Roku, Inc. (NASDAQ:ROKU) Q4 2023 Earnings Call Transcript
Roku, Inc. (NASDAQ:ROKU) Q4 2023 Earnings Call Transcript February 15, 2024
Roku, Inc. beats earnings expectations. Reported EPS is $-0.55, expectations were $-0.65. Roku, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, and thank you for standing by. Welcome to the Fourth 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. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to the Vice President of Investor Relations, Conrad Grodd.
Conrad Grodd: Thank you, operator. Good afternoon and welcome to Roku's fourth quarter and year ended 2023 earnings call. I'm joined today by Anthony Wood, Roku's founder and CEO and Dan Jedda, our CFO. Also in today's call for Q&A are Charlie Collier, President Roku Media and Mustafa Ozgen, President Devices. Full details of our results and additional management commentary are available in our shareholder letter, which can be found on our investor relations website at roku.com/investor. Our comments and responses to your questions on this call reflect management's views as of today only and we disclaim any obligation to update this information. On this call, we'll make four looking statements, which are predictions, projections, or other statements about future events, such as statements regarding our financial outlook, future market conditions and the macroeconomic environment.
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 defer 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 the results for the comparable period of 2022. Now, I'd like to hand the call over to Anthony.
Anthony Wood: Thanks Conrad. Looking back at 2023, I'm proud of our execution. We delivered positive adjusted EBITDA and free cash flow a year ahead of schedule by focusing on operational improvements and platform revenue growth, which we grew double digits. We also drove record growth in our scale and engagement. A large share of my management team's attention in 2023 was spent on OpEx reduction and internal operational improvements. This year, we will be redirecting much of our attention to platform growth and innovation, where I see lots of opportunity. A core strategy for us is to take better advantage of our position as the programmer of the home screen for our 80 million active accounts globally. We use this to grow ad reach, which correlates to add revenue, as well as to grow our streaming service distribution activities.
For example, Roku City is popular for the way it seamlessly integrates iconic brand imagery like McDonald's golden arches, as well as movies and TV show promotions in ways that are delightful for viewers. Newer examples include our all things food and all things home viewer experiences, which aggregate the best culinary and home and garden content on the Roku platform, or the Roku sports experience, which aggregates sporting events in a single central location. These are some early examples, and we are focused on improving these early efforts, as well as new experiences to engage viewers and help them find content across the streaming universe in ways that also drive monetization. Thinking about the state of the industry, I see two trends that are particularly important for us.
One is the enormous volume of streaming content. As I just mentioned, helping our viewers easily navigate and find what they want to watch is a big opportunity for Roku. Second, the industry has increased its focus, now more than ever, on building thriving and sustainable businesses. This means more ad supportive streaming service tiers, which will further accelerate the overall shift of ad dollars from traditional TV to streaming. Roku has the tools and expertise to help streaming services grow engagement, which is critical in an ad supported environment. We expect strong demand for ad supported tiers on Roku, as many users seek value price streaming options. With our platform advantages, love brand, first party relationships with 80 million active accounts, and deep user engagement, we're well positioned to accelerate revenue growth in future years.
Now I'll turn it over to Dan to discuss our results.
Dan Jedda: Thanks, Anthony. In Q4, we grew active accounts by 4.2 million and in 2023 with 80 million. Full year net ads of 10 million were above 2019 and similar to 2022 levels, driven primarily by the Roku TV program in the U.S. and international markets. We're also growing engagement on our platform with 2023 streaming hours of 18.6 billion year-over-year to a record 106 billion hours. We grew both Q4 and full year streaming hours 21% year-over-year. Average streaming hours per active account per day were 4.1 hours in Q4, 2023, up from 3.8 hours in Q4, 2022 and 3.6 hours in Q4, 2021. Average viewing time on traditional TV is 7.5 hours per day in the U.S., providing significant opportunity for us to continue to grow our engagement.
In Q4, total net revenue grew 14% year-over-year to $984 million. Platform revenue was $829 million of 13% year-over-year, driven by both streaming services distribution and video advertising activities, offset by M&E. Streaming services distribution activities grew faster than overall platform revenue, benefiting from increased subscription signups along with recent price increases from SVOD partners. However, the year-over-year growth rate of streaming services distribution in Q4 was lower than the year-over-year growth rate in Q3 due to tougher comps in Q4. Devices revenue increased 15% year-over-year in Q4, driven by Roku branded TVs, which launched in March, 2023. ARPU was $39.92 in Q4 on a trailing 12-month basis, down 4% year-over-year, reflecting an increasing share of active accounts in international markets, where we are currently focused on growing scale and engagement.
Q4 total gross margin was 44%. Q4 platform gross margin of 55% was stable year-over-year and sequentially when excluding the 62 million restructuring charge in Q3, related to the removal of select license and produced content from the Roku channel. Q4 devices margin was negative 13%, which was up roughly 19 points year-over-year as a result of improved supply chain costs and limited promotional discounts. Q4 adjusted EBITDA was $48 million, which was $38 million above our outlook. The better than expected performance was driven by our platform segment, along with improvements to our operating expense profile. Please note that a one-time charge of $42 million, primarily related to lease impairments and workforce reductions was added back to adjusted EBITDA.
Free-cash flow was $176 million on a trailing 12-month basis. And we ended the quarter with over $2 billion in cash and cash equivalents. Let me turn to our outlook for the first quarter. We anticipate total net revenue of $850 million, gross profit of $370 million with gross margin of 43.5% and break even adjusted EBITDA. While we remain mindful of the challenging macro environment and uneven ad market recovery, we plan to increase revenue and free-cash flow and achieve profitability over time. For total net revenue, we anticipate a seasonal percentage decline in line with Q1, 2023. We will face difficult year-over-year growth rate comparison in streaming services distribution and a challenging M&E environment for the rest of this year. We expect to maintain our Q4, 2023 year-over-year platform growth rate of 13% in Q1.
We expect a continued mix shift away from M&E activities, which will compress platform margins in the near term. For Q1, we expect platform margin to be similar to Q1 of last year of roughly 52%. On the devices side, we expect margins to improve from negative 13% in Q4 to negative mid-single digits in Q1. Our outlook for the sequential improvement reflects a lighter retail promotional period in Q1. Turning to OpEx, we anticipate Q1 year-over-year growth rate to negative low to mid-teens, a significant improvement from OpEx year-over-year growth of approximately 40% in Q1, 2023. We'll continue to operate our business with discipline with a focus on driving increasingly positive free-cash flow over time. After achieving positive adjusted EBITDA for full year 2023, we expect to deliver further improvements for full year 2024.
As we stated previously, we will balance this commitment with reinvestment to continue to expand our scale, engagement, and monetization. With that, let's take questions. Operator?
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