So we are going to get started. I'm Laura Martin. I'm the senior media analyst at Needham & Company, and I'm here to introduce Dan Jetta, who's the chief operating officer and chief financial officer at Roku. Dan oversees the company's global financial operations and strategic growth initiatives. Dan has been instrumental at driving steady margin and free cash flow growth. He previously spent 15 years in Amazon, serving as the CFO of digital video, including Amazon Studios, advertising music before a brief job as a CFO of Stitch Fix, CFO of Stitch Fix. Okay, great. So, Dan, first thing I want to ask about leadership. I'm very interested in this notion that generative AI changes everything and therefore leaders have to manage sort of both the fear of the incumbent, let me call it employee base, but also sort of maybe hire differently and how do you just think about your role as a leader changing in this uncertainty of regenerative AI tech disruption.

Yeah, well, first of all, thanks for having me. It's my third year.

I love it.

I've been three years at Roku, third year at the Needham Conference, I think you're here within a month of joining. Probably, probably, yes. But I came back. Thank you. So I appreciate you having me. Thanks, everyone, for coming. So Gen.AI, I think the question is, how does AI really impact how we as leaders think about the operating expense side of it? Maybe, is that really what we're getting at? So, okay, I think you're kind of getting at token cost here, which is really how we look at it. So, first of all, like, AI for Roku is an absolute tailwind in many aspects. We don't consider it disruptive to our business. We consider it a tailwind. We've got AI embedded in our ad tech. We've got AI embedded in how we do in-stream video. We'll talk about Ads Manager, I'm sure, later on. We believe AI is going to be instrumental in both short and long-form content, and I think that creates an incredible opportunity for Roku. But to your specific question, yes, it is on my mind in terms of how the AI cost is building up. We are in the process of looking at this ourselves. We're dashboarding everything out. We're looking at who's using AI. We're really pushing people at Roku to use AI, not just in engineering but across the whole company. I can tell you from my own team what I'm seeing in AI, I love it. They're using AI agents to write analytics. We're using AI agents to analyze things. We're using AI agents to help us on our operations side of our business. It's really exciting. But, of course, there's a cost to that, and that is the token cost. So the way I think about it is I think companies are going to be dashboarding all this out. I think companies like Roku are going to be looking at the ROI of that spend, and they're going to have to find ways to measure that. We're starting to do that now. Our spend is ramping. It's very noticeable. And we're watching it and we're saying, hey, what's the ROI of the spend? And there does need to be an ROI. That ROI could come into efficiency. It could come through not adding as many headcount growth, but it also can come through shipping product faster on the engineering side, which ultimately will lead to higher revenue. There's many different aspects of how it would drive positive ROI. The important thing is you have to measure it, and you have to hold the teams accountable for those ROIs. What you can't do is just spend on tokens and hope that it provides some level of efficiency. You have to be able to measure it. And there are ways to do this, and I think companies are starting to understand this more. I know we are. So I'm pretty excited about how that impacts it. Now, what does it mean for OPEX growth? What it won't mean is, like, net-net, this is going to increase OPEX without increasing efficiency. That won't happen. I'm 100% sure of that. It's either going to increase operational efficiency or it's going to increase revenue depending on where the AI is spent.

And what do you do for, like, human resources or legal or something? Like, how do you measure their productivity? They're not directly linked to revenue. They're not really directly linked to costs.

