Earnings Call Transcript - ROKU Q2 2023

Operator, Operator

Good day, and thank you for standing by. Welcome to the Second Quarter 2023 Roku Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Conrad Grodd, Vice President of Investor Relations. Please go ahead.

Conrad Grodd, VP of Investor Relations

Thank you, operator. Good afternoon, and welcome to Roku's second quarter 2023 earnings call. I'm joined today by Anthony Wood, Roku's Founder and CEO; and Dan Jedda, our CFO. Also on today's call for Q&A are Charlie Collier, President, Roku Media; Mustafa Ozgen, President, Devices; and Gidon Katz, President, Consumer Experience. Full details of our results and additional management commentary are available in our shareholder letter, which can be found on 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 commitment to positive adjusted EBITDA for full-year 2024 and continued improvements thereafter. Our investments, future market conditions, and our expectations regarding the impact of macroeconomic headwinds on our business and industry. 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 from the comparable period of 2022. Now, I'd like to hand the call over to Anthony.

Anthony Wood, CEO

Thanks, Conrad. Roku delivered solid Q2 results in a challenging economic environment. We grew scale, engagement, and platform revenue. The Roku OS was once again the number one selling smart TV OS in the United States and Mexico. For the first time, Nielsen reported The Roku Channel was 1.1% of total U.S. TV viewing in May, representing 3% of streaming. This is similar engagement to Peacock and HBO Max. We are leaning into our unique role as the platform owner to help viewers find entertainment across the enormous amount of content available throughout the Roku platform. Our Home Screen Menu provides links to features such as our Live TV guide, Sports, and What to Watch that aggregate relevant content into a single location. As we grow user engagement from the Home Screen Menu, we generate more monetization opportunities. At our recent NewFronts presentation, we showcased new ad units that are unique to the Roku platform. We've opened Roku City to major brands with the recent promotions from McDonald's as well as the Barbie movie. We have partnered with a few key advertisers and verticals beyond media and entertainment to place ads on the Roku home screen and are ramping up our work with third-party Demand Side Platforms (DSPs) to capture incremental demand while not reducing existing revenue streams. We have built a best-in-class TV streaming platform for viewers, advertisers, streaming services, and content owners. And we continue to lead the industry with innovation and scale. We remain committed to achieving positive adjusted EBITDA for the full-year 2024 with continued improvements after that. Now I'll turn it over to Dan to discuss our results.

Dan Jedda, CFO

Thanks, Anthony. We ended the quarter with 73.5 million active accounts globally. Sequential net adds of 1.9 million were slightly above our net adds in Q2 2022. Overall, Smart TV unit sales in the U.S. were up in Q2, despite slight increases in TV panel and freight costs. Roku player unit sales remain above pre-COVID levels and the average selling price was down 9% year-over-year. Roku users streamed 25.1 billion hours in the quarter, an increase of 21% year-over-year, while viewing hours on traditional pay TV fell 13%. In Q2, total net revenue increased 11% year-over-year to $847 million. Platform revenue was up 11% year-over-year to $744 million. Ad spend on the Roku platform and verticals, including Consumer Packaged Goods and health and wellness improved, while technology and media and entertainment remain pressured. Q2 devices revenue increased 9% year-over-year driven by the launch of our Roku branded TVs and smart home products. In Q2, average revenue per user was $40.67 on a trailing 12-month basis, down 7% year-over-year. This decline was due to strong global active account growth outpacing platform revenue growth. We expect that over time, monetization per account will continue to grow as the advertising industry rebounds and as a larger percentage of our U.S. customers cut the cord. In Q2, gross profit increased 7% year-over-year to $378 million. Platform gross margin was 53%, which was down 3 percentage points year-over-year. This reflects weakness in the ad scatter market, along with a greater shift away from media and entertainment in Q2 2023 compared to a year ago. Device margin was negative 17%, which was up almost 3 percentage points year-over-year. The 4 percentage point difference between the year-over-year growth rates of total net revenue and total gross profit was caused by year-over-year compression of platform margins. Q2 adjusted EBITDA was negative $18 million, which was $57 million above our outlook. The better-than-expected performance was driven by our Platform segment and improvements in our operating expense profile. We ended the quarter with approximately $1.8 billion of cash and restricted cash. Looking to the third quarter, we anticipate total net revenue of $815 million, up 7% year-over-year. Gross profit will be $355 million with a gross margin of 43% and adjusted EBITDA of negative $50 million. Overall, trends that we observed in Q1 played out in Q2, and we expect them to continue throughout the year. While consumer spend is showing some modest growth, macro concern and uncertainty remain. As mentioned earlier, with the Platform segment, we do see some recovery signals in certain advertising verticals. However, media and entertainment spend, which is already challenged industry-wide, is expected to be further pressured by limited fall release schedules. As such, we expect Q3 platform margins to be below Q2 levels. On the device side, we expect margins to improve from negative 16% in Q3 last year to negative low teens. We are executing on our plan to slow year-over-year operating expense growth. In Q2, operating expenses grew 8% year-over-year, achieving single-digit growth ahead of our forecasted timeline. We anticipate operating expense year-over-year growth rate to fall below 5% in Q3 and further improvement in Q4. Given our ongoing work to improve operational efficiencies and reaccelerate revenue growth, we remain committed to our plan to deliver positive adjusted EBITDA for the full-year 2024. With that, let's take questions.

