|Q2 2018 Value||Change over Q2 2017|
|Activers users||22 million||+46%|
|Streaming time per active user||163 minutes/day||+8%|
Commentary – on Q2 2018 results
The Roku Channel is key to company’s success
The Roku Channel is emerging as the most important product in the company’s arsenal. Roku is expanding the ad-supported channel’s distribution beyond its products and beyond the borders of the US.
Q2 2018 saw another strong performance from Roku, with big increases in all the key market performance metrics. Revenue increased 57% over Q2 2017, to reach $157 million. The number of active accounts increased 46% same-year-quarter-over-quarter (syQoQ) and 6% quarter-over-quarter (QoQ) to reach 22 million. Average revenue generated per active account (ARPU) was $16.60, an increase of 48% YoY and 10% QoQ.
The time people spend streaming on Roku powered devices also increased. The company says the number of streaming hours it delivered increased 8% QoQ to reach 5.5 billion hours. That works out to 2 hours and 43 minutes per day per active account. One year ago, the average active account streamed 2 hours and 31 minutes per day.
Roku device sales recover
The previous two quarters were tough for Roku device sales, showing declines over the same quarter in the previous year. This quarter was a decided improvement. Player sales revenue was $66.5 million, up 24% over the same quarter last year. The company says this was mainly due to a 22% increase in unit sales over the same quarter in 2017.
The recovery in profit margins was also important to the improved player business performance. Gross margin was 22%, up from 16% in Q1 and 6.4% in Q2 2017. Some of the margin increase was because the company offered less promotional discounts leading to a 2% increase in average sales price.
Platform sales spectacular growth driven by The Roku Channel
Roku continues its transition to an ad-driven business. Platform sales reached $90.3 million, up 96% same-year-QoQ. Platform sales now represent 58% of total sales, versus 46% one year earlier.
In the earnings call, Steve Louden, the company’s CFO, said that two-thirds of platform revenue comes from advertising and the largest part of ad revenue comes from video ads on the Roku Channel. Anthony Wood, the company’s CEO, said the primary goal of The Roku Channel is to aggregate all the free content available through partner content channels. Users can find shows and movies there, click on the link and watch the video in the content owners channel experience. This approach said Mr. Wood, helped propel the channel into the top 5 as measured by reach.
The Roku Channel is also increasing its distribution as it becomes available on non-Roku powered devices. This week, the company made the channel available for free on late-model Samsung TVs and PCs, mobile phones, and tablets. Mr. Wood said Roku will continue to broaden the channel’s reach with more off-platform support and distribution in countries outside the US.
Smart TV OS competition increases
The company continues to make progress in the smart TV market. Mr. Wood claimed that Roku powered 1-in-4 TVs sold in the US in the first half of 2018. He also anticipates more television manufacturers abandoning their TV operating systems in favor of licensing one.
However, competition for Roku in the TV OS market appears to be heating up. Amazon Fire TV displaced Roku at Best Buy in April. Roku has been a close partner with Best Buy, but the retailer will no longer sell Roku-powered TVs. Instead, it will offer ten televisions from Insignia (its house brand) and Toshiba powered by Amazon’s Fire TV and Alexa. Others are also keen to expand their participation in the TV OS market. Worldwide, Android is the most popular TV operating system. Google aims to solidify its position. It released a new version of Android TV which it is targeting at CE device manufacturers.
Roku bullish on the rest of the year
With such strong performance in the first half of 2018, it’s understandable the company would raise its guidance for the full year. The company expects full-year revenue to be between $710-$730 million, an increase of 3-4% over its previous estimate. nScreenMedia anticipates Roku finishing 2018 with approximately 28 million active accounts.
Why it matters
Roku is betting the business on the success of its ad-supported content service, The Roku Channel.
The company is putting the channel on non-Roku devices and plans to expand distribution outside of the US.
 Same-year-quarter-over-quarter (syQoQ) means comparing Q2 2018 with Q2 2017 results.
|(in millions)||Change over Q2 2017|
* Indicates Estimate