All right, we're gonna get started. Good morning, everybody. I'm Ben Swinburne, Morgan Stanley's Media Analyst. First, some important disclosures. For important disclosures, please see the Morgan Stanley Research Disclosure website at morganstanley.com. If you have any questions, please reach out to your Morgan Stanley sales representative. With that out of the way, really excited to welcome back to the conference again, CEO and Founder of Roku, Anthony Wood. Anthony, good to see you. Thanks for coming.
Thanks. Good to be here.
I thought we could organize our conversation around sort of the three phases of growth that you guys talk about when thinking about your and discussing your business model. That's really around scale, engagement, and monetization. Maybe starting with the scale of the business. Can you talk a little bit about the audience that Roku reaches today, and how you expect to grow that over time?
Sure. Roku just passed 70 million active accounts, which is kind of a proxy for a household for us. We added 10 million net new active accounts last year, which was a big year for us. It's the biggest year. It's the most active accounts we've added in any year since, except for 2020, which was sort of the height of the stay-at-home boost that we got. You know, that's a combination of international and U.S. Roku's a global TV OS. You know, the market share, our market share continues to grow in all the countries that we're active in. There's a lot of, lot of growth ahead, I think, in terms of active accounts.
You talk a lot about the operating system as being sort of one of the core drivers of market share gains. We've seen some of the big OEMs like Samsung and LG continue to invest in their own operating systems. Talk about what differentiates the Roku OS and why that's driving market share pickup around the world.
Yeah. You know, the Roku's basic OS strategy is to build a purpose-built operating system for television. You know, it's the same way that you know, back in the day, Windows became the leading operating system for desktops by building a purpose-built platform for that customer and that ecosystem, the way Android became a very popular phone OS, you know, being purpose-built for that platform. Roku's purpose-built for TV. You know, that by focusing on that particular, you know, the TV ecosystem exclusively, we just do a better job. You know, the result is that Roku's share is growing. I mean, in the United States last year in Q4, we sold more...
More Roku TVs were sold than Samsung and LG sold combined. You know, we're the number one platform in lots of countries, including the United States. You know, our brand continues to grow. It was named the fastest growing brand for Gen Zs. You know, we're the Roku, the Roku City Screensaver, which is our screensaver, is, you know, has become an iconic part of our brand and, you know, part of our effort to delight consumers. It's the Roku City Screensaver's mentioned every 12 minutes on Twitter now. There's a lot of things that go into our continued growth in the market share.
You guys launched or announced back in January at CES, Roku-branded TVs for the first time. I think it's coming to market, you know, relatively shortly. Can you talk about the strategic logic in terms of moving into that strategy?
Yeah. The Roku TV program for Roku has been hugely successful. You know, it's the number one TV operating system in the United States, number one TV operating system in Canada. Mexico, it's doing extremely well in all the markets that we're in. You know, so that program has been instrumental in our active account growth. You know, first-party TVs are a natural extension of that program. There's lots of companies that are in the platform business that also sell hardware. You know, you see that with Google, for example, with the Pixel phones for Android or Microsoft, you know, with the Surface line for Windows laptops. You know, the reason a company does this is it provides more choice for customers.
It also kind of provides a direct contact with the customers that allows us to make the innovation cycle even faster. In Roku's case, I think it will also, you know, allow us to continue to move upstream faster in terms of like, the sort of higher-end customers.
Yeah. I know some people have focused on the potential competition with your core OEMs from being in the market. Could they benefit from this just around the ability to innovate maybe on first-party TVs and what you learn from being in the market as a direct television? Am I being maybe too optimistic?
No, I think that, I mean, we have a great relationship with our OEM partners. We provide a lot more services than our competitors do, you know. You know, we're very hands-on in helping them get to market, both in terms of retail relationships, but also bringing up their factories and providing them advice on picture quality and just across the board. You know, I know that one of the reasons we do the first-party program is because TV companies are very traditional, they often don't want to adopt innovations until they know that they're gonna be successful in the market.
By doing our own first-party TVs and proving that some of these innovations that we believe in are actually liked by customers, then that will encourage our TV partners to adopt them and help them have more advanced and innovative products in the market. I don't... Yeah. The first-party TV program will help our active account growth, and it'll help the quality of our TVs in the market, which will help our OEM partners.
