Roku Q4 Revenue Jumped 58% as Ad Demand, Cord Cutting Accelerated

Roku active accounts grew by 14 million to more than 51 million in 2020, and streaming hours gained 55%, said CEO Anthony Wood on a Thursday call. It gained 5 million active accounts in Q4, bringing 2020 active account adds to 14.3 million, said Chief Financial Officer Steve Louden. In 2020, 38% of all smart TVs sold in the U.S. were Roku TV models, said the shareholder letter.

Q4 revenue swelled 58% year over year to $649.9 million, with platform segment revenue up 81% to a record $471.2 million, driven by “strong advertising demand,” said Louden. Player revenue growth of 18% was below the Q4 2019 growth rate as COVID-19 restrictions and “economic uncertainty muted holiday store traffic and consumer demand.” For the year, player growth rose 28% vs. 2019, with most growth coming in Q2 and Q3.

Monetized ad impressions grew more than 100% in Q4, “rebounding to pre-COVID growth levels,” said Wood, underscoring Roku’s role in the over-the-top video world: “Across the industry, the impact of streaming is increasingly evident; consumers are cutting the cord.”

Wood took aim at traditional pay TV, citing the third of U.S. TV homes that are OTT-only, noting top media companies are “reorienting around streaming” and launching new services. “The traditional TV upfronts are beginning to crumble as advertisers demand more flexibility, better measurement, and a broader audience,” said Wood. Louden said Roku's U.S. active account base is more than twice the number of video subscribers of the largest U.S. cable company.

Pivotal Research Group analyst Jeffrey Wlodarczak said in a Friday investor note Roku beat expectations, with the pandemic accelerating the move to direct-to-consumer (D2C) by traditional media companies, consumers and advertisers. It delayed the launch of competitive products and left a “2-horse race between Amazon and Roku.” Roku has the “distinct advantage” because virtually every retailer and manufacturer views Amazon as an “existential threat,” said the analyst. Adding more subscribers would give Roku “significant leverage" with D2C players and potentially allow the company to move into original programming, a “home run scenario.”

Risks facing Roku this year include “tough” comparables with 2020; competing against much larger players “not necessarily focused on generating a return”; Comcast’s leverage with content; competition from ad-free HBO Max and Disney+ that have “spiffs” with other platforms; and D2C content potentially ending up in pay-TV bundles that could eliminate the need for the Roku platform, said Wlodarczak.

Commenting in Q&A on concern about Comcast Now or HBO Max cannibalizing advertising-based VOD consumption, Louden noted Comcast’s Peacock TV already has ads and HBO plans to: The services are “drawing more consumers into streaming” and encouraging cord cutting, said the executive. Other services’ ad-supported strategy “bolsters the overall narrative in the market that we've been on for years now about the importance of advertisers investing in OTT."

Wood said the Quibi acquisition (see 2101080028) was part of the growth strategy for The Roku Channel. Quibi fits in as “premium content” that helps bring in more viewers, and therefore more advertisers, he said. Roku bought global rights to Quibi content “on a cost-effective basis,” and the company remains disciplined about ensuring the content it brings on for the channel fits the AVOD model. The company’s growing scale allows it to do deals like the Quibi buy “where perhaps we couldn't have done them a couple of years ago.” The company is eyeing other opportunities for its AVOD business.

Quibi content -- 75 TV series -- will roll out over 2021, said Scott Rosenberg, general manager-platform business. Roku has exclusive, multiyear rights to use the content, he said. The company added about 100 linear channels in 2020, including content from Disney, NBC, A&E and Discovery, to The Roku Channel, which now has more than 175 linear streaming channels and reaches 63 million viewers, said Louden.

Roku users streamed 17 billion hours in Q4, and over 58 billion hours in 2020 overall, both rising 55% year on year. Roku active accounts streamed an average of 3.8 hours per day in Q4, up 10% year over year, said the company. Average revenue per user rose by $5.62 year over year to $28.76, fueled by higher per-user engagement and investments in channel distribution, content promotions, billing and advertising capabilities.

Retailers spent 7% less on traditional TV advertising in Q4, said the company, while retail ad spend on the Roku platform more than doubled year on year. It cited Walmart holiday season ads targeting the 18-34-year-old segment and an interactive Roku TV sweepstakes from the Roku home screen. Among viewers who saw a Roku ad for Walmart, 80% hadn't seen a Walmart ad on traditional TV, and brand favorability increased 65% for adults 18-34, Roku said.

Roku didn’t give formal guidance for 2021. In first half 2021, it expects strong financial comparisons against first half 2020, which had early impact from COVID-19 and the economic lockdown, said Louden. The company anticipates “much tougher comparisons” in the second half, bumping up against record performance from June-December last year that will “significantly pressure year-over-year growth rates.”

Wedbush analyst Michael Pachter said Roku's pace of growth is "sustainable," in a Friday investor note, noting most advertising still occurs on linear TV. Advertising will "continue to shift in Roku’s direction, as content continues to shift to SVOD, PVOD, and AVOD platforms," said the analyst, also citing Roku's early stage of international expansion. Share price "may remain volatile as expectations are elevated against a rich valuation."