Roku Rode Pandemic Stay-at-Home Trends to 79% Q1 Revenue Jump

The “unfortunate Covid situation was anything but” for connected TV and Roku, Pivotal Research Group analyst Jeffrey Wlodarczak wrote investors Friday after the company’s Thursday Q1 earnings report showing a 79% hike in revenue year on year to $574.2 million and 32% average revenue per user growth to $32.14. The stock closed 11.6% higher Friday at $317.

The COVID-19 pandemic accelerated the shift to direct-to-consumer streaming video subscriptions by traditional media players, consumers and advertisers “while simultaneously delaying the launch of competitive products to the point that this appears to be arguably a two horse race between Amazon and Roku,” said Wlodarczak. The question now is whether new competitors can scale to compete with Roku, which has invested sizable dollars into its product and advertising platforms, he said. Roku has an advantage over Amazon, which nearly every retailer and device maker views "as an existential threat,” said the analyst.

The key for Roku is to focus on adding subscribers, which should give it scale with D2C players and allow the company to move more aggressively into original programming, said Wlodarczak. Roku added 2.4 million incremental active accounts in Q1, beneath analysts’ expectations, reaching 53.6 million total as the company began to lap stay-at-home orders from March 2020. Streaming hours grew by 1.4 billion to 18.3 billion. Roku expects 2021 streaming hours per account to be higher than in 2020, said Chief Financial Officer Steve Louden on a Thursday investor call.

Ongoing risks for Roku, said PRG, are tough comparables against 2020, competition against much larger players that aren’t necessarily focused on generating a return; competing against content companies like Comcast and Google that could choose to have content removed as they gain more power; and going up against dominant platforms such as Netflix, Disney+ and HBO Max that are ad-free, can get spiffs for adding customers and in some cases share in revenues, said Wlodarczak. D2C content could end up in pay-TV bundles potentially eliminating the need for Roku, although the traditional pay-TV bundle is shrinking, he noted.

Roku’s platform segment grew 101% year on year to $466.5 million, for 81% of total revenue; player revenue grew 22%, but management expects tougher comparables going forward, said Loudon. The company’s Q2 outlook calls for “robust growth” with total net revenue of $615 million at the midpoint, up 73% year over year. Roku didn't make full-year projections due to “uncertainties,” including supply chain issues. It expects “slightly negative” player margins in Q2 due to anticipated component cost increases, said Louden.

General Manager Scott Rosenberg said the pandemic accelerated advertisers’ reallocation of TV budgets toward streaming. He cited March Nielsen data saying linear TV ratings for adults 18-24 was down 22% and MediaRadar reports that Q1 TV ad spending was down 11%. Roku doubled monetized video ad impressions on its platform, Rosenberg said. It’s growing business with mid- and long-tail advertisers focused on performance as well as top 200 ones, he said. Home Chef had a 2.4x return on ad spend in the quarter, and then invested more, he said.

The Roku Channel is “on fire,” said CEO Anthony Wood, referencing a “virtuous cycle” where more consumers are coming onto the platform, increasing ad revenue, allowing the company to spend more on content. Streaming hours grew more than twice as fast as the platform overall, and content partners have grown to 175. Roku is also doing more creative deals, such as the Quibi buy (see 2101080028) and This Old House. “Better quality content is just bringing in more viewers,” Wood said.

On how DTC services have changed the conversation with content providers, Rosenberg said it’s not an either/or situation. Most channel partners with an app on the platform are also working with the company in The Roku Channel: “A rights owner can be executing on a big direct-to-consumer strategy, even while they have parts of their catalog that they want to monetize elsewhere that maybe doesn't fit into the strategy of the D2C effort,” he said.

Commenting on privacy regulation and changes in operating systems such as iOS 14.5, Wood said they’re making it “more tenable to have a targeted ad business or a data-driven ad business when you have a first-party relationship with your customers, like Roku does.” It allows providers to get consent or opt-ins “with fairly high take rates.” Roku requires an opt-in from consumers before tracking their data or targeting them with ads using ACR, said Wood. Doing so enables Roku’s “More ways to watch," which points a customer to back episodes of a show on The Roku Channel that they’re watching on linear TV, he said. “That’s a feature that has a direct impact on the viewers and makes their experience better,” which makes it more likely they will opt in, he said: Opt-in rates are “very high," he said.

On Roku’s acquisition of Nielsen’s Advanced Video Advertising business last month (see 2104160009) Rosenberg cited two drivers, including the automatic content recognition “video fingerprinting” technology it’s had embedded into Roku TVs for the past five years: “So now we own the tech and the intellectual property around it as well as digital ad insertion or the ability to do linear ad replacement on the fly,” Rosenberg said. There’s still a substantial amount of traditional linear TV consumption happening through the TV HDMI input and over the air, he said.

The ability to dynamically use Roku data in partnership with a program “opens up a whole new class of inventory and additional reach that we can deliver to our ad clients in partnership with programmers,” Rosenberg said. The second reason for the deal was to enable cross-screen measurement, he said, allowing an advertiser to do reach and frequency measurement across four screens: traditional linear TV, streaming, desktop and mobile.