Roku Inc (ROKU) 2018 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q2 2018 Roku Earnings Conference Call.

(Operator Instructions) As a reminder, this conference is being recorded.

I would now like to introduce your host for today's call, Mr. James Samford, Vice President of Investor Relations.

Mr. Samford, you may now begin.

Good afternoon and welcome to Roku's Financial Results Conference Call for the Second Quarter ended June 30, 2018.

I'm pleased to be joined on the call today with Anthony Wood, Roku's Founder and CEO; Steve Louden, our CFO; and Scott Rosenberg, the GM of our Platform business, who will be available for Q&A.

Please be sure to review our shareholder letter, which contains more detail than what we will cover in the introductory remarks.

The following discussion, including responses to your questions, reflects management's views as of today, August 8, 2018 only, and we do not undertake any obligation to update or revise this information.

Some of the statements made on today's call are forward-looking and are based on our current expectations, forecasts and assumptions and involve risks and uncertainties.

These statements include, but are not limited to, statements regarding the future performance of Roku, including expected financial results for the third quarter and full year 2018 and the future growth of our business.

Our actual results may differ materially from those discussed on this call for a variety of reasons.

Please refer to today's shareholder letter and the company's filings with the SEC for information about factors which could cause our actual results to differ materially from these forward-looking statements.

You will find reconciliations to non-GAAP measures to the most comparable measures discussed today in our shareholder letter, which is posted on the company's Investor Relations website at ir.roku.com.

I would encourage you to periodically visit our IR website for important content.

Finally, unless otherwise stated, all comparisons on this call will be against our results for the comparable period in 2017.

Now I'd like to turn it over to Anthony.

Thank you, James, and thanks, everyone, for joining our second quarter earnings call.

The strong momentum we saw entering 2018 continued this quarter as we expanded our reach to 22 million active accounts, up 46%.

ARPU was up 48% year-over-year to a record high as per customer revenue continued strong growth.

We are pleased with this growth but know these are still early days as consumers, content providers and advertisers continue to make the transition to streaming.

The Roku Channel continues to be an area of focus and growth for us.

Our Roku Channel strategy is to focus on free long-form content, expand content categories, extend to platforms beyond Roku OS and broaden into new geographies.

For example, we recently added news to The Roku Channel and we recently announced availability in Canada.

Today, we launched The Roku Channel for the web, allowing anyone to stream free movies and TV shows.

And we also released The Roku Channel as an app on select Smart Samsung TVs.

Another important announcement in the quarter was the launch of our new Roku TV Wireless Speakers.

These are specifically designed for Roku TVs and use the Roku Connect wireless protocol.

These speakers dramatically increase how easy it is to improve the sound quality on a Roku TV.

This makes Roku TV more appealing to consumers, which should increase loyalty and engagement.

On the advertising front, we are making our targeted capabilities in technology more accessible to content publishers and advertisers through our new programmatic Audience Marketplace.

This is an exciting time to be in the streaming business.

The massive TV ecosystem is moving to modern platforms with streaming at the center of a more dynamic and innovative approach to content distribution.

At Roku, we are determined to deliver enormous benefit to consumers and to help content publishers and advertisers thrive on our platform.

Before opening the line up to questions, I'll turn it over to Steve for brief comments on our results and outlook.

Thanks, Anthony.

We had a particularly strong quarter, which is turning 2018 into another great year for Roku.

Our active account growth of 46% year-over-year came from the strength in both players and Roku TVs.

Please see our shareholder letter for the full financial details from the quarter.

But I'll highlight a few items before turning to comments on our outlook.

Total Q2 revenue increased 57% year-over-year to $156.8 million, with Platform revenue nearly doubling again and representing 58% of total revenue.

Monetization of our platform continues to be driven by strong advertising growth, which is the largest and fastest-growing part of Roku.

But we also saw very strong content distribution revenue growth this quarter.

Player revenue growth of 24% was particularly strong this quarter, with robust demand for streaming players across both our retail and partner channels.