Operator, Operator

Thank you. Our first question comes from Shyam Patil with Susquehanna International Group. Your line is open.

Shyam Patil, Analyst

Hey, guys. Congrats on the nice quarter and outlook. I had a couple of questions. First one for Dan. Can you talk about what attracted you to Roku and what you're most excited about? You've been here for a few months. And then second, can you guys talk a little bit more about your outlook for 3Q platform revenue, specifically, what you're seeing in July and how you're thinking about the balance of 3Q? And then any additional color you may be able to provide on the scatter market and media and entertainment. Thank you.

Dan Jedda, CFO

Hi, Shyam. Thanks for the question. As I spent 10 years at Amazon in the streaming and advertising businesses, I am well aware of the opportunity and the progress in streaming. And I followed Roku from before the company went public. And I've been a user of the Roku TVs during this entire time as well. In addition to loving the product, I've really admired Roku's innovation and Anthony's vision. What makes Roku particularly interesting to me is where we're at as a company. We're a market leader. We have significant scale and engagement and the leverage in the business is excellent, as we've shown in our Q2 results. And still, the long-term opportunity for both engagement and monetization in front of us is huge, and the people at Roku have been incredible. So I'm truly honored to have the opportunity to be here at Roku. I couldn't be more excited to be here with Anthony and the entire Roku team.

Anthony Wood, CEO

And then, Dan, do you want to talk about the second part of the question, I think, was about the outlook.

Dan Jedda, CFO

Yes. Let me – I'll take that. We delivered solid Q2 results, and we're well-positioned and confident in our business. But overall, uncertainty remains with certain verticals in the advertising. We expect those trends that we observed in Q1 and Q2 to continue for the rest of this year. As I mentioned in the prepared remarks, we are seeing recovery in verticals, including Consumer Packaged Goods and health and wellness. However, tech and media and entertainment remain challenged. Just as a reminder, media and entertainment historically is our largest and highest-margin ad vertical. It's been challenged industry-wide, and we expect it to be further pressured in the second half of this year by the limited fall release schedules arising from the current labor strikes. So we factored that into our outlook. At the same time, we continue to gain share in video ad spend. And while mix is shifting, our margins are relatively consistent and healthy across our various platform categories, and we remain confident in our business going forward.

Anthony Wood, CEO

This is Anthony. I'll just add, we're continuing to grow our scale, engagement, and monetization opportunities. For example, in the quarter, we added nearly 2 million net new accounts, also in Q2, streaming hours originating from the Home Screen Menu grew 90% year-over-year, which demonstrates the strength and the ability of our tools to help viewers find content across the UI and discover something to watch. We continue to launch unique new ad units, for example, extensions in Roku City, shoppable ads. We continue to create new demand sources from third-party DSPs. So I guess I'd just summarize by saying advertising is cyclical. The long-term opportunity in streaming remains unchanged, and we're at the center, serving viewers, content owners, and advertisers. And then let's see. There's actually a third part. I think to the question which was around media and entertainment. Let me just explain a little bit about that. We're the number one streaming platform. We distribute lots of services and content. One of the biggest roles we have is helping viewers find something to watch across all the different content and services on the platform. There are a bunch of ways we do that. But one way we do that is through our media and entertainment promotions, which are generally integrated into our UI and they are a very effective way and a very user-friendly way to expose content and help viewers find content that's available on different services. We're very good at these types of promotions.

