Roku, Inc Q1 FY2022 Earnings Call

Ladies and gentlemen, thank you for standing by. And welcome to the First Quarter 2022 Roku Earnings Conference Call. I would now like to hand the conference over to your host, Conrad Grodd, Vice President of Investor Relations. Please go ahead.

Thank you, operator. Good afternoon. And welcome to Roku's first quarter 2022 earnings call. I'm joined today by Anthony Wood, Roku's Founder and CEO; Steve Louden, our CFO; and Scott Rosenberg, Senior Vice President, General Manager of our Platform business, who will be available for Q&A. 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. Our comments and responses to your questions on this call reflect management's views as of today only, and we disclaim any obligation to update this information. On this call, we'll make forward-looking statements, which are predictions, projections or other statements about future events, such as statements regarding our financial outlook, our investments future market conditions and macro environment headwinds, such as global supply chain disruptions, inflationary pressures and geopolitical conflict. These statements are based on our current expectations, forecasts and assumptions and involve risks and uncertainties. Please refer to our shareholder letter and our periodic SEC filings for information on factors that could cause our actual results to differ materially from these forward-looking statements. We'll also discuss certain non-GAAP financial measures on today's call. Reconciliations to the most comparable GAAP financial measures are provided in our shareholder letter. Finally, unless otherwise stated, all comparisons on this call will be against our results for the comparable period of 2021. Now I'd like to hand the call over to Anthony.

Roku had a solid first quarter with platform revenue up 39% year-over-year, driven by higher content distribution and advertising revenue. This financial performance and our continued growth, even in a challenging operating environment, validates the strength of our business model. From day one, the Roku platform has been built to operate at the center of TV streaming, meeting the needs of each participant in the ecosystem. For consumers, we provide an excellent experience with trusted discovery tools that allow them to find and watch content the way they prefer, whether that's via ad-supported or subscription services. For content owners, we offer multiple ways to build and retain audiences and monetize content. And for advertisers, we have data, tools and technology that improves the return on every ad dollar spent. Ad-supported streaming services are a huge and growing part of the streaming ecosystem, demonstrated by the continued success of the Roku Channel. It was a top five app on our platform in the U.S. by active account reach for the third quarter in a row. And for the first time, it was a top five app on our platform in the U.S. by streaming engagement. The Roku Channel's expanding reach and engagement is being driven by the increased quality and diversity of our content portfolio and our unique ability to promote it as the platform owner. As a leading platform in TV streaming, we expect to continue to grow both active accounts and platform monetization for years to come. This quarter, we launched new ad products and we will present more ad product offerings and content to advertisers at Roku's first in-person upfront event next week. Today in the U.S., Nielsen reports that audiences spend 46% of their TV time streaming, while eMarketer reports that advertisers spent just 18% of their TV ad budgets on streaming. Both of these will become 100% as eventually all TV and all TV advertising will be streamed. Roku is a leader in TV streaming with an established track record of platform growth and technology innovation. And we will continue to invest to capture the significant opportunities ahead of us. With that, let me turn it over to Steve.

Thanks, Anthony. Before taking your questions, I'll walk through highlights and discuss our outlook given the current macro environment. We continue to grow, adding 1.1 million active accounts in Q1 and ending the quarter with 61.3 million. As expected, year-over-year active account net adds moderated, given the end of government stimulus payments that temporarily drove discretionary consumer spending in Q1, 2021. Additionally, ongoing supply chain disruptions increased U.S. TV prices in Q1, 2022, resulting in industry-wide TV unit sales that were below 2019 pre-COVID levels for the third quarter in a row. Roku Player unit sales decreased 12% year-over-year, but remained above pre-COVID levels and the average selling price decreased 9% year-over-year. Engagement was high. Roku users streamed 20.9 billion hours in the quarter, an increase of 1.4 billion from last quarter. In Q1, total net revenue increased 28% year-over-year to $734 million. Platform revenue was up 39% year-over-year to $647 million, benefiting from higher content distribution and robust growth in advertising revenue, despite some continued softness in certain verticals. Q1 Player revenue declined 19% year-over-year, but was up 20% versus Q1, 2019 pre-COVID. In Q1, gross profit grew 12% year-over-year to $365 million. Platform gross margin was 59%, which was down roughly 8 points year-over-year, reflecting a shift towards a greater mix of video advertising compared to a year-ago period which had significant growth of higher margin M&E and content distribution due to the launch of new services. Player margins continue to be pressured by supply chain challenges, as we chose to prioritize account acquisition and insulate consumers from higher costs. Q1 adjusted EBITDA was $58 million, and we ended the quarter with over $2.2 billion of cash and investments. Looking to the second quarter, we anticipate total net revenue of $805 million, up 25% year-over-year. Gross profit of $395 million with a gross margin of 49% and breakeven adjusted EBITDA. At a high level, we continue to navigate through a difficult near-term macro environment, which includes impacts from and further uncertainties related to ongoing supply chain disruptions, inflationary pressures, and geopolitical conflicts. That said, we believe Roku is well positioned to continue to grow. And we intend to invest in the huge opportunity in TV streaming and to maintain our leadership position. I'd like to provide additional color on each of our estimates...