And we saw less impact from discounting or mix shift to low-price players compared to last year.

Player units were up 22% year-over-year and ASPs were up 2%.

As we have said in the past, Player revenue can be lumpy based on a variety of factors, including timing of retail shipments, partner promotional campaigns and supply chain and inventory levels.

Heading into Q3, we are comping against a very strong Q3 last year.

And based on visibility we have today, we expect Player revenue to be roughly flat sequentially and year-over-year.

Q4 is seasonally our strongest quarter for players, and we anticipate delivering modest positive year-over-year growth.

Our key financial performance metric is gross profit, which was up 107% year-over-year this quarter to a record $77.8 million.

While the biggest driver was Platform gross profit growth of 84% year-over-year, Player gross profit benefited from lower COGS from the release of accruals of $8.9 million related to potential IP licensing liabilities that have not materialized and management now believes will not materialize.

Excluding these accrual releases, which did not impact revenue, total gross profit was up 83% year-over-year and gross margin expanded 6 percentage points year-over-year to 44%.

We continue to invest in our strategic initiatives, primarily via increased headcount, resulting in year-over-year OpEx growth of 53% to $78 million.

Adjusted EBITDA came in well ahead of our outlook at positive $7.1 million in Q2 based on strong overall results and the benefit from IP licensing accrual reversals.

In the new year, we adopted the new revenue accounting standard, ASC 606, details of which are disclosed in our first quarter 10-Q, which we filed in May 2018.

In the income statement for this quarter, revenue and gross profit under ASC 606 were roughly $3.1 million and $0.8 million higher than they would have been under ASC 605, respectively.

Most of the impact was in our Platform segment related to the gross up of both revenue and cost of goods sold for inventory split ad impressions.

The difference between 605 and 606 will continue to be highly volatile in the back half depending on a variety of factors such as timing and terms of contract signings or modification, mix of ad inventory and timing of delivery of obligations under existing contracts.

Based on what we have reported year-to-date and our visibility into the back half, we now expect the overall difference between 606 and 605 for the year to be positive $5 million to $10 million on revenue and roughly neutral on gross profit.

With that brief overview, let me turn to our outlook.

Based on our strong performance year-to-date and what we know as of today about account growth, engagement and monetization trends, we are again raising our full year outlook.

Our updated full year outlook increases to 40% revenue growth and 61% gross profit growth at the midpoint, up from prior growth rates of 36% and 49%, respectively, when we provided outlook in May and 31% and 43% growth in our February outlook.

Consistent with what we have said in the past, we plan to reinvest gross profit upside back into R&D and sales and marketing to fuel continued growth and innovation.

And the effect of these investments, which is primarily headcount related, is expected to show up in 2019 and beyond.

Based on the strength of the first half of 2018, we now expect positive adjusted EBITDA for the full year up from, at or near breakeven previously.

As you may have seen in recent 8-K filings, we signed a new lease agreement that will significantly expand our real estate footprint over the next few years and provide us with capacity to grow.

We expect this to add incremental expense in CapEx in 2019 and '20.

Our goal continues to be to manage the business at roughly breakeven during this period of market expansion, and we will provide more detailed outlook for 2019 in our Q4 earnings call in February.

For Q3, our outlook for year-over-year revenue growth of 35% at the midpoint factors in a roughly flat Player revenue growth and modest slowdown in Q3 Platform revenue growth, primarily due to tough comps in the prior year when Platform grew 137% year-over-year.

Continued mix shift to video advertising and seasonality in Player margins is reflected in our outlook for a year-over-year total gross profit growth of 47% at the midpoint and nearly 4 percentage points of margin expansion.

On the expense side, we are adding talent at a rapid pace, which factors into our outlook for a modest adjusted EBITDA loss in Q3 before rebounding to positive adjusted EBITDA in our seasonally strong Q4.