That's going to be operational efficiency. I'll give you an example. So one of the things we're doing in legal is we're looking at how AI can scan contracts and look for key issues that would take our lawyers' time to actually read the documents. That's real. That's happening right now. So you don't need as many hours focused on this because the agents can do this for you. Now, you have to be careful in areas of legal because legal is you need to be tight and you need to be right 100% of the time, not 99% of the time. You need to be right 100% of the time. So legal is an area where we're starting to experiment in, but it should take less hours to review contracts, especially for the areas that we're focused on in our contract reviews whether it's a business contract whether it's a licensed contract etc so it's an area that is ripe to use ai and just require less legal hours that means we won't have to grow as much in terms of account for legal as we grow our business yeah no that that makes sense to me okay so you just had your three-year anniversary as you just said and what do you think wall street most misunderstands today about Roku's business model, monetization potential, and strategic position? Yeah, great question. So I referenced this from when I came on board in May, May three years ago. I just hit three years at Roku. It's been such a fun ride. So first of all, I think that the understanding of how much scale we have at 100 million streaming households, over 100 million. We used to say approaching 100 million, now we get to say over 100 million streaming households. We hit that metric last month, super excited about that. I've been waiting to hit that. So we're over 100 million streaming households, and in the U.S., we're over 50% of broadband That kind of scale is massive in the CTV world. So no one's even close to us in terms of that scale. And while I think people understand that because we preach a lot, I don't think it's well understood what that means and what it allows us to do. So let me give you some examples, and I'm going to talk about where we were three years ago as an advertising company and a subscription company and where we are now. So now I'm going to go into the monetization side of the business. So the scale is there. The team continues to focus on building scale. We're going to continue to grow from 100 million streaming households. But what's really changed over the last three years is how we monetize and how we are focused on this massive asset that the company has built, this incredible operating system and how we monetize it. We have this scale in the U.S. We have scale in other countries. I'm sure we'll talk international, But in the U.S., I'll just talk about the U.S. We have this scale, and how we monetize it has changed considerably, and I don't think it's fully understood outside of Roku, and I'll give you some examples. Call it three years ago, we were primarily a direct sales-led company. We had a sales force that went out and they sold to the top, call it 100 to 200 brands. And we had an M&E business, and that was the bulk of the advertising. So the idea was to grow M&E and to grow the top 200 brands. Media and entertainment. It's the content partners out there and what they spend to drive their subscriptions. That's primarily. And theatrical trailers. That's M&E. So that was the majority of the ad revenue. And you could, if an advertiser wanted to come through a demand-side platform, which I'm sure you'll ask questions on that as well, you could do that, but it had to be through our demand-side platform that we own. It was a product called OneView, and it was via an acquisition that we made that we turned into a demand-side platform. So it was very limited. We were limiting the shift to programmatic. We were limiting ourselves. The advertising base outside of the top brands, we were limiting ourselves. Fast forward to today, we have completely diversified the advertiser base, the ad products that we use, how we monetize the home screen. We've diversified across the entire advertising segment, which we now break out. So on the demand-side platforms, instead of mandating that you use our demand-side platform, we've integrated with every DSP out there, including our most recent integration with DB360, with Google. We've integrated with Trade Desk, Amazon, Whirl, Yahoo, DB360, Google, and we've integrated it all on the SSP side as well with all the demand facilitators. That's very different, and we're driving more demand. That's on the DSP side. And by the way, we're driving far more advertisers now, not just the top brands. We have the whole gamut of advertisers from the top brands down to the SMB market, which we now have an ad product focused on SMB. And then on our home screen, we've really started to monetize our home screen in a very thoughtful way. So all that wasn't happening three years ago. It's all really happening now, and you're starting to see the benefits of it. We grew our ad business 26%, 27% in Q1. We segment that out now. Similar story on the subscription side. So we had subscriptions three years ago. It wasn't a focus. We continue to have a pay product called Roku Pay, but we weren't driving subscriptions. We just had it. If you signed up on our platform through a subscription partner, we got a rev share on that. But what we didn't have is a focus on it. We didn't have a leader. We didn't have product focused on it. We didn't have a home screen that really pushed subscriptions, and specifically premium subscriptions, which is our version of similar.

Like Ritbox or Acorn.

Right, but premium subscriptions is similar to Amazon channels, where the content is embedded throughout the user interface, not just in the app. so we have a premium subscription product where you sign up and now that content is embedded throughout the user experience so we've diversified within the subscriptions business and these all this diversification all this focus has drove has driven a lot of incremental demand our way supply never an issue plenty of ad supply we always had plenty of ad supply our sell-through rates were very low because of the Roku channel being the number two app on our platform. We used to say it was a top five app. Then we'd say it's a top three app. Now we've said over the last year it's the number two app on our platform. Everybody knows who number one and number three is, but we are number two. So you have the Roku channel having a tremendous amount of supply of ad impressions. Now we're really focused on driving the demand our way. That's why advertising business is growing. And then our subscriptions, a big focus on driving subscriptions, specifically premium subscriptions. And you're seeing that growth. Total subscription business grew 30% in Q1. That's with a friendly comp from Q1 of 2025. But even backing out friendly, it still grew 23% year on year in Q1.