I wanted to ask you a little about international, which obviously a big focus for the company. You guys have started to give some breadcrumbs on the size of that business, over the last couple of quarters. Can you talk a little bit about the ramp in sort of the early international markets, sort of how much you've built from a business point of view so far, and, do you think you guys are gonna get better at ramping that business as you move into newer markets over the next couple years?
Yeah. I mean, international is a big focus for us. One of several strategic focuses. It's going extremely well. Obviously we're the most successful in the United States where, you know, In the U.S. we're approaching half of all broadband households using a Roku to watch TV, so it's very large scale. But, you know, like I said, we're also number one in Canada and Mexico, doing extremely well in all of Latin America. You know, U.K. continue to grow market share. If you look at our business model, you know, it's grow active accounts, increase engagement, and then monetize those accounts. In many international markets, we're still in the grow active accounts phase, but we are starting to move into the monetization phase in some countries.
You can see that, I think Mexico is a good example. I mean, Mexico, you know, we used to have one TV OEM partner. Now we have, I think, 19 or somewhere around there, TV partners where have gone. We've grown our market share to being the number one TV OS in Mexico. We've launched The Roku Channel in Mexico. We've started building out an ad team in Mexico, so we're starting to focus on monetization. Same in Canada, starting to focus on monetization. You know, the same model that's worked well for us in the U.S. is working for us internationally as well. We're making good progress.
Yeah. Maybe one last question on sort of competitive dynamics in the-- on the active account side, then we'll move to engagement. There's not great data globally on market share, so it's hard for us to tell, but it does look like Roku and Android are sort of the two fastest growing, you know, operating systems from a connected TV point of view inter-- you know, outside the United States. How do you compare your product offering to OEMs and the consumer to what Android offers and do you have a long-term view as to sort of how the two compete? I'm sure your ambitions are to win, but how do you think about the competitive dynamics there?
Yeah. You know, at our core, the reason Roku is successful and the way we compete is by again focusing on this purpose-built operating system for television, and we're the only company that does that. I mean, Android is obviously a phone operating system first, for example. That's the high level of how we. Then, of course, we're very focused. The competition is different by market. In the United States, for example, In terms of licensed OSs, Google and Amazon. You know, both of those companies are growing market share, but they're still tiny. You know, they're still single-digit market shares.
The biggest opportunity for us to continue to grow is by taking share from LG, Samsung, and Vizio, basically. You know, those are the TV companies that are sort of left in terms of material market share other than Roku. They've got their own proprietary operating systems that they've built, but the amount of money and the amount of resource and the amount of focus you need to be a successful global TV operating system is huge, and I don't think actually any one TV company can amortize the cost successfully on just their brand. I think we will continue to grow our market share versus those incumbents.
I'm sure Amazon and Google will continue to grow their market share, but we have a very large lead over them. Now, I think it's important to remember that, you know, we weren't actually first in the TV operating system space. We shipped the first streaming player in the United States, but Google actually started licensing Android to TV manufacturers before Roku. But once we started licensing to TVs, you know, we have a better product, so it's just continuing to grow and share. The same dynamic happens in international markets. You know, Google is more widespread around the world than Roku because Android, you know, being a global phone operating system has, you know, has that advantage that it's available in every country.
as Roku enters into a market, we quickly start to grow market share, and we start to take market share from Google if they have market share in that country. We're seeing that dynamic playing out in all the markets that we enter.
Okay. Great. Let's talk engagement. I think in the fourth quarter, you reported almost 4 hours a day of streaming time spent per active account, which was up nicely year-on-year. It sounds like a lot, but can you put that into some context for us in terms of the opportunity and also maybe how that might compare to other streaming platforms that you compete with?
There's a bunch of dynamics at play there. First of all, there still are a lot of opportunities to grow engagement because, you know, you kinda got two sort of customers in your customer base if you're a streaming platform. One is people that have cut the cord and it's all their TV and, you know, I forget what the average viewing in the U.S. is, but it's a lot.
Like seven or eight hours.
six, seven.
Yeah.
Six or seven hours. For cord cutters, you know, streaming is all their television. For non-cord cutters, it's supplemental. You know, they have a paid TV subscription and they have streaming. We're seeing the number of cord cutters continue to grow. I mean, cord cutting is getting more and more popular, and it's pretty clear that we're on this track where everyone is gonna stream to watch their television. Amongst cord cutters, Roku is by far the most popular choice. You know, 70% of cord cutters use Roku as their streaming platform. That shift to cord cutting, you know, grows engagement. For Roku, we have a big focus on engagement. You know, engagement's very important for lots of reasons.
