Earnings Call Transcript - ROKU Q2 2025

Conrad Grodd, Vice President of Investor Relations

Thank you, operator. Good afternoon. Welcome to Roku's Second Quarter 2025 Earnings Call. Joining us on today's call are Anthony Wood, Roku's Founder and CEO; Dan Jedda, our CFO and COO; Charlie Collier, President, Roku Media; and Mustafa Ozgen, President, Devices. On this call, we'll make forward-looking statements, which are subject to 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. We'll also present GAAP and non-GAAP financial measures. Reconciliations of non-GAAP measures to the most comparable GAAP financial measures are provided in our shareholder letter. Unless otherwise stated, all comparisons will be against our results for the comparable 2024 period. With that, operator, our first question, please.

Operator, Operator

Our first question comes from Shyam Patil with Susquehanna.

Shyam Vasant Patil, Analyst

Great quarter. I had a couple of questions. First, can you talk about what drove the outperformance in Q2 and also the full year raise? And then second question, based on your outlook, it looks like you're going to become operating income positive in the fourth quarter. Just how should we think about the trajectory in 2026?

Anthony J. Wood, CEO

Shyam, this is Anthony. Thanks for the question. I'll take the first one, and then Dan can take the second question. So yes, it was a great quarter. We're very happy and excited about the quarter. But I'd just say what I'm most focused on is what the results are telling us, which is that our strategy to grow our platform revenue is working. We set our platform revenue growth strategy in place 18 months ago, and we've been focused on execution and demonstrating progress along the way. And this quarter, we're really starting to see the results of that strategy. We believe our strategy is going to keep working and will sustain double-digit platform revenue growth while improving profitability. Just a few points about the quarter. In Q2, we grew platform revenue 18% year-over-year. Video advertising on our platform grew faster than OTT and digital ad markets in the U.S., and this reflects our ongoing work to expand and diversify ad demand and strengthen performance through deeper integrations with third-party partners and, of course, the launch of new and exciting products such as the Roku Ads Manager, which all taken together are driving incremental demand. We're also growing Roku-billed subscriptions with premium subscriptions continuing to perform well. We continue to launch new features that we can monetize that are also adding value for our viewers. And we closed the Frndly acquisition that we previously announced and have begun integrating Frndly into live search and other key areas of our platform. So yes, again, it was a great quarter. I think it really shows our strategy starting to work. Also, of course, great execution by the team. And Dan, was there anything you'd like to add and take that second question?

Dan Jedda, CFO and COO

Yes. Thanks, Anthony, and thanks for the question, Shyam. I’ll just echo Anthony’s comments, great Q2, very happy with it, and very excited for the rest of the year as well. As Anthony mentioned, our execution of our monetization initiatives gives us confidence to sustain double-digit platform revenue growth while also improving profitability in 2026 and beyond, Shyam. We feel good about the rest of this year. We feel good about 2026. Specifically, we’ve done a great job of investing in our key monetization initiatives while expanding our EBITDA margins. You can see from our full year guide, our EBITDA margin outlook reflects a full 180 basis point improvement year-over-year over 2024. We expect to see further margin improvement in 2026. While we continue to carefully balance our investment in our platform growth with our margin expansion, we’re also focused on operational efficiency, and we expect the 2026 OpEx growth rate and platform margin to stay relatively in line with ‘25. Our guide does imply we are on track to be operating income positive in Q4 of this year and for full year 2026. I’ll just note that the Q4 operating profit would be earlier than what we said even last quarter. So we feel really good about our Q2 results, we feel good about H2 and going into 2026.

Operator, Operator

Our next question comes from Michael Morris with Guggenheim Securities.

Michael C. Morris, Analyst

I wanted to ask you a couple about advertising. You highlighted the progress that you're making both with your third-party partnerships and then also now with Roku Ads Manager. So my question on that is, can you talk about what that progress looks like, whether there's cannibalization of other parts of the business and maybe how those 2 drivers are complementary to one another? And then my second question is just more broadly on the macro economy and what you're seeing. How are trends now in terms of demand and market health compared to where we were about 3 months ago?

