Roku Inc Q4 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Shyam Patil - Susquehanna International Group. - Analyst : Congrats on the strong results. I had a couple of questions. I guess the first one, very strong fourth quarter. What drove the outperformance? And do you guys expect that to continue in 2025? And then second question, on free cash flow conversion, how should we expect that to trend in 2025 and beyond?

Question: Michael Morris - Guggenheim Securities - Analyst : Two questions for me. One, just to follow up on that last question. Could you expand on some of the drivers of the 16% platform revenue growth that you're looking for in the first quarter. It would be great to hear about how you're thinking about maybe advertising versus SSD and it'd be great to hear also about how these third-party DSP partnerships are contributing and how you think about that throughout the year? And then secondly, could you share any updated thoughts on how this Walmart acquisition of VIZIO will impact your business? I think they are a pretty large retail partner of yours currently. So do you expect that your products are going to be deemphasized or that there will be an impact on your business as a result of that combination?

Question: Laura Martin - Needham & Company Inc. - Analyst : Congratulations on that fantastic results. So about a year I think it was -- you fired everybody in subscription and have all report to you. And then in the most recent quarter, you over-delivered platform by about 100 million versus (inaudible) consensus. Could you break out for us what did you get done in the subscription business in the year you just finished managing that business? And when you think about the road map, how much better or how much bigger of a contributor can subscription be going forward? And are they as big as what Charlie is doing over in retail media network and self-service for the ad business. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 13, 2025 / 10:00PM, ROKU.OQ - Q4 2024 Roku Inc Earnings Call

Question: Laura Martin - Needham & Company Inc. - Analyst : That was great. And my second one was just on local. I thought it was interesting that political was 6% of your fourth quarter revenue and Trade Desk that it was 5% of theirs. Would you say that's a secular shift out of the local TV business, and you would expect that to grow in every two-year cycle now? Are you converted to using CTV in place of local broadcast or political ads?

Question: Jason Helfstein - Oppenheimer & Co., Inc. - Analyst : Clearly, the Roku Channel is delivering tremendous usage growth and giving a lot of available ad units to sell. When you think about your success with political in the fourth quarter, did this crowd out other ad demand? Or do you think that just was all incremental when you think about inventory sales?

Question: Matthew Condon - Citizens JMP - Analyst : My first is just on the home screen monetization. I understood that you guys have talked about video ads being placed there. I know it was in beta. There's no mention of it in the shareholder letter. So I just wanted to touch base on that and see that's progressing? And maybe what are the levers you guys have there to increase monetization. And then my second question is just on device revenue and gross profit margins understood. I think it was an increased discounting period during the holiday, but it does seem like it carried over into 1Q. So I'm just trying to make sure that there wasn't any sort of increased competitive intensity in the quarter and into 1Q.

Question: Ralph Schackart - William Blair - Analyst : On the call, you talked a lot about the strength and the strong ad performance in the quarter and sort of your outlook and that advertising grew faster than overall platform revenue in Q4. Maybe if you could sort of segment the top one or two things that are going really right in the ad REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 13, 2025 / 10:00PM, ROKU.OQ - Q4 2024 Roku Inc Earnings Call business. I'm sure there's a bunch of things coming together, driving the stronger performance, but maybe just get a sense of what's really driving the strong performance in that business? And then I have a follow-up, please.

Question: Ralph Schackart - William Blair - Analyst : Great. And then just a quick follow-up for I guess one for Dan. In the letter, you talked about wanting to provide a clear and accurate outlook based on latest info rather than conservatism. I'm just curious, has your approach to guidance changed since last call? Just kind of curious, anything you could add on that within the letter.

Question: Steven Cahall - Wells Fargo Securities, LLC - Analyst : First, it's on subscription. So we've seen some prices go up at some of the streamers. Netflix took price up recently, but they're also guiding a flattish ARPU for the year. I think their expectation is that folks will down tier to the ad tier, and we've seen ARPU be kind of flattish with some of the other big streamers. So I'm just wondering how that plays into your SSD revenue. If pricing goes up, but folks do end up on some of these lower subscription tiers, do you still get the acceleration of the pricing? Does it flatten it out a little bit. So maybe you can just help us think about how some of these industry shifts towards ad-supported tiers that we're seeing rolls through SSD. And then a couple of follow-ups on political. So just first, given how big the cycles are getting, this was a record cycle, and it seems like '26 could be similar to '24 from a cycle size. Are you adding sales force to try to build into political more specifically and help the campaigns in the packs reach the younger audiences. And then lastly, Dan, sorry, I can't help myself on this one, but it seems like you probably would have had a pretty good idea of political when you reported Q3, and then you've said that the guidance isn't conservative. So maybe you can just help us understand how the political kind of came in as a surprise in Q4.

Question: Cameron McVeigh - Morgan Stanley - Analyst : You guys have done a good job at slowing your OpEx growth rate recently. And when you think about your OpEx levels, particularly this year, curious where you see the most opportunity to become more efficient.

Question: Cameron McVeigh - Morgan Stanley - Analyst : Got it. And then just secondly, curious how this response has been to the release of your self-serve ads manager. How are you thinking about the SMB opportunity, both in terms of timing and magnitude going forward?

Question: Richard Greenfield - LightShed Partners - Analyst : It's sort of -- it's one question, but sort of three parts, humor me for a few. I'm curious how you think about the lifetime value impact of a Roku active account subscriber who subscribe to at least one of these premium subscription offerings that you're talking a lot about in both your letter and on the call earlier. It feels like once you've subscribed using Roku as you're sort of how you subscribe it? We think that has a real lock-in effect. But I was wondering if there's anything you've seen in terms of what happens to people getting different devices in the future or not being an active account and how it changes when they have at least one subscription tied to Roku. And sort of the other side of it is what happens for the provider, whether it's Max or any of your premium subscription partners, what have they -- do they see much lower churn when they work with Roku? I know some have seen higher churn with Amazon. I'm just curious sort of what the experience has been with Roku. And then lastly, just sort of tied into all of this, do you bundle these subscriptions over time and create your own packages of multiple of these? Or how do you see that changing over time?

Question: Alan Gould - Loop Capital - Analyst : I've got two. One, can you give us an update on what's happening on your international expansion? And secondly, is M&E still a headwind? Or are we past the tough comps there? Maybe throw a third one in, Dan. Was there any 606 adjustment in the quarter?

Question: Alan Gould - Loop Capital - Analyst : To the last question, I'll take the last question on 606. There was a very small 606 adjustment in Q4. I think I mentioned earlier like we do not expect 606 adjustments going forward. Our guide for 2025 does not have any 606 adjustments in there. Just given the way we've structured our agreements and the accounting policy we apply against them. We don't believe 606 will be in our numbers on a go-forward basis.

Question: Barton Crockett - Rosenblatt Securities, Inc. - Analyst : Okay. Great. I guess I was curious about some of the news flow overnight. So one of your business partners, the Trade Desk was talking about some disappointment in their trends. And it raises the question about their relationship with you, which you guys have called out last quarter as a source of strength. And just this DSP channel generally where there's some competitive kind of gyrations and I'm just wondering if you could comment on the health of that relationship and the health of DSPs generally with you guys.

Question: Barton Crockett - Rosenblatt Securities, Inc. - Analyst : Okay. And then if I could just ask one other thing. The -- in the news, trade wars, tariffs, does this mean anything for you guys? Is there any risk on devices from the tariffs in China, any impact on advertising flows? I know Ford was cautionary about what steel could do to autos, the de minimis could affect e-commerce. Are you seeing anything?