One of the sentences you said was, we're starting to monetize our homepage in a thoughtful way. And just for a way of background to level set everybody up to our level, is they used to only do essentially theatrical advertising, but you could also, if there was a new show on Netflix or something, they might buy an ad unit on that home page. So when you made the comment that you're starting to monetize your home page more thoughtfully, I still don't have video on my home page. I still don't have an ad unit for you guys that's like a house ad unit on the home page. And I still don't have scrolling, which Verizon had even before they got bought by Walmart. So defend the sentence, we're starting to monetize our home page more thoughtfully.

You have video on your home page, of that I'm 100% certain. You have video, auto-playing video in the right marquee ad unit on your homepage. That is a significant number of impressions. It tells me you're not spending time on your homepage. You're just jumping to your content site. I'm 100% sure that you have video on your homepage. Secondly, the content row at the top, which is a personalized row, that's new. That's driving incremental engagement into hours that we monetize. It's driving incremental subscription signups. And not by a small amount. It's very intentional how we personalized that content row at the top. And then lastly, I'll say this. We have a new home screen coming out that we've talked about. We've rolled that out to a material percent of our group. It's still not fully rolled out. It's not even close to being fully rolled out. It's called low double digit percentages have rolled out. As we continue to test and reiterate the new home screen, I've been using it for two months. It's amazing. It's even more personalized. And the ad unit is even more prevalent because you start right on the home screen rather than starting on the left nap. So you've got even more impressions now being generated for that ad unit that can be video. It's not always sold video, but there's a video ad unit, an autoplay video ad unit there. All that is and now you mentioned ad units, other ad units on the home screen. Stay tuned for that as we roll the new home screen out. I'm very excited. I think there'll be more ad units on the home screen. I think there can be ad units embedded in the content tiles of the home screen. Whether they're biddable or not, we'll figure that out.

We've got an amazing product team that's focused on this I'm super excited about it so there is even more opportunity in terms of engagement that we monetize in terms of subscriptions that we monetize coming to the home stream right because I mean what I would say is that most of streaming is targeted and the nice thing about the Roku homepage with your density of you know like installed base it could be a reach product yes if every single person sees that ad it is a it is in my opinion, a competitor to linear in terms of its reach.

It could be a reach product, and we have that because 125 million people start the home screen, and that's above Super Bowl-level reach every single day. So we have that, but we also could have performance-based products because, again, the whole top of the home screen is personalized. It's personalized now, but the newer home screen is even more personalized. And what you can do is you can put, again, an ad unit in there that's highly endemic to the personalization. So again, think of it. It can be both a broad-based reach unit, but it also can be some type of a targeted performance-based unit as well.

Okay, so when I go to Roku, it says dad, mom, then my three kids' names. Is the home screen that page, or is the home screen once I hit mom or once I hit my 23-year-old daughter?

The home screen, again, we have logged in user information as a household. We do not have profiles up. So your home screen is where you start. Now, again, to be fair...

And how do you personalize if a home has four people?

We can personalize it at that level. It's not personalized, per se, at who's watching at what point in time. But we have a pretty good idea. We know who's watching what when they start, and we can personalize it accordingly.

Okay, because I was going to say it must be a household personalization. Like by zip code or by viewing. So the fact I watch BritBox, you think I'm a Brit. So you're giving me personalized teeth care products or something. Okay. All right. Fair enough. How should investors think about Roku's long-term margin structure if the business continues shifting towards software, advertising, subscription, and home screen monetization?