One is that obviously monetization is tied to engagement. Another is customer satisfaction, you know, is tied to it.
Mm-hmm.
-stream, generally, the happier they are with the platform. I don't know about in life, but, you know, with the platform they're happier. Higher engagement relates to lower churn. You know, I have three essentially business units that report to me. One is focused on devices and active account growth. One is focused on engagement. One is focused on media and monetization. If you look at engagement, we have a whole big team that's all they do. There's lots of ways we grow engagement. The biggest one is Roku's role as a platform is different than that of a streaming service. You know, a streaming service is offering content. As a platform, one of our biggest jobs is to help consumers find content across the entire platform.
You know, those 70 million active accounts, when they watch TV, they turn on their TV, and they see the Roku home screen, and that's our biggest competitive advantage. That's an, that's a great position to be in to help viewers find content and help services promote their content. So that's the big focus for us, is to become better at helping viewers find content to watch. Viewers are spending more and more time looking for content. As the choices in streaming continues to grow, they're spending more time looking for content. We're doing a better job of helping them find content, and that's, you know, that's a big competitive advantage for us to own that home screen. It's a big way to boost engagement by being a trusted partner for viewers to find content.
For example, examples of the kinds of things we're doing in this space, I mean, we were the first company to offer universal search for television. Search across platforms. We've continued to make our search better. We've added voice search abilities. We've added paid search promotion. A big thing we did recently was we added the Sports Zone. Sports is an example of content that's extremely fragmented that, you know, no one has any idea how to watch a game because the rights are sold across a bunch of different apps and companies. With the Roku Sports Zone, you can go there, you can find... If you wanna watch a game, you can find what app to watch it on. Where is it playing?
In search, universal search now, when you search for a sporting event, we'll show you all the games. You know, not just who has the NFL, but all the games that are coming up and where each game is available to watch. That's an example of how we're increasing engagement, but there's a lot of that. We're integrating. You know, we're spending a lot of time on our user interface to help consumers find content.
Yeah. No. Those are great examples. The sports situation for the consumer just gets worse and worse.
Yeah.
-every year. That's, that makes a lot of sense.
Those kinds of opportunities, I mean, as well as helping consumers find sports, it's great for our business because there's all kinds of sponsorship opportunities and advertising opportunities around sports. you know, those are.
Yeah.
There's lots of good reasons to do that.
Maybe a good transition from engagement into monetization is to talk about The Roku Channel. You know, that product isn't that old. I'm trying to think. You guys launched it maybe two or three years ago, something like that. Give us a sense of the scale of that business and maybe just how we should think about it as an opportunity for Roku over the longer period of time.
Yeah. I mean, Roku, you know, amongst our strategic assets, The Roku Channel's a big one. It's been very successful for us. It continues to grow. It's. You know, we started The Roku Channel, I forget as well.
I think it's 2018.
More like four years ago.
Conrad's nodding. Yeah.
We originally started it because, you know, if you go back in time to those days, everyone was just focused on trying to build a Netfl-- everyone being other streaming service or potential streaming service companies, were focused on copying Netflix and building a ad-free SVOD service or a, maybe a SVOD service with ads as well. Roku's been very successful by offering our consumers an incredible value. I mean, we offer, I mean, we focus on three things. It's not a secret. We focus on being super simple. We excel there. Being incredible value and delighting our customers with things like the Roku City Screensaver or, you know, just the super easy experience and the fact that it just works.
So The Roku Channel, if you think about value and you go back a little bit in time, we're like, 'Well, why is everyone just focused on charging consumers?' Could we go back and Like, it used to be that TV was free, and it was all supported by ads. What if we create a channel of free TV? That was our focus. We said, "Look," so we added The Roku Channel. We're gonna make it free. It also didn't hurt that a big, fastest growing part of our business was ads. You know, it started with just, like, back catalog movies and TV shows. We promoted it in the UI, and it's free, and it's a great value, and our cord cutters love stuff that's free.
That's the virtuous cycle that's just made it bigger and bigger and bigger. Now we're at the point where we still license. We still have a lot of rev share licensed content. We have a lot of expensive direct licensed content that gets viewed a lot, so it, you know, pays for itself. We have an output deal for movies with Lionsgate, and we produce our own originals now. It's a whole range. We've purchased some brands like This Old House. You know, we just hired Charlie to run our media side of our business, which is focused on the content for The Roku Channel. We've invested a lot in it, but it's also really paid off for us.
