Roku Added 3.2M Accounts During Lockdown, Reports Higher Ad Revenue

COVID-19 lockdowns helped Roku add 3.2 million incremental active accounts in Q2, a record for a non-holiday quarter, said Chief Financial Officer Steve Louden on a Wednesday investor call. The company ended Q2 up 41% year on year in active accounts, at 43 million, fueled by shelter-at-home mandates.

Revenue jumped 42% to $356 million, reflecting growth in platform and player segments. Platform segment revenue was up 46% to $244.8 million on strength in VOD. Player revenue grew 35%, the highest growth rate in more than five years. Player sales rose 28%, while average selling price decreased “only 2% ... given less promotional activity due to strong demand” and some inventory constraints, said Louden.

Roku is expanding its relationship with TCL internationally, said the company shareholder letter. “They’re a good partner,” Roku CEO Anthony Wood said, highlighting efforts to co-create an 8K Roku TV. He also cited relationships with Hisense and Walmart’s On house brand.

Roku’s advertising business in Q2 grew “as the overall TV ad market declined,” said Wood, but the outlook for that industry remains “highly uncertain” for this year; it will be “well into 2021 before TV ad investment recovers to pre-pandemic levels.” Monetized video ad impressions grew about 50%, and ad clients were up 40%. It's offering advertisers an “incremental reach guarantee” to traditional TV, with Campbell Snacks’ Snyder’s of Hanover the first to use the shopper data program. Roku gives the brand closed-loop TV measurement, offering the brand insights into how their TV spend and creative drive sales in-store and online.

The ad streaming market is in “very early days,” said Wood, envisioning that “all television is going to stream. That of course means all TV ads are going to stream,” and “all advertising is going to switch to OTT for video.” The company unveiled its OneView Ad platform in May, which leverages identity data to manage advertising across OTT, desktop and mobile ad campaigns, reaching an estimated 80% of U.S. homes.

Roku users streamed 14.6 billion hours, up 65% year over year and 47% vs. Q1. Streaming hours per active account peaked in early Q2 and “has since moderated, but remains above pre-COVID levels,” said Louden.

Responding to a question on HBO Max and Peacock, which launched over the past few months outside the Roku platform, Wood said, “We're not always first when it comes to adding new services to our platform because it's important to us that we establish a win-win-win relationship.” The company wants to “add all the content that we can.” Roku’s economic model with content distribution partners and advertisers “is what funds our business” and allows the company to sell low-cost players, so it's important that we get that right."

Louden cited Roku’s role as a “platform for new services,” referencing the marketing deal it announced in June with Kroger Precision Marketing (see 2006080020) that’s designed to persuade consumer packaged goods advertisers to shift some ad spend to streaming.

MoffettNathanson tempered its view of Roku’s Q2 in a Thursday investor note, saying “looming competition from Android and TV OEMs,” and lack of key performance data makes it difficult to extrapolate COVID-19 lockdown gains into the future. The slowdown in ad impression growth in Q2 to 50% from nearly doubling in Q1 “is a bit worrying” given linear ad market trends, said analyst Michael Nathanson. The ad-based VOD market in Q2 “appears a bit weaker than anticipated” given the rise in active accounts, he said.

Roku’s non-ad revenue “appeared strong,” with movie and TV rentals and purchases hitting a high, said Nathanson. Premium VOD is becoming an increasing focus for major media companies, most recently with Disney’s news that Mulan will come to Disney+ for $30 next month (see 2008050003). Though Roku appears well-positioned for the trend, the analyst said “it remains unclear if they will get a cut of Mulan purchases on Disney+ or share the economics of similar transactions on other major [Subscription] VOD platforms.”

The COVID-19 effect is driving accelerated Roku adoption, creating a potential to “substantially grow revenue and profits over the long-term,” Wedbush' Michael Pachter wrote investors Thursday. The analyst raised estimates on a “less severe impact on ad revenue growth” near term and greater growth in transactional-based VOD, licensed TVs, and players. Benefit from Roku device sales and “substantial active user growth” should drive higher ad spend, he said.

Roku didn't provide Q4 guidance on a short-term outlook it called "variable and uncertain." It cited "increasing prevalence of COVID-19 infections around the world and the potential for disruptions and changes to historical consumer behavior and spending patterns during the back-to-school and holiday seasons." The holiday quarter, typically the largest for Roku, has in 2020 "a wide range of potential outcomes given increased consumer interest in streaming on one hand, and the possibility of retailer, supply chain and advertising constraints at critical times on the other." The stock closed 6.9% lower Thursday at $153.87.