Thank you. Your first question is from Shyam Patil with SIG.

Hey, guys. Nice job on the results. I had a couple of questions. First one, Anthony, can you talk a little bit about just your thoughts on Netflix introducing advertising and the potential opportunities for Roku? And then second, can you guys talk about what gives you confidence in the second half growth acceleration? Thank you.

Hey, Shyam. This is Anthony. I'll take the first question and then Steve can address the second one. First of all, I can't comment specifically on Netflix's actions, but I can say they are a great partner. We've collaborated with them since we launched our first streaming player in 2008. Regarding advertising, I believe it serves as a means to reduce the cost of subscription streaming services, making them more attractive to consumers. As the streaming price decreases, viewership increases. Generally, advertising is beneficial as it lowers streaming costs and boosts consumer interest. Additionally, Roku operates as a streaming platform, which has a different business model than a standalone streaming service, and sometimes this distinction is misunderstood. Our model focuses on connecting consumers with content and advertisers, so any increase in streaming on the Roku platform positively impacts us and our business. More broadly, we think that the rise of AVOD offerings will expedite the shift of traditional TV advertising budgets to streaming. To highlight, traditional TV advertising in the U.S. presents a $60 billion opportunity, which is even larger on a global scale. For the first time, TV streaming has surpassed legacy Pay TV in reach among adults 18 to 49 in the U.S. However, most advertising dollars have yet to shift to streaming, with only 18% of traditional TV ad spending moving in that direction, while nearly half of all TV viewing time now involves streaming. Ultimately, we expect that all advertising budgets will transition to streaming, and anything that speeds up this trend is advantageous for our business model. In summary, I believe that incorporating ads into streaming services benefits both consumers and Roku. Steve, if you want to take the second question?

Thank you for the question. In terms of connecting our strong performance in Q2, where revenue was up 28%, with our outlook for Q2, which remains steady, we are reaffirming our expectation that full-year revenue will be in the mid-30s range. As we mentioned last quarter, one reason for this is that the year-over-year comparisons become easier in the latter half of this year. For context, in 2021, revenue in the first half grew about 80% compared to the second half of 2020, where it grew 40%. The strong growth we’re observing in the ad business and its performance compared to peers gives us confidence in our full-year guidance. Moreover, when we examine sequential growth, it aligns with historical averages. While we are navigating some short-term macro challenges, they are outweighed by the overall opportunity. We are optimistic about Roku's continued expansion and believe that the transition to streaming will remain strong.

Great. Thank you, guys.

Thank you.

Thanks. Your next question comes from Victoria James with D.A. Davidson. Please go ahead.

Hi. Thanks for taking my question. So we're getting a lot of questions from our investors on the following, and we would appreciate your thoughts. What's the difference today between the state of SVOD and AVOD markets in the U.S. when it comes to the level of consumer engagement for SVOD specifically? Like have we hit a saturation point when it comes to the number of subscribers for SVOD collectively? And then I've got a follow-up question after that. Thank you.