It's now a top five app on the platform, both in terms of engagement and hours streamed. It's grown, you know, 80%+ in engagement year-over-year. It's very popular with consumers, and it's not only a great way for us to sell ads, but it's also a reason people buy Roku because they get The Roku Channel.
Yeah. Yep. No, that makes sense. Let's talk about monetization if I use The Roku Channel maybe as a launching pad there. Roku Channel hours were up 85%, I believe, in the fourth quarter. There's a lot in your platform revenue, and I always give Conrad grief because I wanna get more insight into what's inside there. Could you talk a little bit about sort of the big buckets of revenue that are inside a platform? When you look out over the next two to three years, Anthony, how you see those growing or which are the biggest drivers of growth, biggest opportunities?
Sure. Roku basically monetizes our platforms in two broad ways. One is we distribute streaming services. Whether that's Peacock or HBO Max or Netflix or whatever, we distribute where those streaming services, you know, want to reach lots of consumers. With almost half the broadband households in the US and 70 million active accounts globally and growing quickly, we're a great platform for them to reach consumers, reach viewers. Also, you know, because we focus on building this purpose-built OS for TV, we focus on making a platform that's good for the entire TV ecosystem. It's great for viewers, but it's also great for advertisers, and it's great for content owners.
We have lots of tools for content owners to be able to promote their service owners to be able to promote their service to our customers. Anyway, there's one big chunk of revenue for Roku is around distributing content, and that's basically both a business deal to distribute that content to our viewers but also follow on purchases on our platform to help the service owners use to promote their services and increase their engagement of their service or increase the number of viewers. Anyway, distribution, and that involves features that we have on the platform like Roku Pay, as well as, you know, our ad tech platform and others. The other big general area for us is advertising. In advertising kind of breaks out into two areas.
One is display ads or what we call media and entertainment advertising on the platform. For example. The other area is video advertising, so I'll come back to that. Say M&E, for example, like, you know, for an example, we did a deal with Disney when they launched The Mandalorian to theme the entire TV home screen with, you know, a Mandalorian theme. Viewers love it. Like, it's kind of delightful to turn on your TV and see a Disney Mandalorian-themed background for a couple days. Disney likes it because 70 million households turn on their TV and see Mandalorian. You know, anyway, we do have a lot of different ways we can promote on the platform to drive engagement and signups for M&E for media and entertainment services.
That's a big area for us. The bigger area is TV video advertising. You know, all viewers are moving to streaming, so video advertisers are following. They lag a little bit. You know, the viewers are moving faster than the advertisers have, but they will all move over. So we built a lot of capabilities into our platform in terms of targeted advertising, you know, measurement data. That's a big business for us. We have an ad platform that, you know, generates revenue, but we also have lots of ad inventory that we sell, both in our owned and operated properties like The Roku Channel, but also across a network of services on the platform.
That's a great overview. I was gonna ask about M&E since you brought it up. I mean, you guys had, I think you reported 2% monetized ARPU growth last year, which is growth in a tough macro, but certainly slower than prior years that we've seen. What are the headwinds that you guys have been facing on the monetization front? Is it all macro? Particularly with media and entertainment, you know, where I'm sure all week we're gonna hear about media companies pulling back on general investment. When do those sort of headwinds fade, and we start to see ARPU maybe re-accelerate? I know that was a lot in one question, but
Yeah. I mean, the biggest impediment to Roku's revenue growth last year was, and this year as well, is basically the advertising business. I mean, advertising is cyclical and is tied to the economy, obviously uncertainty around the economy has caused a bunch of advertisers to pull back. TV advertising, in general, has declined. We've seen small growth because we benefit from, you know, being the number 1 TV streaming platform, but also advertisers moving their dollars increasingly from traditional TV to streaming. That's by far the biggest issue in terms of revenue growth, is just the decline in the advertising. It'll bounce back. I mean, advertising is cyclical and, you know, it always bounces back. The...
There's the knock-on effects as well as the direct impact because we sell a lot of TV ads. All our M&E partners also, not all of them, but most of them also rely on TV advertising, and most of them are dual revenue stream, both advertising and subscription. As their advertising business has declined, they've pulled back on M&E spending. As the general economic environment causes them to focus more on profitability and less on growth, that also causes them to pull back. These are all, like, temporary factors related to the economy. I think overall, the ad business will bounce back. More and more people will move to streaming. More and more dollars are gonna move. There's about $60 billion a year in the U.S. alone spent on TV advertising.