Yeah. So again, we broke out our two segments, subscriptions and advertising. And one of the reasons we wanted to break that out is we wanted to give investors more insight into how the platform revenue built up between subscriptions and advertising. And we wanted to give the margin structure as well. So we segmented it out starting in Q1. I'm very excited about that. We've been working on that for several quarters. And let me just talk about margins of each business, and then I'll tell you how they're going to mix out from a platform side. So on the subscription side, we did just over 40% margins for Q1. That's down on a year-over-year basis from about 44%, 45% prior Q1. And what we're seeing there is the premium subscriptions just driving a lot of the subscription business. Now, we're still growing non-premium subscription business, but premium subscriptions, which has a slightly lower gross margin, is the biggest driver of that. I do think, and I've said it, I do think that we will stay at or above this 40% for the rest of this year. We have other activities within subscriptions that are higher margin that I believe will start to grow, be a higher percent starting in Q2. and I think this 40%, maybe slightly higher, will hold for the rest of this year. Still very profitable business for us. On the ad side, there was this thought, this notion, and as much as I tried to dispel it, there was this thought that, hey, since you're integrating with DSPs or since CPMs are coming down in the industry, that's hurting your advertising gross margin. Well, and I constantly said that's not accurate. There's a mixed impact within platform. Advertising is doing well, and now that we've broken out, you see that. So advertising margins were just over 60% in Q1. That was up 450 basis points from Q1 of last year. And I said that we believe that we are going to maintain 60% or just north of 60% for the rest of this year as we continue to focus not just on growing our advertising revenue, which we are doing, but also on optimizing our gross profit in advertising. So we're seeing good, and there's a lot of reasons why gross margins will continue to stay at 60%. We've got the home screen, very high gross margin. We're getting very good at optimizing our campaign performance. So we optimize for, of course, campaign completion, campaign metrics. But we also optimize for gross margin within our in-stream video. And we have ways of doing this. Not all impressions are created equal from a gross profit perspective. so we can optimize to fill our highest gross margin impressions first and our lowest gross margin impressions last. Of course, this just makes sense. And, you know, so we're getting really good at this optimization. So I'm pretty happy with where we are in advertising gross margins. I think that there's a chance for them to grow. We'll wait and see how we do. But for the rest of this year, I think that 60, just north of 60, is the right target. Now, what this all mixes out to is this 51% to 52% platform gross margins, probably closer to 52%, which is what I stated during the call.

Right, okay. So the two things that Wall Street thinks have pricing power in the Gen.AI world are unique content and unique data. Roku has both. Can you talk about why those become, as we get more synthetic content being created by generative AI, why do those assets become structurally more valuable?

Yeah, that's a great question. And we believe that Gen.AI content, and specifically long form, and then also within video, call it 50, 30 second advertising videos, like gen AI content has a chance to be very disruptive in our space, and we're very excited about that. So we think that we will be, actually quite confident that we will be a beneficiary of AI content in the form of long form, we monetize long form content very well. Again, if short form comes to CTV, We'll monetize that as well. We actually have some short-form content. We have clips on Saturday Night Live. We have shoulder content on sports. We have versions of short-form content. It's not massive, but it's there. But even if short-form content does come onto CTV, we're very good at monetizing ours. We'll monetize that as well. Long-form has the opportunity to be very disruptive in areas like for Howdy, which is a low-priced, ad-free content offering. So imagine if Gen.AI in long form impacts Audi. We can continue to put a lot of really good AI long-form content and still charge a relatively low price. And there is a market for that. Audi is doing very well. We just launched it in Mexico. We just took it off Roku. It's in Amazon channels. It's doing well in all three, on Roku, off Roku. and in Mexico, where we just launched. So there's that opportunity. And then I think the real disruptive can and will be AI for even shorter form content, which is like 30-second and 15-second videos. That's where our ads manager product comes in, where Gen.AI has created the opportunity for small and medium-sized businesses to participate in CTV. That was the reason, one of the two, in my opinion, and primary reasons why SMBs did not advertise on CTV was, one, they were too small for a DSP or an agency, and two, they'd have to create video, which can cost $20,000, $30,000, $40,000, $60,000 for an in-stream video. And the ads manager, which is a self-service SMB-focused product, has taken both those impediments away. Now it's really easy to sign up to have a campaign that's based on performance. And then more as importantly, you can create videos from a Gen.AI perspective that will help you do to immediately upload your 15 or 30-second video for in-stream video. So now there's no reason why performance advertisers and SMBs can't come to CTV, and they are coming to CTV.

And so one of the things that this ads manager is sort of a new product for you, but like Mountain's been doing this performance CTV, targeting SMBs for three years. Are you benefiting from the fact you're sort of a little late here because it's already been an established market? Somebody else had to educate people and create?