Hey, Victoria. Thanks for your question. This is Anthony. I'll begin, and then I'll see if Scott has anything to add. First, I think it's too soon to determine if we've reached saturation in the SVOD market. Streaming is more popular than ever and continues to grow. It’s a significant global trend that is expanding worldwide. Roku has 60 million active accounts, but that number is small compared to the billion broadband households globally that will ultimately access their TV through streaming. There is still substantial potential for growth and for services to evolve as streaming becomes the standard. The dynamics in the U.S. differ from those internationally. Here, we have the trend of Pay TV cord-cutting, with consumers shifting to streaming for better experiences and savings. It's hard to predict how much consumers will ultimately spend on SVOD services in the U.S. However, we know that AVOD services are becoming more popular by integrating ads into SVOD offerings, allowing consumers to choose between lower-priced ad-supported options and higher-priced ad-free versions. Additionally, services like the Roku Channel are entirely free and ad-supported, gaining significant popularity. The Roku Channel is performing exceptionally well, ranking as a top five app on our platform both in terms of reach and engagement. Looking at the global landscape, SVOD services can be viewed as a global equivalent to Pay TV. While Pay TV was mainly a U.S. phenomenon, SVOD services provide a way for international markets to access a rich selection of content at lower prices and with better experiences than traditional Pay TV. There are vast opportunities globally, as many regions will move from entirely free TV to having at least one SVOD subscription, and perhaps more. Overall, streaming is more popular than ever, with many TVs worldwide set to become smart TVs, indicating that we are far from saturation. Scott, did you want to add anything?

I want to emphasize that we are far from reaching saturation. We recently highlighted in our shareholder letter that streaming now reaches more viewers than traditional television, with 46% of TV viewing time dedicated to streaming. On our platform, users spend an average of 3.8 hours out of nearly eight hours of daily viewing per U.S. household. This indicates that there is still significant potential for consumers to shift their TV time to streaming. Additionally, when comparing SVOD to AVOD models, there is still room for growth. While some mature services have seen slow growth, many newer services are aggressively acquiring users and competing not only with each other but also for the time spent watching traditional television. AVOD, which includes fully ad-supported platforms like the Roku Channel or ad-subsidized services, has been growing at a faster rate than pure subscription services. This trend, driven by the appeal of free or low-cost options, suggests that consumers are increasingly interested in ad-supported services. In summary, we are definitely not at saturation regarding consumer interest in streaming.

This is Anthony again. It's important to remember that Roku's business connects content consumers and advertisers. We are not an individual streaming service, but we are seeing engagement grow across our entire platform. The opportunity is significant because, similar to how mobile phones and PCs consolidated around a few platforms, smart TVs are doing the same. Smart TV platforms like Roku are condensing to a small number, likely two or three. Roku is the leading TV streaming platform in the U.S., and we have also achieved this status in Canada and Mexico. Looking ahead, as smart TV usage increases and consolidates to a few platforms, with substantial subscription and advertising revenue flowing through them, it highlights the strength of our business model, which differs from that of a single streaming service.

Thank you for the color on that. And then if I can just sneak in one more quick question. Do you have any color on your current thoughts on the importance of both live sports and live news as it relates to Roku?

I'll let Scott take that.

Yeah, I'll take it. I mean, sports is certainly a key driver for a number of the services on our platform in a key way that some of these services, whether it's Paramount, Peacock, Football or with the Olympics. It's an essential instrument content type that these services are using to draw viewers into streaming. And in some ways, sports is the last pillar holding the traditional Pay TV bundle together. So as we see that on that, we feel more sports become available through streaming services, we'll see continued acceleration of consumers out of traditional Pay TV and linear viewership into streaming. News has moved more readily. We've got some great news offerings in the Roku Channel. For example, ABC News, NBC, Reuters, we have a ton of offerings there. They do very well. And then there are standalone services as well. I think news has already moved and started to innovate in streaming. Sports is more of a mixed bag with obviously some content still locked up behind more traditional linear services.

This is Anthony. I think sports actually is a great example of how Roku as a platform can be valuable to our customers, in the sense that sports rights are incredibly spread out across many different services. And one of the important roles we play for our customers is to help them find and discover content across the platform as opposed to like going into every app and looking at what's in that app. So we have tools today like Universal Search. We have things called zones. We have a sports zone. And those kinds of tools we're expanding to make it even easier for consumers to find out where the game they want to watch is playing right now across the thousands of services that are available on Roku as streaming platform.