Overall, the fundamentals of our business are strong, and we continue to see plenty of opportunities to reinvest in our business to solidify our long-term growth potential.

Thank you for your continued interest in Roku.

And with that, let's turn the call over for questions.

Operator?

(Operator Instructions) Our first question comes from Evan Wingren with KeyBanc Capital Markets.

Just wanted to ask about The Roku Channel launching for free on all devices.

Obviously, it's very early.

But is there any way you can give us a sense for how you think about the longer-term opportunity with this announcement in terms of driving engagement, new accounts and monetization?

And then just a follow-up to that would be, is the content set that you currently have for The Roku Channel available?

Or will there be incremental investment necessary for content or marketing?

Yes, let me start.

This is Anthony, I'll start and maybe Scott can add something.

Just overall, our strategy, just to recap our Roku Channel strategy, it's free long-form content.

It's an owned and operated service.

Our goal is to keep expanding reach.

So one way we're going to do that is expanding off-platform.

So we announced, for example, our web launch today.

We plan to expand to more geographic regions.

So for example, we recently announced that we're entering Canada.

And then we plan to keep adding more content categories, which will be long-form content.

So for example, we added news recently.

So we're making good progress on that strategy.

And I'll let Scott answer the question around the economics.

Sure.

And just to add -- this is Scott here -- just to add to Anthony's comment.

And by way of background, The Roku Channel launched last September.

We've had huge success with the channel on our platform in the time since.

The channel is already a top 5 reach channel in terms of the number of users or accounts that it reaches in a given month.

And it really validates the original thesis behind the channel, which is that there is this great thirst amongst OTT consumers for free content.

So the announcements that you saw today are really an extension of that thesis and taking that experience off-platform where we can amplify the impact that we have for our content partners, extend reach for our advertisers and ultimately meet new users who may not yet have a Roku.

In terms of your question, Evan, about content, the strategy is to take the same types of content off-platform and give users the same experience.

And as I said, with our content partners, the dialogue is really around how can we expand the number of people and ultimately the money that they earn in partnering with us to provide free ad supported experiences like The Roku Channel.

Our next question comes from Jason Helfstein with Oppenheimer.

A few questions.

So our work suggests that Roku Channel advertising could be as high as 15% of your total advertising.

Without commenting if that's right or wrong, how do you think about the margin of Roku Channel advertising relative to the rest of the ad business?

Second question, is it possible to get an update on the Samsung partnership?

Potential timing?

Any color?

Will this be older sets?

Newer sets?

Any help will be helpful.

And then lastly, Steve, on this $8.9 million benefit, would you agree that the right way really is to strip it out both in the quarter and in the guide?

And obviously, that's just onetime, it really should be out of the compares for 2019?

Jason, great questions.

With regards to your first question about the contribution of The Roku Channel, I'm not going to disclose the percent today.

But I will say it's already a material contributor to our ad sale, not just in terms of raw volume but the opportunity for us to create new ad experiences because it's a wholly controlled experience.

So for example, we are regularly now crafting sponsorships that live within The Roku Channel.

These are unique experiences that allow brands to message directly to our users.

With regards to your question about Samsung, we've already been active in sponsorship activity on the Samsung platform.

And with today's launch, The Roku Channel going live, we'll be extending The Roku Channel experience to Samsung sets.

These are select Samsung TVs.

But generally, the newer models, the Tizen models, as Samsung calls them.

Yes, Jason, it's Steve.

Just on the $8.9 million for the IP licensing accrual release, yes, that's a process that we do regularly.

We review all our accruals and contingencies.

And then we assess the likelihood for them to materialize.

In this quarter, it was a particularly large number.

So I think it's appropriate for you to kind of look at it and back that out as an unusually big accrual release versus kind of standard, what we experience in any given quarter.

Our next question comes from Ben Swinburne with Morgan Stanley.

Two questions.

Anthony, could you talk a little bit about the sort of TV OS landscape and a little bit about your expectations for signing new partners and landing new agreements as we look out over the next couple of years?