Charlie Collier, President, Roku Media

Great. Thank you, Anthony and Shyam. Thanks for congratulating us on the quarter and for the sneakiest-ever three-part opening question. I think media and entertainment is a great category. I've enjoyed it more actually in my time at Roku because we have the best highly performing tools, and we deliver great ROI. So before I go at what Anthony spoke about on the media and entertainment side, I want to point out the good news amidst the industry-wide media and entertainment pressure, and it's that we're building share versus the competition in media and entertainment. I mean, advertising is still down in some verticals. As we noted, media and entertainment, tech, and telco have been broadly actually reported on as being down by the ad agency holding companies over the last few weeks. But as Anthony said, it will come back. We do all know that advertising is cyclical. But as an illustration of the media and entertainment marketplace change that has taken place in really less than one year. I was thinking about this. It feels like a long time ago, but in just August and September of last year, that's when HBO Max, now Max, launched its Game Of Thrones; Spinoff. It's when Amazon launched its Lord of the Rings: The Rings of Power TV show. And you're not going to see anything like that this year for all sorts of obvious reasons. And so what a difference a year makes. But as Anthony noted, we've seen some of this coming, and we've been focused on ad diversification. We don't want to be over-reliant on any single vertical. So we continue to diversify and build new revenue sources and new ways to offer what were typically-only media and entertainment placements to non-media and entertainment advertisers. So Roku City is a great example. We've introduced a new way for advertisers to connect with consumers first with McDonald's, which we spoke about at the new fronts and more recently, last weekend with the Barbie's Roku City Dreamhouse. These are just a few among several opportunities to integrate advertisers into Roku's unique and broad reach virtual world, and it has remarkable potential. I'm really excited about it. Roku City is a double win. The advertisers love it. In fact, today, we have more demand than capacity in Roku City, and we're looking for ways to expand thoughtfully. The streamers love it because it turns out they love seeing real brands in Roku's virtual neighborhood. Actually, just to share some unusually positive buzz for ad integrations, here are a couple of tweets I actually looked at earlier today. Regarding the Barbie, Mattel, Walmart, Warner integration, here's a quote: 'My dream is to live in the Barbie House in Roku City.' And then there are even comments about other advertisers from McDonald's, here's the quote: 'Who can I talk to about both keeping the Barbie Dreamhouse and also bringing back the McDonald's permanently to Roku City.' We had a world where media and entertainment represented the majority of these opportunities. We're now focused, as Anthony said, on the diversification of Roku's full funnel offerings. You'll continue to see successes like Roku City, you'll hear more from us about shoppable ads. We've been opening up the home screen even to advertising verticals. We mentioned this last earnings call, like restaurants. We talked about Wendy's and DoorDash. We opened it up a little bit to retail and auto, all with the consumer experience team, Gidon's team by our side. These Roku-only opportunities are just a few examples of how we're continuing to diversify ad categories in unique Roku products of scale. On the media and entertainment side, I think it's important to note that these efforts will help our media and entertainment partners transfer their focus from account acquisition and account growth to engagement and churn management and retention. It's something we do really well. We're the perfect partner for this too because we are closest to the viewing decision for more than 73 million homes. Roku will continue to see a disproportionate share of investment because Roku frankly remains the best place for media and entertainment partners and others to invest in accountability, creativity, full funnel marketing opportunities and ROI.

Shyam Patil, Analyst

Great. Thank you, guys.

Charlie Collier, President, Roku Media

Thank you.

Operator, Operator

Thank you. Our next question will come from Vasily Karasyov with Cannonball Research. Your line is open.