Yeah, we're not late. And let me tell you why we're not late. So I believe that we've got a big advantage relative to others because everyone, you know, first of all, as a publisher, as a platform level publisher, we're quite large so we do not have to go and negotiate deeply discounted impressions to go back and sell because we are a publisher we have impressions yeah so and and by the way we have massive reach across the platform right we don't have to stay on the platform we could go off the platform we could that but we don't need to because and we could go off TRC because we can do it what's called our run of network we can go off the Roku channel yes and just get inventory that way. So we have massive reach that no one else has. We are in a great position to do this. What we needed to do and what we have done is build a very easy to use self-service signup and then make sure that you can upload a Gen AI video in an easy way. And then we just have to tell people about it through marketing. And that's what we're doing. So we are at a, and by the way, our first-party data allows us to do amazing targeting, get amazing performance. We're integrated with measurement companies. We'll API sites to do site visits, whatever KPI the advertiser wants to get at. We're integrated with Shopify, so we can get conversion data, which in that view, you can get true ROAS or return on ad sales. So there's a lot of opportunity for this SMB market, which is $600 billion, according to sources are like spent by the SMB market in total. Of that, a significant amount is spent on search and social. And I think those dollars are going to migrate. So you have the tailwind of linear TV moving to CTV, and you have a tailwind of search and social or performance-based moving to CTV. So this TAM that we play in is growing very well. So not only is our diversification in ad products growing, but the TAM we play in is growing well. It's a great position to be in.

And one of the things that I would say other companies are talking a lot about is you have to be omni-channel. You can't just be in one sector. Do you disagree with that? Because you guys are only in CTV.

Yeah, I think that, first of all, we have ways of working on this as well. Like, for example, Howdy has a mobile app now. TRC does have a mobile app. And I do agree that omni-channel is a further opportunity. And we'll see where we go with this. But right now, we are seeing the performance and the KPIs play out.

Right, in the CTV channel.

In the CTV channel. And, you know, whether we get that data, whether we buy that data, there are ways to incorporate that perspective into our own CTV. Again, like, let's see where this goes, but I don't believe it is a must-have. And, by the way, all indications are, from all the KPIs I look at, and I look at a lot of them, all indications are we don't need them because the ads manager business is doing extraordinarily well.

Okay, yeah. Yeah, the ads manager opened up a whole new TAM for you.

100% whole new TAM, and as importantly, an entire set of millions of advertisers that want to try something different. Who wouldn't want to see a video of their SMB business on TV? They all want to try it, but they also want to make sure it's working. So they want the performance capabilities. Now with products like Ads Manager, those capabilities exist.

Yeah, okay. So after spending 15 years at Amazon, does Roku have a structural advantage over Amazon and other large walled gardens? Or does their scale and sort of breadth of product help them?

Okay, that's a great question. And again, the difference between my first 18 months at Roku and my second 18 months at Roku are like night and day. because for my first 18 months, I had started Roku, and I think literally six months after I'd started Roku, Amazon announced they're serving ads in Prime Video, which is a major announcement, a very bold move.

Overnight, they're ad-driven.

Literally overnight, and opted everybody in and said, you're going to have to work.

What's opted? Command performance, everybody.

You're going to have to work to opt out.

Yeah, exactly, and pay.

So during that time, I heard a lot, and I saw a lot written on, hey, it's over, the walled gardens have won the CTV ad business. And I could not have disagreed more because we had this view on where this would go. One, our first-party data is unmatched. 100 million streaming households. You start the experience with Roku on our home screen. We know who you are because we have 100 million-plus logged-in users. granted that the streaming household yes so our first party data is unmatched secondly and again i saw this but i i i was kind of like preaching this think about it this way i mentioned that the roku channel is the number two app on our platform and i know and i basically said that we are over half of broadband households and no one's even close to us from that yeah people everyone knows who number one is everyone believes they know who number three is we're number two You know, who's not number one, two, three, four, like these walled gardens. And so even on our platform, like we have massive reach and it would be better for these companies to partner with us rather than go it alone. Despite what everybody thought, these are smart companies and what they're doing is they're partnering with us because they know our first party data plus their first party data, our scale plus their scale, we're far better off together. So what does that mean? That means that as Amazon launches a DSP, we're quite certain they were going to do this. They wanted to partner with us. We wanted to partner with them. We signed an agreement on a platform level wide to integrate into Amazon. DB 360, starting a DSP. Yes, Google is not. They're basically, you know, YouTube will be part of that DSP, but it's not just going to be YouTube. They just partnered with us. We just adopted as one of the first, I think we were the first, to adopt their unique identifier. which is a hashed, I think it's a version of a hashed email, which is similar to other identifiers. And so now we're up that. So our media will be on top of the overall demand within DB360 because they see the value of integrating with Roku given our scale and our 1P data. But my point on all this is the wall garden approach is, yes, it might be there in some aspects, but the partnership approach, I think that we've solved that, that working together is far better than going it alone.