And in particular, I'd be curious why you think some OEMs use Roku OS for some SKUs but not all of them and sort of what the opportunity might be to take that to sort of the kind of relationship you have with TCL?

And then just for Scott, the Roku audience network, I know it's new, but can you give us any sort of qualitative commentary on how your publishing partners have responded to that, how they might be using it?

And any help on thinking about the revenue model for Roku given, I think, it's sort of a data services business rather than something where you're the principal seller of ad time.

Any help there would be great.

Ben, so on TVs -- this is Anthony.

On TVs, I would say at a high level, it's progressing as we expected.

Our thesis is that all TV OEMs will switch to a licensed operating system just like all phone companies, phone makers, either licensed Android or they're Apple.

That same dynamic is happening in TVs.

And we're by far the #1 licensor of OS with the TV manufacturers.

1 in 4 Smart TVs in the first half of the year were licensed Roku TVs.

So it's going well.

And in terms of the dynamics around kind of what's coming next, I think you'll continue to see us adding more OEMs and adding more SKUs at retailers.

I think that will continue.

The -- why do OEMs -- some OEMs not carry 100% Roku SKUs?

Because they're still, I think, learning and finding their way and still learning that Roku SKUs sell better.

So they're not necessarily all in at once.

But we generally deliver excellent results, working with partners, and they generally increase the SKU count as their business with us progresses.

So the TV business, I think, is doing well.

Our biggest competitor in that business is kind of inertia with homegrown OSs.

But as companies that continue to ship their own operating systems continue to lose market share, then I think that will drive everyone to eventually license an OS.

Ben, with regards to your question about the recently announced Roku Audience Marketplace, what I'd provide by way of background is that from the very beginning, our goal with advertising at Roku has been to elevate, to evolve the state of advertising, to make TV advertising natively targetable, interactive, much more highly measured like any digital media that a modern marketer expects.

As you know, we run a robust and very fast-growing ad sales business of our own.

But a majority of ad inventory flowing through our platform is still sold by publishers on our platform.

And so a consistent request from the beginning from our publishers who we serve in many ways has been to help empower them with some of the same capabilities so that they themselves can command higher CPMs and compete in this evolving TV world.

So the marketplace is really about deploying our ad tech and our data so that premium publishers like FOX, Viacom and Turner can sell addressable, interactive, high-value campaigns, leveraging the capabilities that we build at Roku into our operating system.

Our next question comes from Laura Martin with Needham & Company.

Maybe a couple.

So I think first, Scott, we just went through our first upfront, and we got the final numbers today that the upfront for everybody was up 5%.

But I'm interested in what your learnings were from being in the TV upfront this year and whether you can give us more granularity on your process.

And anything you're willing to share on the upfront?

Second, probably Anthony.

Apple is saying that the China tariffs are not affecting them.

Can you just let us know if any of these TVs are on any of these lists so far and whether you think the Chinese tariffs will affect any of your deals with Chinese TV manufacturers?

And then my last question is normally you give us or for the last couple of quarters, you've given us of your added users what -- like you've said, half are Roku TV.

I assume that this huge overdelivery on the Player user side means that that was lower, meaning units accounted for more.

But could you sort of size for us how much the units added to this quarter versus Roku TVs on the user side?

That would be great.

Laura, this is Anthony.

I'll go first because that's a pretty straightforward question.

So in terms of the tariffs, this time, we are not seeing any financial impact from the tariffs.

They don't appear to affect any of our products.

But it's something that's changing and we're monitoring it carefully.

So we'll keep an eye on it.

Laura, with regards to your question about the upfronts, I don't have any specific thing to mention here except to say that they went very well.

This is really the first time in our ad sales business history where we were participating in the upfront planning window.

And I think the big takeaway for us is this is really the first year in which advertisers are proactively planning for OTT as part of their annual TV spending plan.

Roku now uniquely delivers 10% of adults 18 to 34.

