Yahoo Finance Roku, Inc. (NASDAQ:ROKU) Q1 2024 Earnings Call Transcript
Roku, Inc. (NASDAQ:ROKU) Q1 2024 Earnings Call Transcript April 25, 2024
Roku, Inc. beats earnings expectations. Reported EPS is $-0.35, expectations were $-0.64. Roku, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, everyone, and thank you for standing by. Welcome to the Roku's First Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] And please be advised that today's conference is being recorded. I would now like to hand the conference over to Conrad Grodd. Please go-ahead.
Conrad Grodd: Thank you, operator. Welcome to Roku's First Quarter 2024 Earnings Call. On today's call are Anthony Wood, Roku's Founder and CEO; Dan Jedda, our CFO; Charlie Collier, President, Roku Media; and Mustafa Ozgen, President, Devices. Full details of our results and additional management commentary are available in our Shareholder Letter, which can be found on our Investor Relations website at roku.com/investor. On this call, we'll make forward-looking statements, which are predictions, projections, or other statements about future events, based on current expectations, forecasts, and assumptions. These statements involve risks and uncertainties. Please refer to our Shareholder Letter and periodic SEC filings for risk factors that could cause our actual results to differ materially from these forward-looking statements.
On today's call, we'll present GAAP and non-GAAP financial measures. Reconciliations of non-GAAP measures of the most comparable GAAP financial measures are provided in our Shareholder Letter. Finally, unless otherwise stated, all comparisons on this call will be against the results of the comparable period of 2023. Now, I'd like to hand the call over to Anthony.
Anthony Wood: Thank you, Conrad. We delivered solid results in Q1, growing streaming households 14% year-over-year, streaming hours 23% year-over-year, and platform revenue 19% year-over-year. As I mentioned on the Q4 call, this year, we are directing more of our attention to platform growth and innovation. We will accelerate platform revenue, adjusted EBITDA, and free cash flow growth in 2025 by focusing on three key opportunities, maximizing the Roku home screen as the lead-in for TV, growing Roku bill subscriptions, and growing ad demand for Roku. Every day, the Roku home screen reaches US households with nearly 120 million people. This significant reach creates a lot of opportunity. I see many ways to improve the user experience while also growing monetization for Roku.
For example, the Roku sports experience, which viewers can click into right from the home screen, addresses the fragmentation of sports as it shifts to streaming, making it easier for viewers to find games and other sports-related content. The NFL Zone was our first league-sponsored zone and for this year's Super Bowl, it was sponsored by TurboTax, delivering massive reach to the brand during a critical time of the year. We recently launched the NBA Zone in partnership with the NBA in April. We also see a big opportunity to grow Roku-billed subscriptions. Roku Pay, our payment and billing service, simplifies the sign-up process for users so they can quickly transact and start streaming and ensures content partners don't lose subscribers due to unnecessary friction at the point of purchase.
Additionally, we are making it easier for advertisers to execute campaigns programmatically on the Roku platform by expanding and deepening our relationships with third-party platforms. In Q1, we continued to grow programmatic ad spend as a percentage of total video ad spend on the Roku platform. With our platform advantages, first-party relationships and more than 80 million streaming households, and deep user engagement, we are well-positioned to accelerate platform revenue growth in 2025 and beyond. Now, I will turn it over to Dan to discuss our results.
Dan Jedda: Thanks, Anthony. We ended Q1 with 81.6 million streaming households. Sequential net-adds of 1.6 million were in line with Q1 2023 and driven by both TVs and streaming players. We continue to drive strong growth in engagement with streaming hours up 23% year-over-year and surpassing 30 billion hours for the first time in a single quarter. We also grew engagement per account globally with streaming hours per streaming household per day of 4.2 hours in Q1 2024, up from 3.9 hours in Q1 2023. In Q1, we grew total net revenue 19% year-over-year to $882 million. Platform revenue was $755 million, also up 19% year-over-year, driven by both streaming service distribution and advertising activities. Streaming services distribution activities grew faster than overall platform revenue, benefiting in part from subscription price increases.
However, the year-over-year growth rate of streaming services distribution in Q1 2024 was lower than the year-over-year growth rate in Q4 2023 due to lapping past price increases and higher mix-shift towards entry-priced ad-supported offerings. Devices revenue increased 19% year-over-year in Q1, driven by the expansion of retail distribution of Roku branded TVs. ARPU was $40.65 in Q1 on a trailing 12-month basis, flat year-over-year. This reflects an increasing share of streaming households in international markets where we are currently focused on growing scale and engagement. Q1 total gross margin was 44%, down slightly year-over-year. Platform gross margin of 52% was stable year-over-year, while devices gross margin was negative 5%, which was down 8 points year-over-year.
Excluding the one-time $10 million service operator licensing catch-up benefit in Q1 2023, device gross margin would have been roughly flat year-over-year. Q1 adjusted EBITDA was $41 million, which was above our outlook of breakeven. The better-than-expected performance was driven by our Platform segment along with improvements to our operating expense profile. Free cash flow was $427 million on a trailing 12-month basis, and we ended the quarter with $2.1 billion of cash and cash equivalents. Let me turn to our outlook for the second quarter. We anticipate total net revenue of $935 million. Gross profit of $410 million with gross margin of 44% and adjusted EBITDA of $30 million. Our outlook for total net revenue anticipates a 10% year-over-year increase.
This takes into account challenging year-over-year growth rate comparisons with streaming service distribution, along with an elevated 606 adjustment in Q2 of last year. We expect Platform margin to be similar to Q2 of last year at roughly 53%. On the devices side, we expect margin to decline from negative 5% in Q1 to negative low-teens in Q2, which reflects continued expansion and investment in our Roku branded TV program. We expect to benefit from having implemented multiple operational improvements over the course of the past year and as a result forecast our year-over-year OpEx growth rate in Q2 to be down to negative low-single digits. Looking into the second half of the year, we expect normal seasonal spend in sales and marketing or devices, which will cause second half adjusted EBITDA to slightly moderate relative to the first half of the year.
Looking at the full year, we expect 2024 year-over-year OpEx growth rate to be in the low single-digits when excluding impairment and restructuring charges in 2023. We continue to see leverage in our operating model with our third straight quarter of positive adjusted EBITDA and free cash flow. We will continue to drive operational efficiency. And as Anthony mentioned, we remain confident in our ability to accelerate the growth of platform revenue in 2025 and beyond. With that, let's take questions. Operator?
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