premium side, it just seems like a no-brainer to roll that out internationally. Just, you have-- somebody having great opportunities that-
Yeah, it will roll out internationally. I just like, that is in its infancy internationally. Even the market itself is in its infancy, so I don't disagree with that concept. And you know, I suspect as we now really do focus on subscriptions, it would not be surprising to see us invest in that more. Again, it is amazing how many subscriptions that we have, given it hasn't been a core focus from us until very recently. Now, we have a dedicated leader, a dedicated team, fully funded, that are gonna go after, and you're gonna see a lot of improvements in the streamer experience as it relate to subscriptions, which should lead to more premium subscriptions, more D2C subscriptions.
... Well, and I thought I, if I heard this right, didn't Anthony say the head of subscriptions now reports directly to him?
It does.
I would call that CEO focus.
Yeah.
Because I've never seen him do that before.
He does, yes.
I think a lot more focus. Let's talk about the cost side. The cost side of Roku, can you talk about--I know your focus is free cash flow. Can you talk about how you think about costs as you're driving these, the revenue growth drivers? How you think about allocating resources?
Yeah, you know, it's a great question. So the way we approach things is, you know, we always look at an ROI. I mean, we're-- it's not-- there's nothing magical about how we do things. We're always focused on the streamer experience and ROI. Like, what is the streamer experience? What are we trying to solve, and what's the return on any investment that we make? And as we-- whether it's, you know, whether it's an international country, whether, you know, if we launch a new country or whether we look at the resources, we look at the opportunity. That is one of the reasons why we prioritize subscriptions, is we looked at the opportunity, and we said: You know what?
We have a unique opportunity to solve multiple pain points from the streamer experience and subscriptions, and we're now gonna invest in that. So we're doing that. But we're doing it by not adding a bunch of resources. We're doing it by reallocating resources within our cost structure. So as I look at the overall cost structure of the company, I do think we have a lot of leverage left to play, not just in OpEx, but in gross margin as well. I think there's opportunities for efficiency, and I think we'll continue to reallocate resources based on the higher return that we get.
That return could be more active accounts that lead to monetization, but it's also gonna be a big focus on, again, that platform revenue growth, and we're reallocating resources into that platform area of revenue growth, both subscriptions or content distribution, plus advertising. So you're seeing a lot of reallocation, as we go through this and focusing on that ROI as it relates to platform revenue growth.
Okay. So you would expect, bottom line, cost growth to grow slower than revenue growth.
Absolutely.
for the foreseeable future?
Absolutely.
Which implies margin expansion.
Sure.
It sounds like both at the gross margin line and at the OpEx line.
That's correct, yes. There is. I feel strongly that we have a lot of leverage left in OpEx. We'll, you know, if it does grow, it's gonna grow very slowly. I would anticipate low single digits-
Okay
... going forward. Again, if we see an opportunity that is big, of course, we're gonna invest in it, but, you know, we are going to do so... You know, my first, the way I approach everything is first, hey, let's stack rank our projects, and let's see if we can reallocate resources rather than add resources.
Okay, great. Let's talk about your capital allocation philosophy. When you think about, you know, what to do with the Free Cash Flow that you're driving, are you thinking of acquisitions or holding cash on the balance sheet or share repurchases? Talk to us about how you allocate capital.
Yeah, and, you know, there's no magic formula. I will say, you know, it's everything is like based off of what it can do for us long term. We take a very long-term approach. We look internally, we look externally. We do look at our cash position all the time. You know, I've said many times that our cash flow should follow EBITDA, Adjusted EBITDA, relatively close because we're not CapEx intensive. We were CapEx intensive. We've really reined that in. We have very light CapEx. I anticipate that to continue in the foreseeable future. And so, you know, we're always looking at ways to utilize cash. Now, some of that has to do with, you know, like most recently, we did what's called a Net Share Settlement, which is a quasi-share repurchase program.