Thank you. And your next question comes from Barton Crockett with Rosenblatt Securities. Your question please?

Thank you for taking my question and for including me on the call. I wanted to follow up on the discussion about the current market environment and ask a related question. Netflix is the leading streamer in your sector, but they seem to be facing challenges and losing some subscribers. Meanwhile, you continue to grow your accounts and viewing hours. Where is this additional usage coming from if it's not going to Netflix? Can you provide insights on whether it's shifting to AVOD or new subscription services, or share any details on what you're observing?

Sure. This is Anthony, and I’ll begin. Scott may want to contribute as well. Generally, looking at Roku as a platform, there are numerous services for consumers to choose from for streaming. Streaming has never been more popular, and viewers have an overwhelming number of options, which is driving increased engagement across our platform. While specific services may have varying trends, overall, we are witnessing growth in streaming. We've mentioned that the average household in the U.S. views about eight hours, and Roku's hours are about half of that. This indicates that consumers are using other means to watch TV in addition to streaming. However, they are gradually shifting more of their viewing time to streaming, which is contributing to the overall increase in streaming hours. In terms of categories, ad-supported content is rapidly growing on our platform. The Roku Channel is performing exceptionally well because it is free, and the quality of content is continuously improving, from catalog content to Roku originals. Recently, we finalized a deal with Lionsgate for movies and signed an agreement with A&E for their content. While ad-supported content is expanding, subscription content remains strong as well. There are simply a variety of services available. Scott, do you have anything to add?

No. I mean just yeah, just simply the offer keeps getting better for consumers. We just see such a substantial investment in the services and the content that's going into them, that the appeal of what you can get on streaming just continues to get better and better. And with advertising, it opens up more price points and more accessibility to more consumers, that's ultimately, Barton, the thing that's driving incremental streaming consumption.

The current landscape of television is incredibly diverse, with numerous options and heightened competition among content providers that we haven't seen before. This abundance of choices is continuously improving for viewers. For Roku and similar platforms, this competition benefits our business, as we offer various tools that help viewers discover content. Features like cross-platform search capabilities enable us to create promotional opportunities and advertisements, which generate revenue for us. Additionally, we provide numerous resources for content providers to grow their audience, including billing and promotional tools. Overall, the ongoing competition in streaming is advantageous for both our business and the viewers.

Okay. I wanted to quickly address another topic: the consolidation of services, which is clearly a priority for Warner Brothers Discovery. I'm interested in understanding the implications of this consolidation. For instance, when a larger service acquires a smaller one, does the smaller service benefit from more favorable financial arrangements similar to TV networks? If two networks merge, does that simply result in lost revenue for one of them, or is there a different aspect of your model that offers some protection? Could you elaborate on this?

Scott can take that question.

Yeah. Barton, what I'd say is that back to Anthony's earlier point, our role as a platform is to help these services get in front of consumers to drive consumption. And so in general, we're in favor of any development, whether it's the launch of new ad-supported business models or the merger of companies that ensures that these companies can continue to bring bigger and better services to our consumers. I won't comment specifically on our deals or relationships with Warner before the merger or Discovery, except to say we have deep enduring relationships with both parties. We expect it to continue afterwards. We've just launched discovery+ inside the Roku Channel. I'm very excited about the potential there to deliver for our consumers, a great experience and extend the audience that Warner Brothers Discovery can reach with discovery+ through the Roku channel. We've got a robust relationship with both sides of the house in terms of marketing their content and services to our users. So in general, a robust competitive ecosystem is good for us as a platform.

I would say that the number of content services and the amount of content available through streaming is growing. The consolidation happening is among existing media companies that are coming together to create better streaming services. However, these are generally new streaming services that didn’t exist before.

Thank you. And your next question comes from Shweta Khajuria with Evercore ISI.

Thank you very much. I have a few questions. First, can you comment on the current supply chain challenges and when you expect these issues to start easing? Are you noticing any changes already? How does your current situation compare to what you observed earlier this year? My second question is about the overall advertising environment. There have been mixed reports from other companies regarding brand spending and potential weakness in that area, yet you have reaffirmed your full-year guidance for top-line growth. Can you discuss the demand trends you are experiencing for brand spending? Lastly, could you provide insights on gross margins for your Platform segment as we look ahead for the rest of the year? Thank you.