So if you're planning against that critical demo, you've got to include OTT in your planning process.

And we were very active across town in equipping these teams with the tools to think about the portion of their budgets that should be spent against OTT.

So I would characterize our activity in the upfront as very successful.

Anthony, do you want to take the question?

Steve, do you want to take that?

Sure, yes.

Laura, I'll do the users, yes.

So yes, in terms of the mix between licensing and Player, Player's had a particularly strong quarter.

Yes, it certainly can be lumpy.

But given that, the mix for licensing versus Player kind of went slightly under 50%.

But we don't think that's a consistent trend.

And so we still think the majority kind of going forward will be new accounts will be generated from licensed sources.

Our next question comes from Mark May with Citi.

I had 2 if I could.

First on players.

Given the upside in Player revenue, can you talk about if the Player channel moved back into kind of a greater than 50% position in terms of source of new active accounts this quarter and kind of how you're thinking about that?

And secondly, you talked about the mix shift in the ad revenues to channels where your gross margins are closer to 50%.

As it relates to The Roku Channel since it's O&O, is it fair to say that that is one of your higher-margin channels and much higher than that 50%?

Just trying to get a sense of how that's impacting the Platform margins.

Mark, this is Steve.

You may not have heard, but as part of the answer to the last question, yes, I did mention that Players had a particularly strong quarter, both in terms of retailers -- retailer demand and content promotion -- partner promotion.

That did drive the licensing to Player new account percentage down where licensing was a little under 50%.

But we don't think that's a consistent trend going forward, more of a blip just given how strong the Player business was.

The Player business can be lumpy.

And so yes, that's something that we wouldn't recommend extrapolating in our -- as we mentioned in our remarks, that we think the Player business kind of on a revenue basis will be roughly flat sequentially in year-over-year in Q3 and then a modest growth year-over-year in Q4.

In terms of the mix shift in ad revenues, I would really look at it in terms of within the Platform segment, the video advertising business on average is roughly a 50% business or slightly better.

And then other pieces of the Platform in terms of audience development or the content distribution side, those tend to be much higher margins.

So I wouldn't necessarily specify TRC versus non-TRC video ads.

It's more of how the video ad business overall runs.

Mark, this is Scott.

I would just add to that that while our margins are healthy in TRC it is also an incredibly strategic channel for us for the reasons I mentioned earlier, it's a channel that we fully control.

We can create new ad products and new experiences.

It's a vehicle for us to go off-platform.

And so while we certainly are -- care about the margins and achieve healthy margins in the channel, it's also got incredible strategic value to us as a platform.

Our next question comes from Ralph Schackart with William Blair.

Two questions if I could.

First, just curious what drove the reacceleration or modest reacceleration in streamed hours?

Is it just general market continuing to move into OTT?

Or did The Roku Channel have sort of a pronounced impact there?

And then two, Steve, would you mind just clarifying what you talked about for EBITDA margins?

I know you talked about increased OpEx for the facility and reinvestments.

But did you say that you're potentially going to look to run the business at breakeven in 2019?

Yes.

Rob, so this is Steve.

Just in terms of the streaming hours, the streaming hours in the active accounts have been growing in kind of a similar range.

And they can bounce around each quarter.

Active accounts were up 46% and the streaming hours were up 57%.

So yes, I wouldn't note any material change in terms of acceleration of streaming hours per se.

It's been relatively consistent relative to the growth rate of the active accounts.

So it's been growing faster than active accounts consistently, which speaks to increased engagement on the platform.

But nothing more significant than that.

In terms of the EBITDA for the facility, as we mentioned, we signed a new headquarters lease.

We think that will have incremental OpEx and CapEx.

Frankly, that's really business as usual as we've been continuing to grow and our lease will be up soon and we're running out of space.

In terms of running at breakeven in 2019, I mean, that's been a stated goal before.

So just reaffirming that.

Certainly, we will get into more specifics on the 2019 guidance when we get to the February call.