We started that in Q1, for example. So on average, we have about 300 basis points of dilution on stock-based comp. Rather than paying taxes with stock, we now pay with cash, so that 300 basis points of dilution, now about a third of that goes away, call it 200 basis points of dilution. It's just a way of basically managing free cash flow and free cash flow per share by issuing less stock for stock-based comp. So that's just one area, that, like I said, it's just a quasi-share repurchase, very similar to that, but it's what's called net share settlement.
So we're looking at M&A opportunities like that, but really, we see opportunities to invest in the business, and whether that's, you know, external, which we look at a lot or internal, we'll continue to look at how we can both grow our streaming households in the U.S. and international. And we may invest in that if we see the right opportunity. But again, a big focus is on platform revenue. So I would suspect that a lot of investment, both in OpEx and maybe external, will be part of the platform revenue growth.
And, Laura, maybe I'll just say one more thing, too. If you look in the shareholder letter, we did put Free Cash Flow as one of the key metrics in our first chart. And if you actually go into the Q&A, you'll notice that it becomes one of our key operating metrics, where we did Free Cash Flow. So it is a big culture shift at Roku, where I think-
Welcome to Amazon. I'm glad you brought Amazon with you when you came.
I actually think that is a... So indulge me for one minute, Laura. I think that's an important point. Like, you know, we have, of course, multiple ways of how we look at strategy, but and we have a strategy doc, which is owned by Anthony and his directs, of course. And we have multiple what we call controllable KPIs, input-based controllable KPIs that we look at. They're all geared towards, you know, growing our market share and, of course, growing our platform revenue. But in that strategy doc, it does say, and I'm super proud of the company for this, it does say our North Star KOM is free cash flow and free cash flow per share.
Written right in it, it's how we look at things over the long term. It's not necessarily the short term, but it is absolutely our North Star key operating metric is Free Cash Flow and Free Cash Flow per share.
I have to say, the first time I heard Anthony say Free Cash Flow, I had to turn my head just to make sure I wasn't dreaming. But it is, it is now something that is top of mind for Anthony, and I think Dan's been a great influence in how we think about decisions going forward.
... That is fantastic for shareholders, really fantastic for shareholders. So speaking of capital intensity, Roku has recently, in the last 2 years, gone into making its own televisions, which is a low-margin business. And you just said you were hoping that gross margins would expand, but one of the things really hurting gross margins is selling 55-inch televisions, 65-inch televisions, 75-inch televisions at negative, pick one, 5% gross margins, negative 15% gross margins. The gross margins in the television business, in the hardware side, are horrible. And I would guess that if Anthony is determined to do this, that you're gonna have gross margin pressure, not gross margin expansion. So your thoughts?
Yeah, to be clear, I was referring to platform gross margin. So it's a good call. It's a good call. I should have made that clear. Yes, we are in first party, what we call first-party TVs, which I think is very strategic. We believe it's very strategic. By the way, the TV is amazing. The Pro Series, which you just launched, is absolutely amazing. It is a phenomenal product at a very reasonable price. I've been using it for about two months. I couldn't be more proud of the group that put that out because it is a fantastic-
How big is it? Or is it a series? Is it 55, 65?
Yeah, yeah.
Okay. It's a bunch.
It's many different screen sizes, but the functionality of it, the sound quality, the remote itself is just absolutely amazing. The picture quality is fantastic, too. That's very strategic. And so, I... You know, we believe that actually being, you know, not relying fully on OEMs, we still have many OEM partners that we're gonna partner with. We are distributed in multiple distribution channels and growing, but having your own product is as strategic as having multiple OEM products. We feel that strongly. I do feel like we have a core competency in building an amazing product, and our BOM cost continues to fall as we scale. That happened in the player business.
