|Q4 2018 Value||Change over Q4 2017|
|Activers users||27 million||+40%|
|Streaming time per active user||176 minutes/day||+21%|
Commentary – on Q4 2018 results
Can Roku beat Amazon in competition for ad dollars?
Roku is both the beneficiary of and motivator behind the growth in connected TV. However, it faces stiff competition from companies like Amazon in the fight for advertising revenue.
Connected TV continues strong growth
According to eMarketer, the US finished 2018 with 183 million people – 56% of the population – using a connected television, an increase of 8% from 2017. The strong growth is also driving a significant increase in video advertising seen by viewers. Extreme Reach says that, in just one year, the share of ad impressions delivered by the connected TV increased from 16% in 2017 to 38% in 2018. The extraordinary growth came at the expense of every other screen.
The data underlines the fact that people are embracing connected TV and making it a part of their daily viewing lives. Roku is both a beneficiary of the trend as well as one the big motivators behind it.
Roku Q4 2018 results exceed overall market growth
Roku added 3.3 million active accounts in Q4 to reach 27.1 million. For the year, the company increased active accounts by 40%, adding 7.8 million customers over 2017. The company adds active accounts in two ways:
- By selling Roku streaming media players (SMPs)
- By registering new Roku-powered smart TV users.
Player sales revenue increased by 13% in 2018, from $287 million to $325 million. Active account growth was much stronger than player revenue growth in 2018. The data suggests Roku-powered TVs from companies like TCL and Hisense are providing more of the new active accounts than Roku SMPs.
Roku could also be helping drive up the number of video ad impressions on connected TVs. The company launched the advertising-supported Roku Channel last year and said it is already the fifth most popular channel with active users. Roku benefits from the success of its channel through ad revenue reflected in the average revenue per unit (ARPU) it reports. In 2018, quarterly ARPU grew 30%, to $17.95.
There is another way Roku could be helping drive up ad viewers on connected TVs. The company reports it delivered 7.3 billion hours of streaming video in Q4. In other words, the average active user streamed for 2 hours and 56 minutes a day, an increase of 30 minutes per day from Q4 2017. With viewers watching much longer through their Roku devices, they are more likely to see more ads.
The Roku Channel faces competition
Advertising revenue is critical to the future success of Roku. It is the most significant component of the company’s platform business, which now drives revenue growth at the company.
Unfortunately, there is much competition for online video advertising revenue. Amazon has launched IMDb Freedive, and services like Pluto TV and XumoTV have expanded. Hulu has changed its subscription pricing to encourage customers to watch with ads, rather than ad-free. As well, more competition is coming from NBCU in 2020 with its advertising-supported service.
Scott Rosenberg, head of Roku’s platform business, believes the company can succeed with its ad-driven channel in the face of competition from companies like Amazon and Hulu:
“Our advantages come in a couple of ways. The first is the size of our footprint. Marketers
come to Roku because we reach a sizable and engaged audience. The second is data. I know those two companies have lots of data, but the ability to leverage that data to put a more targeted, more relevant ad in front of consumers and then measure its impact is a key differentiator. We’re multiple years and a dozen-plus measurement partners into the process of making the case that ads perform on our platforms.”
To be sure, Roku has invested heavily in metrics to justify to advertisers why it is the best place to reach their target audience. However, Amazon – more than Hulu – will be difficult to beat. Amazon can show advertisers a direct link between their ads and an increase in sales in the Amazon store. Neither Roku nor Hulu can so directly connect action to an advertisement.
Why it matters
Roku is both benefiting from and driving the growth in the use of connected TV.
The growth has allowed it to quickly establish the advertising-driven The Roku Channel as the fifth most popular channel on its platform.
More competition is coming for online advertising revenue and companies like Amazon will be tough to beat.
[i] Roku defines ARPU as platform revenue during the preceding four quarters divided by the average of the number of active accounts at the end of that period and the end of the prior four quarters.
|(in millions)||Change over Q4 2018|
|2018 Total||$742.4||+45% (over 2017)|
* Indicates Estimate