Isn't it that just they're trying to become omni-channel and they started from just a different place? They're coming into your world to become omni-channel?

They believe that more reach is better.

Which I agree with.

And that 1P data, when you match 1P data across massive reach that Roku has is better. Remember, it's not just the Roku channel. It's a platform-wide agreement. So the matching that we give, which is all done in an anonymized clean room in safe environments, the 1P data match that we do really does give Amazon far more reach than they otherwise would get, even if they integrated with us just as a publisher. And then where we are integrated as a publisher, because TRC, plus, remember, we have reach beyond TRC. We get share of inventory from other partners. So we have reach across the whole platform that is unmatched. So any DSP, whether it's not really omnichannel, it's just like the reach and the data together, we're just going to be better. And both companies win in that environment.

Okay. But it doesn't give them competitive advantage over you because they also have these off CTV assets they're marrying with your CTV assets?

If they want their performance to work well, it does not. They're better off integrating with us and letting the advertisers go across and get scale.

I get that that's beneficial for them. My question is, are they putting you out of business with your own data because they're now omni-channel?

Our data is very safe and very secured, and we have ways to protect that and so on. So, no, it's not a worry.

Okay, that they don't have a better ad mousetrap than you. Okay, okay, fair enough. Okay. So you now have DSP integrations with the Trade Desk, Yahoo, Freewheel, DB360, and Amazon. Can you talk about the impact that those DSP agreements have had on fill rates, CPMs, and total Roku margin and revenue growth?

Right. So again, go back three years ago, zero DSP integration. Fast forward now. Everyone is integrated. We're trying to go as deeply as we can with all the demand side platforms. As deep as they want to go, we'll go, as long as we're protected, and we are doing that. So what does that mean? It means we've opened up a lot of incremental demand to flow to us as a publisher, to us as a platform, to Roku as a platform. And we are now getting a diversified area of advertisers, a diversified across the spectrum of CPMs. So think about it this way. Different DSPs and different impressions will have different CPMs. I think this is really important to know, and it's probably not well understood. Everyone thinks CPMs are coming down, that's bad. Not necessarily. If we're adding, not every impression is created equal. If we have an impression in news, that's very different than an impression in some of our highly rated content, like our original content or our direct license content or sports content, like two broke girls, for example. Those two impressions are not created equal. And so we may put a lower floor CPM and run that through the programmatic pipes at a different rate than this impression over here, which is going to have a higher CPM and maybe even different data signals, which will command a higher CPM in the auction. So we play across the entire CPM demand curve. What does that mean? It means that all these integrations, even within DSPs, some DSPs are going to have lower CPMs than others, depending on who's using that DSP. a DSP that's big in app app downloads probably going to have a lower CPM because they're looking at app downloads. That's fine. We'll play in that space, but we're going to set the floor pricing appropriately. Other DSPs or other inventory, we're going to put higher CPMs on, but we're going to be integrated with all the DSPs. What does it mean? It means we bring incremental demand. Lower CPMs does not equal lower margins. That's another fallacy out there that everyone thinks lower CPMs means lower margins. It does not It would mean lower margins for us. I also think within the DSPs, I think the take rates are probably going to get more competitive and come down, but that doesn't impact us because the advertiser is paying the data fee to the DSP.

Aren't they all the same? No, because you're saying Amazon pays a lot.

I'm saying that different DSPs will have different take rates. It's just how they make their money, right?

And you don't care. Or do you care? Because if they get take rate pressure, some of it comes to you.

Well, the better the rate for the advertiser, the more they might spend on advertising, of course. So that is always beneficial for us. But my point is we don't pay these take rates with the DSPs. We may have payments with the supply side, the SSPs, but that's all incremental demand facilitation as well. That's where we're just integrated with an SSP as a publisher, and we're saying, hey, as long as you can hit these metrics, just keep filling the inventory. It's all incremental. My point on all this is, again, that is very different where we are now. So it's been a huge positive to integrate with the DSPs to set the right floor pricing, to bring in incremental demand. Because as I said, because we're the number two app on Roku, the TRC is, and because we have run a network inventory or inventory across the whole platform, supply is not a problem. We have plenty of supply. And we can create more supply relatively inexpensively.