Vasily Karasyov, Analyst

Thank you very much. Wanted to ask you to talk about the potential impact of the strikes in Hollywood. We all pretty much know what happens to the linear TV when that happens. But I think it's the first time with the streaming being where it is right now. In terms of the revenue streams within the Platform segment, can you please share your thoughts on what will likely happen to the media and entertainment revenue stream, distribution revenue stream? And then also what you expect the Roku Channel to experience as a result. Will viewership of the library product increase? Will it suffer? I would appreciate your thoughts on what you're bracing for and preparing for in this regard? Thank you.

Anthony Wood, CEO

Thanks, Vasily. Charlie will take that question.

Charlie Collier, President, Roku Media

Thanks, Vasily. As Dan mentioned in his prepared remarks, I do think it puts added pressure on media and entertainment in the back half. Of course, there's added pressure on our partners, including those with upcoming fall schedules. I should pause for a second and say that we hope that the AMPTP and both guilds reach a fast and equitable resolution. To your question on our platform, there is a huge amount of content here. So viewers will have no trouble finding something great to watch, and we are seeing that reflected in our numbers.

Vasily Karasyov, Analyst

What about the distribution revenue? Do you think that could take a hit because companies will not have marquee shows to promote subscriptions, new subscriptions? So you will not get as many dollars in bounties, and that could dampen growth in the second half of the year? Is that a possibility?

Anthony Wood, CEO

This is Anthony. I'll take that. I don't think there's going to be much impact on distribution. Just as an aside, we don't really do bounties; we generally get revenue shares for billing and signing up new subscribers in that category. So I think the main impacts we think will be on our media and entertainment business. At least some additional pressure there. I don't know, Charlie, do you have anything to add?

Charlie Collier, President, Roku Media

Yes. I think that's right. It will perhaps vary by service. But for us, we have the tools to find viewers what they want to watch, and that's very much what we're focused on.

Vasily Karasyov, Analyst

Thank you.

Operator, Operator

Thank you. Our next question comes from Cory Carpenter with JPMorgan. Your line is open.

Cory Carpenter, Analyst

Hey, thanks for the question. Dan, I had two for you. First, you mentioned first quarter trends played out in second quarter. So just hoping you could expand on what drove the magnitude of the second quarter revenue upside relative to your guide. And then secondly, on the third quarter outlook; just trying to better understand why you expect revenue to be down sequentially. Is there anything else to point to beyond the impact of the strikes? Thank you.

Anthony Wood, CEO

Yes. First of all, it's great to hear from you again, Cory. On the second quarter revenue, as we mentioned, it was the platform business that drove the revenue upside, and we did see some rebounding in verticals that we saw – that the verticals that we mentioned, consumer packaged goods specifically was very strong for us, as well as some other verticals. That ultimately drove the beat to the guidance. So we're quite happy with that. And with respect to the outlook, it's really what I addressed earlier: it's the media and entertainment that continues to be challenging, and we do expect it to be challenged in the back half of the year. It's been challenged in the first half, but we think it's going to be further challenged due to the strikes and the fall outlook. So essentially, we are factoring that into our third quarter outlook, which is why you see the growth rate just down slightly on a sequential basis.

Cory Carpenter, Analyst

Okay, great. And maybe if I can sneak one more in since that was fast. Charlie, just could you – I know on the new front process, you don't have numbers to share, it's taking longer to play out. But any color you can give us in terms of the level of demand you're seeing relative to last year or your expectations? Thank you.

Charlie Collier, President, Roku Media

Sure. Cory, you're our second three-question asker. Well done. Look, it is a very different year in the upfront for everyone. And you're right, it is proceeding at a slower pace than usual. We're making great progress. You're absolutely right. We're not quite done yet, but we're pacing well. Overall, the good news is we're seeing more advertisers engage with Roku upfront due to our broad reach, our innovative ad products, and the powerful tools we offer to attract, engage, and retain audiences. So all signs are good there, and we're methodically working through the market with our agency partners, but I feel good about where we are.

Anthony Wood, CEO

Cory, this is Anthony. I just learned – you may know this, but Charlie has led on with 20 upfronts, which I thought was pretty cool.

Cory Carpenter, Analyst

Thanks, Anthony.

Operator, Operator

Thank you. Our next question comes from Laura Martin with Needham. Your line is open.