But that's kind of been a consistent plan, is we think there's tons of growth opportunity.

And we're still early days in the transition to streaming, and we have a lot of great investments.

So we're going to continue to manage the business to invest in these growth opportunities as the gross profit growth continues.

Our next question comes from Thomas Forte with D.A. Davidson.

So I had 2 questions.

The first is with -- I think it was the mid-May launch of live news.

Can you talk about how user engagement is with that content versus the other content on the platform?

And then second, now that you have additional hardware SKUs with the speakers, can you tell us what your strategy is on profitability?

For example, do you intend to sell the speakers at breakeven, similar to your other hardware, the players?

This is Anthony.

I'll take that.

So in terms of news, news is doing well on The Roku Channel.

We haven't broken out the percentage.

But it's meeting our expectations and doing well and adding to engagement.

Engagement continues to grow on The Roku Channel.

It moved up to a top 5 channel in reach.

So we're pleased with the progress.

Just the strategy, of course, like I said before, is to keep adding more content sources.

So we added news, and we're going to be adding more types of content as well, primarily long form, and of course, free content, and expanding reach with new off-platform distribution and more geographies.

In terms of the speakers, the -- I'm really excited about our new speakers.

They're awesome.

I'm using them at home and really enjoying them.

They sound excellent.

But it's not -- for us, the reason we're doing wireless speakers is it's not really about generating hardware revenue.

It's about making the Roku TV platform an even better TV platform, right?

So we believe that the Roku TV OS and licensing platform that we license is the best Smart TV platform in the industry.

But we think we can make it better.

And one of the things -- one of the ways we can make it better is making it super easy, bringing ease of use to a new level when a customer wants to enhance the audio of their TV.

I mean, TVs are getting thinner.

Results of that just from physics is sound quality gets worse.

So people want to upgrade the audio quality of their TVs.

They want to -- they do that today with home theater systems or sound bars.

And those systems can be expensive or -- and they're certainly not easy to use or connect.

And so with the Roku TV Wireless Speakers, you just plug the speakers in, they pair to the TV and now you've got better sound on your TV.

It's just a much, much better experience and they sound great.

So for us, it's about making the Roku TV platform even better, more appealing to customers, and we think that will result in more loyalty to the Roku platform.

Our next question comes from Mark Mahaney with RBC Capital Markets.

I wanted to just ask about outreach efforts with advertisers or any color you can give us on other verticals, particular advertisers you'd call out that have really kind of -- are engaging a lot more with Roku, a lot more with OTT advertising opportunities.

Just color on that side of the business and then how many people you have that are trying to go out to advertising and then any thoughts, final thing on that on the use -- the application of programmatic as an advertising solution.

Mark, Scott here.

With regards to the kinds of advertisers we service, at the end of the day, we're a TV ad platform.

And so we're seeing activity across every vertical that's active in TV advertising, whether that's financial services or CPG or pharma or auto.

If we over-index, it'd be in entertainment because at the end of the day, we're an entertainment platform.

We're doing business with well over 50% of the top 200 national advertisers in AdNews, and every quarter, we crack new accounts.

Most of that top 200 now are in renewal phases with us.

With regards to how we go about securing that business, we're a natively digital ad stack.

Programmatic is core to our platform.

The Audience Marketplace, which we spoke about a little earlier on this call, is programmatic at its core.

Data-driven selling, programmatic-based techniques are, in our opinion, a central port -- a central component of the future of the way TV advertising is going to be traded.

But it's also true that the vast majority of the $70 billion that's spent in TV advertising today is bought and sold in a more traditional fashion.

And so we do have a team that services that aspect of the business as well.

And to Laura Martin's question earlier also about our participation in the upfront, that's a central way in which we go secure TV ad dollars as well.

Our next question comes from Paul Golding with Macquarie Capital.

So starting off with the Featured Free functionality in the Platform, I was wondering if you could speak to whether this is more of a display ad opportunity for you guys.