Just by having your ad load go up?

Well, that would be the last thing we want to do. We can steer more people into TRC. There's lots of things that we can do to increase our supply. But, yes, we could go. We have a very low seven-minute ad load right now. It's very low. I don't want to do that because that is a slightly negative streamer experience. But we could. We could do that. We don't need to do that. Our fill rates are not close to being sold out. We're still generating more impressions on the supply side. But CPM's coming down, not a bad thing for us. I welcome it.

Okay, great. That's super helpful. Okay. What is Roku's content aggregation strategy as Netflix and other OTT competitors add short-form video, vertical videos, clips, and AI generated? I know I asked this on the call, and you just mentioned it now. You guys do have some short-form. Typically, it's like a highlight reel of something that's around, like, to promote a longer-form content. So I think my form of the question is more like stand-alone, like vertical videos where it's specifically a series or short-form video where it's specifically like a series, not an adjacency to something that's sitting long-form.

Yeah, so we have, again, we have short-form. That does well because we're very smart, but we just don't have a lot of short-form video. I said this earlier.

Because those ad loads are too tricky?

Well, no, it's just that CTV just hasn't moved to short-form. It just isn't there yet. Now, if it goes there, if the big beyond YouTube, if others come, that's great. They're going to want to be part of Roku, and we'll monetize that. Because, again, we have massive reach. We have massive scale. The OS is in over half of broadband households. If more short form, if CTV were to shift to short form, we will be a beneficiary of that because that's going to lead to more hours, and we know how to monetize hours. So I think more importantly is this concept of where Gen.AI can improve video and ad video specifically. You know, within Ads Manager, our sign-up flow, I was just looking at this the other day, our sign-up flow is so impressive on how many people start. They sign up. They say, I want to do this. They go to the next. They choose their campaign, their KPIs on what they want to target, how they want to target. They choose where they want to advertise across the Roku channel and other publishers. Then you get down to the Gen.AI form video. By the way, it's great. We create, we have tools that do us. We have outsourcing tools that help you create a video on Gen.AI. But it's still the biggest fall off in the pipeline. In other words, there's so much opportunity. People take all the time to fill it out, and they get down to that piece. And it's still the biggest fall off that we see. And we're still doing amazing. There's so much opportunity for gen AI and agentic AI to, like, create the video from scratch via prompt.

Like, instead of asking them, just say, here's three videos. Do you want to choose one of these?

Yeah, and then improve from there. I actually want to make this person over here, or I want to add some more people into this video, or I want to have some more creative in this video.

Or I want to be in a forest, not a desert.

100%. And I think that's going to come, and I think that's going to help in this product even more. Also, if you fast-forward even a little bit more, like having the AI run it where creative is being created on the fly, learning.

Like a dynamic.

So it's running 1,000 creatives over a million impressions and picking the right creative to optimize for whatever KPI they're optimizing for. And by the way, this isn't specific to Ads Manager, but that is going to happen. It's just a question of when. And so Gen.A.I. is there. It's working. It just has some ways to go, and it's going to get better.

So when I think about proprietary content having pricing power, is there some reason we aren't hiring three kids from USC film school to just use Gen.A.I. tools to make proprietary short-form, but on Roku, for Roku, like 10-minute episodes?

So, again, if it becomes like that's happening, that's going on, it's just early times, and we will play in this space. We will play in this space, and we'll see where it goes. I can't say when it's going to happen. I just know it's going to happen, and we will be a beneficiary. We're well aware of this. We're very focused on it.

And you can follow. I mean, it's not urgent to be first. You can just follow.

Yeah, but we'll lead. We'll be up front on this. This is a big deal for us. We will be up front on this.

Let's go to devices. How should investors think about Roku's hardware segment based on device revenue down 16% with negative 14% gross margins in the first quarter.

Right. So this is always a challenge. I just want to take a step back and explain how our device business works and how unit sales and device works. So the way our accounting works is we recognize revenue when a first-party player, which is all our players, and a first-party TV where we are the manufacturer of the hardware are sold. We recognize revenue and we recognize gross profit. When we are the OS on our OEM partners like TCL and Hisense and Philips, et cetera, when we are the software on someone else's hardware, that does not show up as device revenue even though it's a unit sale for us. Where that shows up in terms of distribution costs is on sales and marketing. So what you're seeing now in device revenue is you're seeing a lot more volume flowing through our OEM partners. We just signed two multi-year agreements with our top OEM partners. Our OEM partners are partnering with us very well because we have a bomb cost, a bill of materials cost advantage given our low memory footprint. So in this rising...