Laura Martin, Analyst

Hey there. So this cost control is really excellent; 8% cost growth last quarter, it was 42%, and the quarter before, it was 71% growth. But Anthony, you did it at really the R&D line, the R&D line has taken the brunt of it. Okay? All costs are down, but the R&D line fell to negative 2%. So is that actually sustainable now that you've launched your 11 Roku-branded TVs? And you've gotten out of international. Can we keep the R&D number at the slow number going forward? Or is it just a one-time only that really aided cost growth this quarter?

Anthony Wood, CEO

Thanks. Yes, I think – well, I think two things. One is that we are still investing significantly in our key growth initiatives, things like expanding active accounts, Roku TV monetization billing premium subscriptions, expanding the ways we can help you find content. A lot of the – I would say one of the initiatives we're taking, which we don't talk about much, is we have R&D offices around the world. We have – obviously, we have offices in Silicon Valley, but we have great teams in Manchester, England, Cambridge, U.K., Taipei, and in other places. One of the things we've been doing is doing a lot more of our hiring in regions outside the United States to have great engineering talent, but are just less expensive than Silicon Valley engineers. So that's one of the ways we're controlling our R&D costs and still getting lots of great engineers.

Laura Martin, Analyst

Okay. And then my second question, and I will not have to ask three, is I want to push a little bit on this issue of CTV versus full funnel. Before this year, you went into the upfront in the linear TV, which was a benchmark against a $20 CPM as a substitute for linear TV, which had data, so you were getting $30 CPMs from 2017 to round numbers 2023. This year, you went into the new front and the go-to-market strategy pivoted to full funnel come to us because we can drive awareness; we can drive Shoppable with Walmart and with Shopify. My question is, when you start moving down the funnel, you start competing with a $2 CPM, and I noticed your ARPU here is down 7%. My question is, are you adding risk? Does it really do more good than harm to repivot the offering, your go-to-market offering to a full funnel and lose that benchmark of the $20 CPM that comes with broadcast TV substitute?

Anthony Wood, CEO

So let me – I'll answer that, and I don't know if Charlie or Dan might have more to add. First of all, you mentioned ARPU down. I mean, that's been driven by the fact that just we've been – monetization has slowed down due to the slowdown in the ad business, yet active accounts are still growing strong. Just when you do the math, you get a lower ARPU number. I don't think it indicates anything more than that, and I expect it to start picking back up again when the ad business rebounds. In terms of full funnel, I mean, we've launched things like Shoppable Ads, which allow purchasing right inside the ad. Those Shoppable Ads, of course, still have the sight and sound of high-definition video. They're very engaging. We still sell lots of ads to brand advertisers. I think we're just trying to expand the different target markets we can sell ads to, and there might be different pricing depending on the channel or the ad or the customer or the content or lots of factors. It's all about for us diversifying our ad revenue and tapping into all the different sources that are out there. We've made progress on that, but there's still I think, a long way to go.

Charlie Collier, President, Roku Media

No, I think that's absolutely right. I also think you shouldn't read into the pivots as one or the other. One thing that is just so powerful about Roku is that we really can do what television does best, which is broad reach. And site sound in motion, and we can be accountable. When we talk about full funnel, it's a differentiator because, look, you look back in my career, and what I'm there to do on the advertising side of the business is help them be effective. By noting that we can be great at the top of the funnel and accountable at the bottom of the funnel, we're helping build businesses in a way that most people can't. That is a really important message. I want you to look also during the upfront. We made a prime time reach guarantee. That's obviously the opposite of lower funnel. What we're saying is that Roku can reach, and you look at the top five cable networks on average, we can outreach them. Anthony is absolutely right. We're looking at not just serving the advertisers, but actually taking advantage of all the ways we can monetize Roku.

Laura Martin, Analyst

Thank you.

Operator, Operator

Thank you. Our next question comes from Vikram Kesavabhotla with Baird. Your line is open.

Vikram Kesavabhotla, Analyst

Yes. Thank you for taking the questions. I wanted to ask about the progress that you're making with third-party DSPs. I'm curious if you can talk about the early impacts you're seeing on pricing and fill rates and how you expect that to evolve from here. Separately, just based on the current state of macro trends and industry trends, I'm curious if you can offer any early perspective on what fourth quarter revenues might look like this year and some of the puts and takes we should be taking into consideration. Thanks.