All of that's gonna move over to streaming. There's a lot of opportunity going forward. If you think about M&E, There's one factor, which is the economy is cyclical, and that will bounce back, and that will drive growth. Another factor is, increasingly the, you know, we're seeing all the streaming services start to offer advertising in their, in their products. You know, obviously the notable ones are Disney and Netflix. At this point, almost all the streaming services have ads in some of their tiers. When you have ads in your streaming, you're focused on engagement a lot more than you were before because the more people watch your content, the more you can... more ads you can sell.
I think as streaming services focus more and more on engagement, that'll make our M&E offerings even more appealing.
Sure. Got it. Okay. Got about three minutes left, so I wanna make sure we hit at least two more questions. You guys talked about on your earnings call, I guess, I don't know how you would describe it, but a prioritization of adjusted EBITDA positive in 2024, or a commitment to it maybe might be a better... I don't wanna put words in your mouth. You can describe it. Can you just talk about, you know, what led you to that announcement and how we should think about revenue acceleration and the expense levers in terms of getting to that, achieving that goal?
Yeah, you know, up until the most recent earnings call, we've always said that our general philosophy in terms of investing in the business was to run the business at EBITDA breakeven. I mean, that was the target. Sometimes, you know, like when COVID happened, EBITDA became very positive because the business grew faster as some businesses fold in, fold forward. Generally, that was our target. You know, at this point, we've switched our target to starting to be EBITDA positive. The reason is, you know, we've always, of course, we've always had as a goal to build Roku into a large, very profitable business.
We felt that in the earlier days, it was better to reinvest as much as we could into acquiring market share in a something that's gonna be a huge business. You know, now we've got 70 million active accounts and enough scale. This seems like the right time to transition to, okay, well, we're gonna start focusing on profitability, not just market share.
In any way, should we be thinking that there might be more cost opportunities? You guys had a, I think a reduction in force last year, but are you making, you know, major trade-offs in sort of investment priorities now to achieve that goal, or it's kinda too early to tell?
it's not too early for me to tell. I think, you know, first of all, our outlook, you can read the outlook in our last earnings release. We're not so much focused on cost-cutting as we are on slowing the growth rate of our OpEx to-
Right
... to much lower year-over-year levels. Through a combination of slowing down our OpEx year-over-year growth and also continuing to grow revenue, that will naturally start to expose the leverage in our business.
In the time we have left, I wanted to make sure we touched on the reorganization of the company, which was announced late last year. You mentioned bringing Charlie in, but you've got 3 new executives or promoted executives at the company. What does this new structure do for Roku in terms of achieving its goals?
Yeah. I mean, actually, we didn't really change our structure. Our structure has obviously evolved over the years as we've grown. We've changed the way we're organized to be more effective as, you know, as our business has grown. What we did is just highlight that we have three major operating units and start to shine more of a light on the really awesome leaders that we have in running each of those three units. You know, if you look at our business. They all tie directly to our business model, which is acquire active accounts, engage, and monetize. If you look at just acquiring accounts, we do that through selling devices. We have a big team focused on selling streaming players and then licensing or selling Roku TVs.
That's run by Mustafa, who's got a deep background in hardware technology and TV technology in particular. After we sell a device, we focus on improving the value of that customer over time by increasing engagement, and Gidon Katz runs that business unit for us. Again, he's super talented, a great executive, lots of deep experience in the TV business. He was president of NBC Peacock. Before that, he ran the streaming business at Sky in the U.K., and has just got a long history in terms of analytics, using analytics to drive engagement via a lot of multivariate testing as well as a focus on the consumer.
Third, most recently, we hired Charlie Collier to run our media business, which for us is basically all the content. You know, we license and produce a lot of content. Charlie's got deep content experience. I mean, he was responsible for, you know, back in the day, Mad Men, Breaking Bad, and Walking Dead, for example. Most recently, he was CEO of Fox Entertainment. A lot of content experience, but his background is actually advertising, so he's got deep, deep relationships with advertisers. You know, we have a large ad business. Those are the three business units and the leaders.
Great. Well, that was a great overview, Anthony. Thank you so much. We're out of time, and appreciate it. Come back soon.
Thank you.
Thank you. Thanks, everybody.