Anthony J. Wood, CEO

Sure. That sounds great. This is Anthony. I'll take that. In terms of Ad Manager versus third-party partnerships, both are doing well for us. Ad Manager is obviously a newer and smaller business but growing faster. The main thing about the Roku Ads Manager is that it's opening up a new market for us. The advertisers, performance-based advertisers that traditionally often smaller and midsized businesses that traditionally advertise on social media, are now seeing video on Roku as a way to advertise. So it's a big market that we have a lot of hopes for over time. We think it's going to grow over time and become a big market. Demand-side platforms, third-party partnerships, are a big part of our strategy, and that's working well to really lean into those partnerships. So I don’t know, Charlie, if you want to add anything and maybe you can also take the macro economy.

Charlie Collier, President, Roku Media

Sure. Thanks, Anthony. Michael, I look at it this way. If you think about the strategy we’ve been talking about for really the last 18 months, where we’ve talked a lot about diversifying demand and both third-party partnership expansion and Roku Ads Manager fall beautifully under that heading. Anthony is right, it’s a bit of a high solution way to say it, but for the Ads Manager program, a lot of people say it democratizes television. It really does bring in hundreds of net new advertisers to TV that we wouldn’t have seen, and it’s through self-service, as Anthony noted, a lot of performance-based small- and medium-sized businesses. The third-party partnerships really have been – I think it’s reflected in our results. It’s really been working. As Anthony said, the demand-side platforms, the supply-side platforms, the measurement partners, we have some really unique assets, and it all starts with authentication. Everything else follows from that. We pass high-fidelity signals in really privacy-safe ways, and we drive results for marketers. Ultimately, that’s what both of those do for very different audiences. To answer your first question directly, it’s completely complementary, and I think there’s a lot of expansion in both of those areas. On the macro economy, we just finished the upfront, and it was very positive and obviously is a forward-looking indicator. We’ve grown well, the team executed brilliantly. The upfront has really turned into a full year-long marketplace. And it’s also a marketplace where people are looking more than ever to television for performance. I should mention sports did very well. I think the macro economy is supporting some of the live events that you’ve heard about from others. Even that’s good for us. Our users are turning to our destinations to help them enjoy even the biggest sporting events more and find them more easily.

Operator, Operator

Our next question comes from Steven Cahall with Wells Fargo.

Steven Lee Cahall, Analyst

Dan, I was just trying to unpack the platform growth a little bit between some things you had last year plus what you called out for Frndly. I think growth was about 20% in Q2, if I back out 606 in political and Frndly. So just wondering if that's the right number. And then I think it's implied around 18% in Q3. All those are pretty good. Just wondering if that's just kind of conservatism in terms of the way you're thinking about some of the same-store comp with maybe a 2 percentage point slowdown from quarter-to-quarter. And then secondly, just on the platform gross margin guide of 51%. Anything you can unpack in there for us? Is this just mix, especially as M&E, I think, is a smaller component of revenue given the strong growth in video? Or anything else going on the programmatic side that drives the platform margin outlook?

Dan Jedda, CFO and COO

Yes. I’ll take that question. Thanks, Steven, for the question. With respect to the outlook, excluding Frndly and Political, let me just give you some growth rates on that. Again, it’s not really a sequential decline from what we’re seeing right now. We’re basically at around 17% for Q2, and we expect that 17% if you back both those out in Q3 and the full year would imply Q4 at a similar level. If you back out 606, which, as you know, we had last year, it actually adds a full point of that in Q2 and Q3, smaller in Q4. We didn’t have a big 606 adjustment in Q4 of last year. We’re seeing a very steady and very positive growth rate when you back out political. On the margin question, if you look at our gross margin or our platform margins of 51%, and we guided to a similar margin for Q3 and a full year of around 52%, we expect that margins stay in that 51% to 52% range. What we’re seeing is any sort of mix impact where we have some of our higher-margin activities like M&E growing slower than other margin activities, we’re able to offset a lot of that with efficiency and improvement. If M&E were to pick up, we would see margin upside. We’re not counting on M&E growth to any significant level in our guide or our forecast, but there’s possibilities of that with some new services launching.