It's actually really important. Explain that to the memory.

Yeah, this rising memory environment is creating a lot of issues for a lot of different industries, and the CTV is one of them because there's memory involved. Our operating system was built by design to have a lower memory footprint than everyone else's operating systems. And that was something Anthony felt very strongly on that he built from the start. And it was really smart to do because it's always allowed our BOM cost, our bill of materials cost, to be lower than everybody else's out there. So partners would want to work with us. Now, you fast forward in a high memory, where memory cost is going up. that bomb cost advantage just grows.

Just let me give you some numbers. We think every TV they make is under 2 gigs of memory cost. We think Amazon and Google's are 4 to 6 memory gigs.

So there is a significant advantage to having the Roku OS on your hardware. So what that has meant is more OEMs are coming to us saying, hey, we want the Roku OS. Not only is it a great operating system, not only is the Roku channel have, Not only is it simple to use, not only is the home screen amazing, but really importantly, it's significantly cheaper and basically reduces the entire cost of the TV for the OEM. So we are seeing more volume than we originally expected at the start of the year going through our OEMs. And also, the increasing memory cost does impact our own player margin, so you're seeing that go through as well. My point on this is, between Q1 and Q2, nothing has changed from our total unit forecast. Nothing has changed on our device investment. What you have is some mix accounting between our 1P and our 3P units.

Questions from the audience? Baroque, yes, sir?

Yeah, I can. So, search and social is primarily focused, a lot of it, on SMB. And those SMBs have certain KPIs. They're not just going to run, they're not running advertising for reach. They may, but they don't. They want to know that they can review site visits or clicks or conversion data. That has always been an impediment of TV because when you're on linear TV, you had no way of actually tracking those KPIs. Now with CTV, you can actually do that. I'll give you an example. If there is a small business who has five restaurants or auto dealerships in the Austin area and they want to run a very specific geo-targeted ad and track site visits, how many people visited the auto site. You could not do that on linear TV. Now on CTV, you can do that. You come in through Ads Manager. You do like five clicks. You geo-target it. You say go. You upload a video, which we can help create. You hit go, publish, and you are off targeting that geo-targeted space. Via APIs, we can track site visits. we're integrated with measurement companies so we can track that kpi that that advertiser wanted to see and they see does it perform what's really important is it has to perform yes but and that that's on us yeah as a publisher to make sure it performs and we're really good at this so it will perform if it doesn't perform right away we'll get it to perform my point on all this is that impediment it was that tracking those kpis and the ability to create a video which would have been And again, $10,000, $30,000, $40,000. They don't know how to do it. They have to hire someone to do it. Now it's done through Gen AI. You've got the two biggest roadblocks, performance-related KPIs, and Gen AI-created video now gone. It's bringing more of these SMB advertisers over into CTV.

Okay. Yes, sir?

Can you expand on that?

Yeah, it's a great question. So, you know, we'll never... It's not their, like, last-click attribution is there. Like, I'm not suggesting that we now have last-click attribution, and you can track everything specific. I think we'll get there at some point. I have thoughts on this. I don't want to get into that because we're not even, I don't think anyone's close to like last click attribution. But we are there on things like, again, tracking site visits. We're integrated with many companies that help track measurements. And like Shopify, we're integrated with Shopify. So if you have an SMB with Shopify, we can, through integrations with Shopify, track conversion data. That we can get ROAS on, as long as the advertiser allows us to do that. We're integrated with measurement companies like Incremental, which will do causal-based lift analysis for the advertiser. So you can literally get, you know, via data feeds, you can understand what the impact of the ads were. And there's other KPIs. Again, I mentioned site visits. There's other KPIs. By the way, here's a great one that's actually done really well. Insurance. putting an insurance number on a CTV video and being able to track how many people saw that video that also called the number. It's lead gen in that particular case. But it's working. Insurance companies love that because they can track the cost per every lead. This was not possible in linear TV, not even in CTV many years ago. It's possible now. It's a great product, working very well for us.

Okay, I'm going to call it there. Thank you very much.