So Steve can take the first question on supply chain. Scott will take the second question on the overall ad environment. And then I guess Steve can also take the gross margin question.

Sure. In terms of the supply chain impact on account acquisition, it's similar to the previous quarters. We've been facing elevated component prices and availability challenges, along with increased shipping and logistics costs and delays. While some costs have slightly decreased from their peaks, overall, they remain high. The Roku team is doing a great job managing alternate sourcing and reworking to ensure we keep availability on the Player side. The situation affecting the TV industry also impacts our unit sales. Like in the past quarters, the high prices of new TVs have led to a decrease in the overall market size, with sales still below pre-COVID levels from 2019. This presents a challenge for both the industry and our TV partners. However, our market share has increased sequentially, and we remain the leading TV operating system in North America, competing effectively despite the challenges. On the Player side, we're leveraging our scale, relationships, and flexibility to absorb price increases. Our increase in average revenue per user gives us more room to maneuver, and our supply chain and operations team has done well. Even though Player unit sales are down year-over-year due to tough comparisons from last year's stimulus payments, they are still above 2019 pre-COVID levels. We expect this trend to continue for the short term, as outlined in our outlook for Q2. There remains significant uncertainty, not just concerning the supply chain but also ongoing pandemic impacts, particularly in China, and the repercussions of the conflict in Ukraine.

On the advertising side, there is still some uncertainty. Certain sectors are more impacted by supply chain issues than others. However, we are still experiencing strong growth in our advertising business, primarily because we are in the early stages of budget allocation towards streaming. In our shareholder letter, we highlighted that while 46% of time is spent on streaming, only 18% of advertising budgets are currently allocated there. This situation leads us to consider whether we can grow individual accounts by 100%, 40%, or 50% year-over-year. Our spending per account has risen by 50% year-over-year, and we are noticing increased commitments across all segments, including our large customer segment, growth performance segment, and media and entertainment segment. Although uncertainty does impact us, the overall shift towards advertising in streaming is significant. We are also preparing for the upfront next week, which will be our first live event. We are excited to introduce a range of new content offerings and innovative ad products, and we are optimistic about securing even greater commitments for our advertising business.

In the quarter, the gross margin for the platform was approximately 59%, which is a decrease of about 8 percentage points compared to the same period last year. This change is primarily due to the shift towards video advertising. In Q1 of 2021, we experienced very strong performance from the media and entertainment and content distribution segments driven by new streaming services, which provided a higher mix and higher margins. This adjustment reflects the ongoing transition towards video advertising. Additionally, we anticipate maintaining a similar overall company gross margin in the future, consistent with this quarter, as video advertising continues to shape our mix.

Okay. Thanks, Steve. Thanks, Scott.

Thank you.

Thank you. Your next question comes from Ralph Schackart with William Blair. Your question please.

Yeah, thanks for taking the question. Scott and Anthony, a couple of times you've referenced in this call and others about the 18% of ad budgets that have shipped to the streaming and on this call, we're talking about 46% of consumers streaming time occurring in the streaming environment. I know the macro is tough. But what are the conditions do you think that you would need let's say, we finally get through this macro tunnel to sort of accelerate that shift? And maybe another question to ask is, if you're not allocating larger budgets of streaming today, what is the holdup? Is it just that TV is sort of established and has more predictable measurement capabilities? But just sort of provide some color along that question would be helpful. Thank you.

Hey, Ralph. This is Anthony. I'll share my perspective first, and I believe Steve might have more insights. The main challenge is that it takes time for people to change their behaviors. TV ad buyers have been accustomed to buying ads in a certain way for a long time. They have a solid understanding of the process. The portion of TV ad budgets allocated to streaming was significantly lower not long ago, and that gap was even wider. Now, however, we are starting to see that gap close. I believe it primarily comes down to time. Additionally, any macroeconomic pressures on businesses usually lead them to be more serious about spending their budgets efficiently, which could speed things up. We've witnessed this pattern in other industries before; for instance, the transition of ad dollars to mobile took much longer than the viewer shift to mobile. Ultimately, it does catch up. Scott, do you have anything else you'd like to add?