Operator, Operator

Our next question comes from Peter Supino with Wolfe Research.

Ronald Song, Analyst

This is Ron substituting for Peter. I have two quick questions. Firstly, regarding the gross margin, it seems that we should expect a higher gross margin in the fourth quarter compared to the 52% for the full year. Could you share any insights on the leverage there? Secondly, concerning the $400 million share repurchase authorization, how should we consider the timing and potential future opportunities to enhance shareholder returns?

Dan Jedda, CFO and COO

Yes, I’ll take that one as well. Yes, you’re right, it does imply a sequential improvement in Q4 gross margins, and we see that just because the volumes increase. There are some fixed components in the gross margin line item. The more volumes we get, we’re able to have leverage over our fixed cost that sits in cost of goods sold. Not everything in cost of goods sold is 100% variable. So as we grow volumes, we could potentially see margin upside, and we believe we’ll see that in Q4. On your question on share repurchase, I’m not quite sure I’m understanding when you say the timing of it. We announced a $400 million share repurchase program. We have been doing net share settlement since the beginning of 2024, and we plan to continue that. The share repurchase will come on top of that. We do expect that to offset dilution. We’re offsetting over 40% of our dilution right now just on net share settlement.

Operator, Operator

Our next question comes from Laura Martin with Needham.

Laura Anne Martin, Analyst

So Anthony, hard one for you. The 2 assets that I think have pricing power are proprietary data and proprietary content you have both. The question is that becomes more valuable over time with the rise of LLM. At what point do you think Roku can do more good as part of something larger than going stand-alone? That's my question for you. Charlie, hard question for you. We have a Trade Desk deal that allows them access to the Roku channel and Amazon, which has exclusive rights to act for years to access the entire platform. If that's wrong, please correct. But why would you sign exclusive deals with anyone rather than open it out to bid? And two, why is the difference in deal structure between those 2 large DSPs? I'm curious about that.

Anthony J. Wood, CEO

Laura, it's Anthony. Excellent questions. So I'll take the first question and start on the Trade Desk question, and then turn that over to Charlie. Yes, our first-party data is a powerful asset that we have, and it's a key driver of our business. We use it to increase monetization in many different ways, everything from recommendations to clean rooms to just a variety of ways we use that. It's the driver of our ad business, important components in interacting with and working with advertisers although that's often in the clean rooms through DSPs. In terms of something becoming something larger, we have a great business. We're focused on growing our business, and that's our focus right now. In terms of the Trade Desk Amazon deal, our strategy to grow our platform revenue has 3 parts. One part is deeper integration with third-party DSPs, another is leaning into our home screen, taking better advantage of that, and then third is we have a large subscription business, but we're just leaning into that a lot more. Our strategy with DSPs is to work with all of them and have deep integration with all of them. Each DSP is unique in its own ways, and every deal we do with a DSP is customized for that particular DSP partner and is focused on helping marketers achieve their objectives in the context of each specific platform.

Charlie Collier, President, Roku Media

Not to have a boss who knows it cold. I think that's right. Really taking from a marketer perspective, each constituent, and this is true on the DSP side, but starting with the marketer who we're driving to outcomes and our agency partners, they really are measuring outcomes differently than ever before. Our data and our over 90 million logged-on relationships make a huge difference. Every constituent and partner has a different use case that they're building for and they're solving for. So Anthony is right; we haven't done deals that will preclude us from doing other deals. They are unique in some of the ways you mentioned, but we also do deals. You mentioned Trade Desk, the Amazon DSP. We've done Yahoo!. You’re going to see us everywhere. I like our position a lot; I think you’re seeing it in the results and the increased guidance that our strategy is to be open and interoperable.

Operator, Operator

Our next question comes from Rob Coolbrith with Evercore ISI.