You know, we have one of the lowest BOM costs. This will happen in TVs as we grow scale. The team is very good at managing costs down. And so while, yes, there'll be some gross profit impact, margin impact on first-party TVs, I think it, it's not going to be anything that I worry about on overall gross margin, because there's lots of other ways that we can leverage gross margin, specifically on the platform side. And it's going to help us grow our overall active accounts. Now, our ARPU in the US is quite strong and growing, and I think will continue to grow. And so any new active that we can get is a positive for us.
We are already approaching 50% market penetration in terms of streaming households in the U.S. There's no doubt in my mind that we will get there and surpass it, and one of the big reasons we're gonna be able to do that is our first-party TVs.
Because your first-party TVs are bigger and therefore go after a market penetration segment that the OEMs didn't?
Well, we can work with distributors to distribute it. It's already being... You know, remember, when we launched this, it was exclusively at Best Buy. Now it's on Amazon.com, it's on Walmart.com, it's in Costco, and we will announce more distributors in the very near future, so we can fully distribute it ourselves.
And also, too, remember, Laura, too, back in 2022, when we were going through supply chain headwinds, you saw that our device margins went to negative 22%. The next year, we were able to bring that down to negative 11%. So the team does a really good job of managing through different challenges. I think there's an ability to take, as we scale the business, opportunity to get better margins as we improve. Remember, though, over the last 25 years, inflation has had a big impact on services and products across the board, right? You're looking at double, triple-digit increases. If you look at TVs, they're down almost 85% in that same period. So if you're not able to improve your BOM cost and innovate at the same time, you're kind of in trouble. And I think Roku, our advantage is our BOM costs.
You know, we're able to have an operating system designed specifically for TVs. We can use older components, less memory, less processing power. That gives us a competitive advantage, and we have a whole team building platforms and basically outsourcing a lot of the R&D to our partners, and we help with demand generation. So we are a great partner for our OEMs in that regard. And so I think that gives us an advantage that people kind of underestimate.
So the only TV that really grew in 2023 and 2024 was the onn. TV, which is a Roku TV, but it's through Walmart. Walmart, in theory, in the next three months, will close the VIZIO transaction. Is it your point of view that revenue is threatened, because now VIZIO is gonna be the, basically the onn. producer, and Roku is gonna be out of Walmart?
Yeah, I mean... So I think we'll continue to do business with Walmart. I've talked about this openly in the past. One, our customers love our brand. I mean, they love Roku TVs. If you ask people, anyone who has a Roku TV, you're gonna say: What kind of TV do you have? They're not gonna name them the OEM. They're gonna say: I have a Roku TV, because they absolutely love the Roku TV. So, people, you know, streamers, customers are gonna continue to buy Roku TV. We'll continue to grow our accounts. We'll continue to partner with Walmart. We have a great relationship with Walmart, and we're expanding distribution with both first-party TVs and OEMs across multiple distributors.
So you can imagine, like, one thing to bear in mind is, you know, you can imagine, yes, you know, Walmart will go to VIZIO, but also, where VIZIO is distributed, it's probably gonna go away. We're in a perfect position to take advantage of that. And that is one of the strategic reasons of having a first-party TV, how that helps us, because we can go in ourselves and say, carry our first-party TV in addition to our OEMs, but we don't have to—we can go directly and say, "Hey, here's a Roku TV that's very well priced perfectly for your core demographic.
And if you're gonna kick out VIZIO or slots in directly-
It, 100%.
As a substitute.
Hundred percent.
It's a fair point.
So,
It's a fair point.
... we'll continue to grow actives-
Okay
both international and the U.S. I have no doubt about that.
And I think that's the key thing, too, is about growing actives. It's not just about our Roku-branded TVs. We continue to build our Roku, our TV OEM partnerships, and we also have our player sticks, right? If you go to Best Buy, I'm sure you're gonna get upsold. If you buy Samsung or LG TV, you'll more likely get upsold on a player stick, right?
Yeah, that's true.
So that's, it's a three-prong approach there on building active accounts.