Anthony Wood, CEO

Hey, Vikram. So Charlie can take the DSP question and then Dan can talk about fourth quarter revenue.

Charlie Collier, President, Roku Media

Great. Thanks for the question. Look, we sell ads through multiple channels. There's direct IO through our sales team programmatically through a DSP. Often that is also enabled through our sales teams. Recently, as you know, we've more actively engaged with third-party DSPs. To your question, we're seeing incremental budgets. No doubt about it. We believe these relationships have long-term potential. So it is working. I should note, it's off a small base. So it's early days, but it's going well. The headline is no doubt, we're getting budgets now that we weren't getting before. I think these relationships have really strong long-term potential.

Dan Jedda, CFO

Yes, Vikram, on the fourth quarter guide, we'll obviously update you when we report our third quarter results. We're not guiding the fourth quarter. I will just say that we do expect the second half to be similar to what we've guided to in the first half – the second half to be similar to what we've seen in Q2. We factored that into our guide for Q3. And again, we'll update the group in our Q3 results for further guidance for Q4.

Vikram Kesavabhotla, Analyst

Okay. Thank you.

Operator, Operator

Thank you. Our next question will come from Justin Patterson with KeyBanc. Your line is open.

Justin Patterson, Analyst

Great. Thanks. Good afternoon. Two, if I can. First, I just want to touch on platform gross margin. That was up a little bit sequentially. Curious if there were just anything beyond mix, perhaps some one-timers or promotions, just driving that uptick? And then secondly, you called out again just the softer scatter market this quarter. I would love to hear you just to mention out how Roku scatter is performing relative to the overall industry. Thank you.

Anthony Wood, CEO

Hey, Justin. Dan can take the first part, and Charlie can talk about scatter.

Dan Jedda, CFO

Yes. On the platform gross margin for Q2, it was mix, which caused a slight uptick. With media and entertainment, we did see – it improved from Q1 to Q2. We had a very tough quarter for media and entertainment in Q1, and we did see some uptick. So we did see some positive sequential change from Q1 to Q2 due to media and entertainment. That said, as I said in the prepared remarks, we do expect media and entertainment to be pressured in H2, which is why we expect just a slight tick down in platform gross profit for Q3.

Charlie Collier, President, Roku Media

Yes, thanks. On the scatter side, I think it is a story of categories. Dan mentioned consumer packaged goods and health and wellness and a few others are really showing green shoots, but media and entertainment, tech, and telco, you won't be surprised to hear, are challenging us. We're seeing that in the marketplace. I think the overall trends that are benefiting us are viewership trends. We used to have to tell people, even in my early tenure here, the linear decline was continuing and connected TV was growing, and now they say it to us and look to us as a solution. I think we'll see that more and more as the scatter markets roll out.

Justin Patterson, Analyst

Thank you.

Operator, Operator

Thank you. Our next question will come from Matthew Thornton with Truist Securities. Your line is open.

Matthew Thornton, Analyst

Hey, good afternoon guys. Thanks for taking the question. Maybe one for – I'm not sure if it's for Charlie or Anthony and then one for Dan. Maybe for Charlie, I guess, a follow-up to the prior question around leaning into some of that third-party demand. I'm wondering if you can either quantify are we at a point yet where maybe we're getting a point type of lift on revenue growth. To use the old baseball analogy, are we kind of in the first inning there? Just any further color there would be helpful. And then one for Dan. Dan, as we think about the devices business as the branded TVs ramp, they carry a higher average selling price. So that will start to become revenue intensive. My question is around how you're thinking about gross margin strategy in devices? Can we get back to breakeven next year? Do you think that business will run at breakeven or low single digits over time? Just curious how you think about that because the revenue line theoretically could get bigger with branded TVs? Thanks, guys.