Robert James Coolbrith, Analyst

I wanted to ask on Roku Ad Manager and the SMB and performance opportunity in CTV. Just a broad question on market structure compared to opportunities ranging from search and social to online display. Do you think performance marketers in CTV are likely to gravitate towards platform direct opportunities, if you will, versus working by DSPs? Do you think the market is going to have winner-take-most characteristics or be governed by multi-homing costs where the earliest or the largest players in the market are likely to earn outsized monetization? And then just quickly on TRC, I wondered if you could share streaming hours growth with respect to that. I don't think we caught that in the letter.

Anthony J. Wood, CEO

Rob, Charlie will take that question.

Charlie Collier, President, Roku Media

Thanks, Rob. It's a good question. When we look at the small and medium-sized business opportunity and our ads manager and self-service opportunities, I'm excited because it's so focused on performance. The winners will be those who can prove that $1 in actually produces the desired result. We're seeing really positive signs early on that we can be a leader in teaching the world how to shop on television. Direct platform tools versus DSPs are a different set of advertisers. The SMB opportunities are new hundreds, possibly someday thousands of advertisers that can take advantage on a self-service basis. On TRC growth, Dan?

Dan Jedda, CFO and COO

Yes, I’ll take that one. I want to follow up on Charlie’s answer as well. These are a lot of advertisers who wouldn’t go through a DSP. Remember, this is a self-service portal; you could be up and running in a matter of clicks with an exceptional AI-generated video. Many small- and medium-sized businesses want to do this now. We’re seeing the demand grow. The Roku Channel continued its strong performance in Q2. The app was the #2 app on our platform via engagement and the #3 app globally by reach. Its growth in hours was around 80% for Q2. I expect that growth rate to probably come down from that level in future quarters. When I say we expect it to come down, it’s still going to grow well into the double digits going forward.

Operator, Operator

Our next question comes from Matt Condon with Citizens.

Matthew Dorrian Condon, Analyst

My first one is just on Frndly TV. I just wanted to ask about maybe what are the early learnings so far as far as the cross-sell opportunity into your base of streaming households. My second is just on Walmart transitioning on SmartCast here before the holiday season. What tools do you have at your disposal to mitigate some of those headwinds from a net-add perspective for streaming households?

Anthony J. Wood, CEO

Matt, this is Anthony. So Dan will take your question on Frndly, and then I'll take your question on Walmart.

Dan Jedda, CFO and COO

Yes. Thanks for the question, Matt. On Frndly, we mentioned in the letter that Frndly added 1.8 points of growth in Q2, and we’ve been working closely with the Frndly team. One immediate focus was integrating Frndly more deeply within our platform. A couple of examples: We added Frndly to the apps that are installed on our home screen when a user activates new devices. We saw app installs immediately increase as a result of that integration. We indexed Frndly into our live TV search results, thereby making Frndly more exposed on our platform. We have a lot more growth initiatives on the roadmap. We’re pleased with what we’re seeing with Frndly so far.

Anthony J. Wood, CEO

Just on Walmart, let me expand a little bit on your question. Walmart acquiring VIZIO SmartCast has been playing out as we expected. We’re confident in continuing to grow our broadband household penetration globally. Even if we just maintain our U.S. penetration, which is over half of broadband households, we can continue to grow platform revenue double digits for years to come. We’ve invested billions to build a market-leading operating system. Roku is a powerful brand with high engagement, three times more than the next closest smart TV brand. Consumers love it; it’s a great experience. This causes consumers to walk into retail outlets asking for a Roku device, which will continue to drive demand for Roku devices. We invest hundreds of millions of dollars a year in distribution, and we plan to continue that. Adjusting our spending mix across retail partners is key as well, so we’re very confident we can continue to grow our streaming households for years to come.

Operator, Operator

Our next question comes from David Joyce with Seaport Research Partners.

David Carl Joyce, Analyst

Various ad industry participants, supply side are concerned about the volume of connected TV advertising. How are you managing the volume of ads out there to keep the inventory scarce and maintain the price in this kind of environment?

Anthony J. Wood, CEO

David, Charlie will take that.

Charlie Collier, President, Roku Media

Thanks, David. Roku is unique in our scale, market-leading engagement growth and our unique performance ad placements, which helps keep the value of inventory. Our strategy is to diversify demand and meet advertisers where they wish to transact. Due to our scale and our unique ad products, we can price efficiently from premium sponsors. The recent upfront did not see pricing deflation, and we feel very good that we’re positioned regardless of where prices fluctuate in the market.