I mean, it's happening, it's just inertia. As Anthony said, it's a big industry with a lot of players, a lot of strategies. But it's happening and the CTV ad segment is the fastest-growing segment among all media, all advertising segments. So I think we'll continue to see acceleration just because of this year amount of money is still locked up in linear television.

From Roku's perspective, there is a transition of traditional TV advertising funds to streaming in the U.S. In other global markets, Roku is currently concentrating on increasing active accounts and has only just begun monetization. Recently, we launched ad sales in Mexico, but there is minimal ad monetization elsewhere. The global trend is towards streaming, and all TV advertising is expected to shift in that direction. Additionally, there remains significant untapped potential in performance-based advertising, particularly in digital ad spending. Traditional TV advertising relied on Nielsen demographics without a direct way to measure ad effectiveness. In contrast, we have invested significantly in our advertising technology, resulting in a high-quality, data-driven, performance-based advertising platform. Consequently, we are beginning to attract performance-based and digital advertisers to our platform, with substantial growth opportunities ahead.

Okay. Thanks, Anthony. Thanks, Scott.

Thank you. Your next question comes from Steven Cahall with Wells Fargo. Your question please.

Thanks. Maybe first, I think that platform ARPU in the quarter was up around 20%. The hours per account were down a little bit. I know it's a really tough comp as there was still some lockdowns going on last year. But nonetheless, I was wondering if you could just maybe help us deconstruct that ARPU a little bit. So it seems like either you got really good pricing or maybe you had some content sales or other bounties that you might have had in the quarter. So I'd love to get a little more color on just ARPU. And then, Anthony, I got a quick follow-up for you.

Okay. Well, actually, ARPU was $43 in the quarter, up 34% year-over-year. But Steve, I don't know if you want to add any more color to that?

You're right. For the trailing 12 months, ARPU was approximately $43, reflecting a 34% year-over-year increase. We are experiencing significant advancements in monetization, primarily driven by our advertising business, content distribution revenue shares, and media and entertainment spending. Compared to a year ago, there's been a noticeable shift toward the video advertising sector, and all three areas are seeing strong progress. We continue to innovate in advertising, and we have our Upfront event next week where we will share more updates. Additionally, we are making solid strides in collaborating with content publishers on revenue from content distribution and media and entertainment. It's important to note that ARPU is not directly correlated with streaming hours. Streaming hours per active account per day are slightly down year-over-year, but this comparison is challenging due to the conditions during the COVID lockdown a year ago. Overall, we feel optimistic about growth trends, notwithstanding some demand fluctuations during lockdowns. Streamers still account for about half of the average U.S. TV household's total viewing time, indicating significant potential for further engagement and ARPU growth.

Thanks for that color. And then, Anthony, I mean, you seem really convicted on this notion of operating systems consolidating down to just a couple of players. Yesterday, there was the announcement by Comcast and Charter that they're going into this market in a little more aggressive way than they had been in the past. So I guess, how do you kind of think about the risk that, that market rationalization takes quite a long time? It's obviously baked into a lot of your investment guidance for the year. So when do you kind of think we might be coming through to that rationalization where you might enjoy stronger economics? Thanks.

I believe that when considering competition, we have over 60 million active accounts and our growth is rapid. We are the leading TV selling operating system in the United States. A few years ago, Roku TVs were nonexistent, and now we hold the top position in TV OS sales in the country. In the latest quarter, we saw our market share in TV programming grow sequentially. Across all regions where we compete, our active accounts continue to rise, and we have effectively competed against well-established companies for years. Our competitors include Google and Amazon, and we have maintained a strong position against them. Our success in these markets stems from having developed the only operating system specifically designed for TV. Our focus is entirely on streaming, which is our sole business. Our dedicated team strives to create the best streaming products available. Our strategy to increase active accounts involves selling streaming players and licensing Roku TVs that are available in the market. Both these products, TVs and streaming players, are vital assets for expanding our active accounts. While some competitors focus solely on TVs and others on both players and TVs, Roku excels in both areas. This dual strength is contributing positively to our results. The reason the market will continue to consolidate is the significant and growing investment required to establish a competitive TV streaming platform. We are reinvesting a substantial portion of our gross profit to enhance our platform. It is especially challenging for new entrants to succeed given the many years we and our competitors have invested in our platforms. Additionally, to remain competitive, these costs must be spread over an increasingly larger installed base. Scale is crucial. This trend mirrors the past situation with PCs and phones, where numerous operating systems and software stacks once existed, but now the market is dominated by only a few. The same consolidation is occurring in the TV space.