Anthony Wood, CEO

This is Anthony. I'll give the initial answer and then Mustafa can add more detail. You just think about the Roku TV program and the Roku-branded TVs are all part of our device team or device efforts, and our device efforts are all around building active accounts. That’s going extremely well, a scenario that we've always been good at, led by the purpose-built operating system that we built just for TV. Compared to all of our competitors that have basically taken mobile operating systems imported them to TVs. We've built from the beginning an operating system designed specifically for TVs, and we distribute it in various ways. We distribute it built into our streaming players, built into our TV licensing partners, and then our own branded TVs. In aggregate, that's resulted in the United States becoming the number one streaming platform. We're also, like we said, number one in Mexico and doing well in a lot of other regions. In the U.S., specifically, we're approaching half of all broadband households now using a Roku device to watch television. The overall mix of different kinds of ways to reach the consumer has been very successful for us. Some people talk about the demise of players. We don't see that. We sell tens of millions of players a year that add new accounts or increase engagement with existing accounts. TVs are now the most important way that we add active accounts. The Roku-branded program is incremental to that; if we see it driving innovation, we'll pass that on to our partners in licensing programs, and it also helps us fill gaps that maybe our partners are not filling or incremental demand that they're not addressing allows us to go after that.

Mustafa Ozgen, President, Devices

Hi, Matthew. Mustafa here. Thank you for the question. For us, the Roku-branded TVs are about really expanding the choice for the consumers. They're also a strong demonstration of our commitment to further strengthen the Roku TV ecosystem itself, with additional innovations and investments that we are making. We also announced that before that we are sharing our innovations and the learnings with our partners. So it's about the strength of the ecosystem and growing the overall Roku TV licensing program. We announced that all 11 models that we are selling at Best Buy, who is our exclusive retailer for the Roku-branded TVs, received at least a 4.5-star out of 5-star rating, which is a great indication that we can build good products and contribute to the Roku TV program. As Anthony said, to emphasize, Roku-branded TVs are really a great way to complement the primary way we distribute our platform, which is through our TV licensing partners and the Roku streaming players. That's how we see the mix going forward.

Anthony Wood, CEO

This is Anthony. I think that covers it, but I'll just add. The primary way we're going to distribute our platform through TV is through our licensing program. The Roku-branded program, I think, is incremental to that. If we see it driving innovation, we’ll pass that on to our partners in licensing program.

Operator, Operator

Thank you. Our next question comes from Ross Walthall with Cleveland Research Company. Your line is open.

Ross Walthall, Analyst

Thanks guys for the question. I just had a question on the new Shopify partnership. What's the initial feedback that you're getting on that? And curious if you could share any of the early success stories or learnings from shoppable ads generally?

Anthony Wood, CEO

Sure, Charlie.

Charlie Collier, President, Roku Media

Sure. We're really excited about the Shopify partnership. I should note upfront that our goal is to make the TV screen accessible by businesses of all sizes, not just the largest businesses. This first-of-its-kind partnership with Shopify provides viewers the ability to seamlessly purchase products from Shopify merchants directly from their TV using Roku shoppable ads. Literally, you just click okay on your remote, you check out automatically with Roku Pay, and an order confirmation from the Shopify merchant hits your inbox. It really is that easy. You asked about a couple of partners, True Classic, which is a men's apparel brand, the game-based connected rower Ergatta, and wellness brand Olly have all signed on as initial partners. It's still early days in terms of teaching the consumer how to shop on the TV screen, just like they do on their phones. This is something that Roku is excited about and is uniquely positioned to do. We're seeing positive signs for this new ad format, and it's a new purchase point for the consumer. I think there's a lot of good news ahead.

Ross Walthall, Analyst

Thanks, Charlie. And then one follow-up on margins. I know a little bit of discussion earlier about media and entertainment being part of the pressure point in the Q3 margin guidance for the platform business. Just if you can step back and think longer term, what do you need to see in order to get back to that like the high 50s margins? Does that require meaningful recovery in the media and entertainment business? Or are there other avenues to get back there? Thanks.

Anthony Wood, CEO

This is Anthony. I'll kick that off and maybe turn it over to Dan to talk about. I think the margins are primarily related to the mix. With media and entertainment down, there's less media and entertainment, which is higher margin. I think there are two ways. From my point of view, there are two things that will address that. One is I think the reduction in demand right now is completely cyclical. It's related to the slowdown of the ad business impacting our media and entertainment partners. That's also related to the strikes. I think those things will change, and we'll see it pick back up again. We're also continuing to build out the features in our platform that are used by media and entertainment promotions and sold as part of media and entertainment promotions, and making them even more effective. I see already a very effective way to drive engagement and subscriptions from partner services, but it's just going to get better. The other part of it is, like Charlie said, where media and entertainment is mostly inventory in the user experience, mostly ad units and the static ad units in the user experience. There are a lot of opportunities to expand the types of advertisers that we sell those ads to, like, for example, T-Mobile sponsoring our sports zone. We talked about the McDonald's and Roku City. There's other – we're expanding the client base that we sell those ads to brand relevant brand advertisers as well. All that will increase sales over the long term of what we would today call media and entertainment.