Operator, Operator

Our next question comes from Rich Greenfield with LightShed Partners.

Richard Scott Greenfield, Analyst

You've talked a lot about diversifying revenues towards subscription. Curious how you think about two things. One, the bundling opportunities of other services with Frndly now that you own it? And two, as you think about using the home screen, how do you drive subscriptions using that surface, surfacing content that a subscriber might be interested in based on what they've watched before but they don't have a subscription to.

Anthony J. Wood, CEO

Rich, nice to hear from you. Yes, we’re doing all that. A lot of driving growth in our subscription business is using recommendations to recommend content that would lead a viewer to sign up for a subscription. For example, some of our content recommendations include suggestions for shows that viewers haven't purchased a subscription for. Bundling is also a big factor in the industry. We’re focused on improving our capabilities to bundle content. Bundles include technical capabilities, product capabilities, and commercial relationships. So we’re looking at doing different kinds of bundling and adding more content around Frndly. It’s an ongoing project, but we’re making good progress.

Richard Scott Greenfield, Analyst

How do you decide whether to drive someone to an ad-supported place or a subscription-supported place?

Anthony J. Wood, CEO

That’s a complex question. We have a machine learning team that works daily on optimizing yield from our UI, looking at viewer satisfaction as well as revenue. Can we show content to a viewer that will lead them to sign up for a service that shares good revenue with us? Can we show content that fills some of the ad inventory? Balancing all this is complicated but crucial as viewer satisfaction is a priority.

Operator, Operator

Our next question comes from Barton Crockett with Rosenblatt.

Barton Evans Crockett, Analyst

I wanted to explore Roku Ads Manager and the SMB and performance opportunity in CTV. Given that I think you've launched this less than a year ago, could you give us a sense of the materiality of that at this point? You seemed more optimistic about it compared to previous calls.

Anthony J. Wood, CEO

This is Anthony. I'll let Dan take that. I'm excited about it because it's a very large market that we don't currently tap into. The traditional video market is well-understood and established, but this is a multibillion-dollar market traditionally overlooked by TV platforms. That's why I’m optimistic.

Dan Jedda, CFO and COO

Yes. I fully agree with that. It is a big market. We know it’s like $60-plus billion. We’re starting to see the demand grow within the SMB sector, and we’re very excited about it. We’ve seen every month improvements in advertisers and revenue. Our Ads Manager shows continuous growth month-over-month, which is why we’re enthusiastic about this opportunity.

Operator, Operator

Our next question comes from Jason Helfstein with Oppenheimer.

Jason Stuart Helfstein, Analyst

First, were there any factors that held back platform growth in the quarter? I mean, growth accelerated on a reported basis, but it was against an easier comp. Any weakness that played out in the quarter or anything held back? Also, are you expecting any Amazon DSP revenue in the fourth quarter? Or is that more for 2026?

Anthony J. Wood, CEO

Jason, it's Anthony. I just want to mention that I heard you on CNBC this morning. Great job. I’ll let Dan answer.

Dan Jedda, CFO and COO

With respect to the outlook, excluding Frndly and Political, let me give you some growth rates. There wasn’t anything in the quarter indicating weakness. While M&E continues to lag, we’re not counting on it for future growth. The quarter was strong, giving us confidence to raise the full year guide. On Amazon, I want to remind you that integrations take time. Our focus remains on being open and performance-oriented. As we on-board more partners, the bid density improves, which will optimize pricing and improve fill rates. We're in the middle of the integration with Amazon now, and while we have factored some into Q4, it’s hard to predict the exact impact until post-integration.

Operator, Operator

And that's all the time we have for questions. I'd like to turn the call back over to Anthony for closing remarks.

Anthony J. Wood, CEO

I’d just like to say thanks to our employees, customers, advertisers, and content partners, and thanks to you for listening.

Operator, Operator

Thank you for your participation. This does conclude the program, and you may now disconnect. Everyone, good day.