Thank you.

Thank you. Our last question comes from Vasily Karasyov with Cannonball. Please go ahead.

Well, thank you. I have a quick one and then a more substantial one. The quick one. Can you please tell us how fast they monetized with ad impressions during the quarter? I'm sorry if I missed it in the letter. And then my second question is about your relationships with major apps that were launched in recent years and how they evolve over time? So if I look at the disclosures, they show that spending by your biggest platform customer grew 39% last year after a significant growth in 2020. So obviously, relationships grow in years after an app launches. So can you give us some color on how the revenue mix changes over time between distribution revenue and M&E? And then speaking of M&E, how do you see the M&E revenue dynamic change as an app goes from the initial subscriber acquisition phase to control and subscriber retention? Thank you very much.

Steve? You are muted.

Hey, Vasily. Regarding Roku's monetized video impressions, we did not specify a particular number. However, the advertising business is definitely expanding. As mentioned, we are incorporating more video ads into our offerings. I will share some insights about the revenue mix between content distribution and media & entertainment, and then Scott can elaborate on the specifics. Over time, we have observed a transition from last year into video advertising, which is gradually becoming a larger part of our platform. When considering revenue related to content publishers, we experienced a notable increase in late 2020 and early 2021 as many new services and legacy media companies shifted their focus to streaming. This shift was beneficial for short-term revenue from these new services. Ultimately, we have the most engaged audience with over 60 million active accounts and possess top-tier tools to assist them in growing their businesses. Moving forward, it’s crucial for companies to enhance engagement and retention among their subscriber bases. This is the change we are witnessing in spending on the media and entertainment side. We have been steering our business in this direction for quite some time, even before other players began to adapt similarly. These companies will need to think more like large wireless carriers, focusing on engagement and retention just as much as they have on acquiring new subscribers.

So would it be fair to say that an app can spend more in the second year after launch with you than in the year when they launch?

Hey, Vasily. This is Scott here. I would say that our relationship with these app partners deepens over time. It’s not solely based on their marketing spend with us; it’s multifaceted. It involves revenue shares from their subscription services, collaboration on advertising, and marketing exchanges between our companies. As we grow as a platform, we enhance our toolset, and partners look to us, particularly after they go live and see how well our platform performs in terms of acquiring new subscribers and driving engagement compared to other platforms. They tend to engage with us more deeply, both financially and strategically. We recently announced our dynamic linear ad beta projects with Discovery, Paramount, and AMC, which are examples of new collaboration opportunities with these major partners. You're also inquiring about the media and entertainment sector. Generally, partners do increase their spending over time, not just for acquiring users. Even as partners reach saturation—though very few of them have—they still need to drive engagement and retention. There’s a clear tradition in the TV world where up to 25% of all advertising time is dedicated to cross-promoting shows. As linear TV is not growing, the importance of these services investing in marketing and collaborating with us to organically feature their content in our paid offerings does not diminish. They must continue competing for consumer retention and driving tune-in, which leads to loyalty and engagement. This becomes even more crucial in the streaming landscape, where traditional cross-promotion tactics are more challenging. They rely on us as a platform to help maintain viewer engagement.

Thanks, Scott. And thanks, Vasily, for the questions.

Thank you. And that ends our Q&A session for today. I will turn it back to Anthony Wood for his closing remarks.

Thanks. I want to thank our employees, customers and partners for a solid quarter. We have built the best TV streaming platform for audiences, content publishers and advertisers alike. And we're focused on continuing to be the innovation leader among streaming platforms.

Thank you. This concludes today's program, and you may now disconnect. Thank you.