Yeah. Questions from the audience for Roku? Yes, sir.
Obviously, on Wall Street, we all obviously get things wrong all the time, and we tend to put blinders on, short-term oriented. So obviously, Roku and the sector itself going through a moment. What do we all... We're all getting something wrong, clearly, because this is all going to be very different in two years. What do you think we're getting wrong about Roku and the sector in general?
Yeah. So, you know, we talked a lot about the differential between hours or eyeballs moving to streaming relative to the ad dollars. And quite honestly, the ad dollars are far behind the actual hours. In other words, like I believe the number is roughly 60% of hours have moved to streaming TV, but only 30% of the ad dollars. And there's a lot of reasons for that, the linear relationships, the way it works, et cetera. That's gonna change over time, and it's probably even gonna change faster with the movement of sports, specifically live sports, coming to streaming. So, you know, the market opportunity for the leaders in this area is quite large and is growing. The market segment is going to continue to grow as ad dollars continue to come over.
The companies that have the biggest assets are the ones that are gonna take advantage of that. And I think, like, what we have said time and time again, quite recently, is our biggest asset is the fact that 120 million people come literally to our UI to start their streaming experience, and we're just getting started at monetizing that. We have other ways to monetize, and we built a big streaming services distribution and a big ad business, but now we can utilize the assets that Roku has to continue to grow that.
And again, we'll, as we've said, like, we do expect to reaccelerate our platform revenue growth by doing these things, not just the home screen experience that we talked about, but these events, these zones that we're building, that we're pushing people in from a user experience perspective. The integration with The Trade Desk, which is far deeper than any integration we've done in the past with any DSP. And so we've opened up the supply, we've opened up the demand, we have the asset in front of us, and we've got the industry coming in our favor, the tailwind of the shift of linear ad dollars. Now, there are big players in this space, no doubt.
But, you know, one thing as Roku has proven is we do pretty well against even the biggest players because we are focused on one thing, and that is building an awesome streamer experience and monetizing it.
You can do it similarly in Europe, and it seems reasonable with expanding free cash flow margins.
I do believe that, yes. I do.
Okay. Any other questions for Dan? Okay, so I'll just, I'll do the last one, which is, sort of the—what is a year from now, what are we gonna be talking about that was a positive for Roku that we're missing today? What are we missing today that a year from now, you're gonna be like, "Laura, I told you so?
Yeah, I think what we're going to really truly miss is, again, what we're gonna see over this evolution, whether it's 12 months or 18 months, is the experience of the streamer and the journey of the streamer on our platform is what you're going to see that's gonna be highly differentiated. Charlie talked about being the lead-in to TV. That is not anything we've done before. We've had an amazing home screen experience. It's simple. Streamers love it. But now we're actually saying, "Let's utilize this asset to lead, to be the lead into TV." And, you know, he talked about this at Upfronts, which is basically, you know, we get Super Bowl-type audiences literally daily. So it is incumbent upon us to monetize that.
We've got the right mindset, we've got the right teams, we've got the right people, and the best news of all is we've already built the asset.
Mm-hmm.
Like, we own it. We've already invested in getting 50% or close to 50% broadband penetration. And so now that we've got the asset, we've got the market segment coming our way, it's just really about execution. It's execution, execution, execution.
I would just say one more thing. Remember, last year this time, the big question was, for this year: What would you expect that investors missed?
Yeah.
Anthony did say we'll get to EBITDA positive by 2024. I think people thought that was a big stretch.
Yeah.
We were able to do it a whole year early by 2023, right? So Anthony still is-
Dan Jedda. Thank you, Dan.
Oh, it's not me, it's the team. I, I will say, I do look forward to the time where I can stop talking about Adjusted EBITDA and start talking only about operating profit, which will happen.
Yeah, almost nobody gets to do that except Disney, actually. But anyway, let me call it there. Thank you very much.
Thanks, everyone.
Thank you.