Dan Jedda, CFO

The only thing I would add is, I think I stated earlier that we are seeing strong margins across all our platform ad categories. There is a mix impact. Yes, media and entertainment has a disproportionately higher margin. We do expect at some point for media and entertainment to start to recover again. We're also diversifying and things like Roku City, which also have higher margins. There are opportunities to grow our margins outside of media and entertainment as well.

Ross Walthall, Analyst

Thanks guys. Congrats on the quarter.

Dan Jedda, CFO

Thank you.

Operator, Operator

Thank you. We have a question from Jason Helfstein from Oppenheimer. Your line is open.

Jason Helfstein, Analyst

Hey. Two questions. First, there was an interesting choice of words using modest to describe 11% platform growth. So if that's modest, what's normal? So that's one. And then second, Charlie, can you talk about how you're supporting third-party DSPs demand? Are you doing SSP integrations, direct integrations with DSPs or both?

Anthony Wood, CEO

Let's see, dissecting our adjectives. I don't know. Dan, you're good with adjectives. What's...

Dan Jedda, CFO

Yes. That is probably one of the most difficult questions I've had. I'd say it's modest. I don't know when we said it was modest. I will say we're very happy with our Q2 results. I think we talked a little bit about our guidance and what's driving it. I go back to my original comments on why I came to Roku and how much runway there is ahead of us from an opportunity standpoint on the monetization front. Outside of that, I will say again, we have a lot of runway ahead of us to grow. Maybe we'll just choose our adjectives better when we explain a double-digit growth rate for Q2.

Anthony Wood, CEO

Yes. On DSPs, I mean, there's direct technical integration with the DSPs at multiple levels. We've had that for a long time, and as well as we have our own ad tech stack that we continue to make better. We integrate DSPs, third-party DSPs into that ad tech stack. We have a lot of levers on how we choose to work with them. I would say – without getting into details, I would characterize the way we're working with them now versus before as just much more active in ways that I think you're going to drive more success. So I don't know if Charlie, you want to add anything?

Charlie Collier, President, Roku Media

Well, first of all, as the first person in media to be asked anything with the word modest in it, I appreciate that. But secondly, I think that's 100% right. It's the levers that we lean on to meet advertisers where they wish to transact. Anthony is right on the tech stack. We're remarkably proud of our tech stack and the team that builds it. We're coming to market in ways that are showing signs of new accounts and new account growth. So it is – a lot of it is still manual, to be honest, and work through our sales teams. But we are working in different ways with third-party DSPs and the way Anthony described.

Operator, Operator

Thank you. Our last question will come from Ralph Schackart with William Blair. Your line is open.

Ralph Schackart, Analyst

Great. Thanks for squeezing me in. Just a question kind of going back to the macro a little bit. Maybe can you talk about the linearity of the ad platform revenue growth as it progressed through the quarter? So how did you start out versus how did you end up through the quarter? Just one for me. Thanks.

Anthony Wood, CEO

Yes. Dan will take that.

Dan Jedda, CFO

Yes. I would say the pacing was consistent throughout the quarter. Really, I guess, we haven't – we did see that improvement in those verticals. I would say that those – that has transpired. There's nothing within the quarter that we saw that changed outside of any normal trends that we have in the quarter. Really, not much to add beyond that from an intra-quarter standpoint.

Ralph Schackart, Analyst

Okay. Thank you.

Anthony Wood, CEO

But they were modest changes I would say.

Operator, Operator

Thank you. I would now like to turn the conference back over to Anthony Wood for any closing remarks.

Anthony Wood, CEO

Thanks to everyone for joining the call, and thanks to our employees, customers, content partners, and advertisers.

Operator, Operator

This concludes today's conference call. Thank you for participating.