After a long AdTech commentary hiatus, I’m back to chatting Roku – which is one company I have followed closely since 2019.
Roku has underperformed significantly vs. S&P in 2021 after having a stellar run in 2020.
After being up 40% at one point in the year, it is down 34% for the year.
What Roku told us in Q1'21
– They doubled monetized video ad impressions on the platform. Ad spending by major agency holding companies with Roku more than doubled.
– Roku Channel (TRC) – Reach, engagement, and streaming hours grew more than twice as fast as the platform overall, which grew faster than Q4’20
– Roku enabled their customers to use the Automatic Content Recognition (“ACR”) data to retarget a user on desktop/mobile based on what content or advertising they’re interested in or conversely using site visitation information to inform what ads are run on the large screen.
Those use cases were some of their most robust cross-screen or omnichannel use cases and were a part of what drove growth in spending through OneView on media off of the Roku platform
– As their scale grows, they can afford to buy more content which gets the flywheel of TRC going. They got better at understanding fixed license deals vs. bringing content in-house using the data they have from TRC.
– Trying to optimize player sales for driving account growth, not driving player gross margins. Player GM’s could go negative
– OEM Partnerships are a key to expanding internationally
– Focused on making Dynamic Ad Insertion (“DAI”) a reality.
– SMB’s went to social before but are now looking at CTV. Time spent on streaming is 3x FB, 2x YouTube, 2.5x Snapchat & Instagram combined.
What Roku told us in Q2'21
– Platform GM’s were higher than expected due to a favorable mix toward higher-margin media and entertainment spend by publishers. Player GM’s negative due to global supply chain issues and will stay negative for the remainder of 2021
– Tough YoY comps in Player, Platform, Active accounts & Streaming hours in 2H
– TV overall saw a 19% decline YoY in viewership. Roku’s viewership was up 19%. Streaming hours/account per day was 3.51 per day, Average US household does 7 hours of TV viewing per day, so a huge opportunity there.
– Chip shortages are affecting Roku less because they use less memory than the competitors.
– Room to grow both US & International active accounts, but the other way they grow is by increasing monetization on existing accounts. A key difference between Roku & a Subscription service is the latter’s active accounts correlate directly to revenue.
– Privacy changes would be an advantage for Roku who have the 1P relationship with the customer. Could work with the marketer, onboard their data and can target more precisely, measure & drive more impact.
– Majority of advertising is traditional tv, top-of-funnel brand advertiser. But performance segment (gross advertising segment) 3x’d YoY. Demonstrated they could deliver outcomes similar to the way search & social does. With that segment, they’re competing with budgets outside of traditional TV.
What Roku told us in Q3'21
– Slowdown in active account growth rate this Q attributed to global supply chain disruptions that have impacted the overall U.S. TV market. Because of supply chain disruptions, other advertisers from verticals that are severely impacted, they could reduce spend due to limited product availability.
– With players, they’ve been spending money to insulate the retailer and the end customer from pricing issues and supply issues.
– With TVs, they don’t set the price of TVs, that’s set by the TV OEMs and the retailers. And TVs cost so much more and the lead times are longer. It’s not practical in many cases to absorb the cost increases for TV.
– Enter markets sometimes with TVs first, sometimes with players first, but the goal is to have both of them available in every market from multiple vendors and multiple SKUs
– Uncertainty around softening the ad spend from certain companies or verticals affected by supply chain disruptions is accounted for as part of Q4 outlook ranges.
– Due to supply chain issues, it was easier to get TVs out of non-Chinese countries. It’s particularly hard to get TVs shipped and built out of China, and our partners are primarily Chinese
– Not going to float the ad load up as they’re pretty passionate about user experience. And hence they’re investing heavily in Roku Brand Studio which gives brands “an opportunity to author content with us, put together experiences, content first, content-led experiences that are brought to you by that brand”
Things I'm looking for in Q4'21 and beyond
Revenue: at least $907M (40%), with an approx. platform revenue of $780M and player revenue of $127M
Management is guiding for $900M. For me, if Roku comes lower than $905M (bare minimum expected), I’d need to go in and see what changed.
Gross Margins: at least 45% Platform GM’s and -20% Player GM’s. I really don’t care much about the Player GM’s for the next 2 Q’s.
Active Accounts: Prepared for some ugly-looking active accounts numbers in Q4’21. However, I’d like to see a turnaround in the growth of active accounts by Q1’22 (or at the max by Q2’22) for the thesis to stay valid (with an expectation that the supply chain issues will be resolved in the first half of 2022)
Streaming Hours & ARPU: I’d like to see the Streaming hours and especially ARPU go up for the quarter to make me comfortable. An increase in ARPU shows that they’re able to monetize their existing users. If the ARPU shows any signs of decline, that would be a major red flag for me, especially with the declining active accounts.
Disclosure: I work for AdTheorent (Nasdaq:ADTH) and the views in this post are solely my own and are for educational purposes only. None of this should be construed upon as financial advice.