This seems like these are a pretty premium services that are going to be fed through it.

So I'm not sure if this is an inventory opportunity as well or just simply a user interface opportunity for engagement.

And then a quick follow-up on the tariffs question earlier.

I was wondering if there was anything you could speak to around suppliers and diversification of geography of supply of OS TVs and players or any color around that.

And then my last question is around Roku Pay and whether there's anything to be said right now around new developments or functionality for easing the SVOD or OTT subscription payment processing through that?

This is Anthony.

Let me just talk a little bit about Featured Free.

So one of the things we believe about the Roku platform is it's the best platform for free content.

Obviously, all the pay services are available and they're popular.

But people want value when they switch to streaming, and that means people like free content.

And of course, our ad business is the core driver of our gross profit.

And so we're big fans of free, ad-supported content as well.

The Featured Free feature is the new main menu options that aggregates all the free content -- not all of it but a lot of the free content that's available on Roku and makes it easy for customers to find.

There's lots of free content on Roku.

But there's also 5,000 channels on Roku and it's -- a viewer might not know where to go to look for free content.

So the primary goal is to aggregate that into one spot from a UI experience, make it easy for consumers to find it.

If they find something they want to watch, they click on it and then it deep links into that app.

So it runs the app and then launches that channel.

So it's a combination of editorial -- it's an editorial-based feature.

So we decide what goes into Featured Free, and we obviously want to help consumers.

I mean, we want to put good content in there, but we also want content that we have good economic relationships in there with as well.

So it's kind of a combination there.

In terms of tariffs, I don't have much more to say about tariffs except that they don't currently affect us.

I mean, our TVs, we have a lot of different TV manufacturers and they're not all built in China.

We have TVs built in different places around the world as well.

And then I'll let Scott talk about Roku Pay.

Roku Pay, Paul, Roku Pay remains a major area of investment for us.

Our view is that it removes the friction for consumers to sign up for services, buy movies on our platform.

And it's also great service for our content partners who are interested in acquiring users on our platform.

And so it remains a key area of investment on the technology and talent side of things and really central to our subscription business and also our audience development business where our publishers basically buy advertising from us to drive people into that pay funnel.

(Operator Instructions) Our next question comes from Vasily Karasyov with Cannonball Research.

I was wondering if we could drill into the video advertising revenue in the quarter.

If you could help us size up the -- either the size of the video revenue or year-on-year growth and what drivers were most important, volume versus pricing.

And also, would you be willing to tell us what percentage of streaming hours were actually ad supported i.e., monetizable for you excluding -- that excludes SVOD and YouTube?

So any color around those variables would be super helpful.

Vasily, this is Scott here.

We have not broken out video ad revenue specifically.

But what I'll say is that the ad business runs about -- it floats up and down about 2/3 of our Platform revenues.

And the video ad portion of that is our largest ad business.

Your question with regards to volume or pricing, pricing remains strong and growing.

The big driver of our growth is really volume and selling into new accounts and getting existing advertisers to spend more with us.

We also don't disclose the exact portion of our viewership that's AVOD.

I'll just say there that it -- as you can see by our investment in TRC and Featured Free, that ad-supported viewing remains one of our strongest growing segments.

It's really a fertile area of investment for us and a big part of how we're making such progress on engagement and monetization on the platform.

Our next question comes from Alan Gould with Loop Capital.

I've got 2 questions, please.

First, what kind of response are you getting from the content producers that are supplying programming to Roku or The Roku Channel as the channel is getting more successful?

And also, do you have the rights to take the programming cross-platforms and cross-geographies or you just have different -- you have different programs on The Roku Channel depending on the geography?

And my second question is I would assume we're getting close to the shipments of the new TVs for the holiday season.

I believe you've got about 25% market share of TVs are now Roku powered.

Where do you think that's going to look at -- what do you think that market share will be at the holiday season?

Scott, do you want to take the TRC?

And I'll take the TV question.

Yes, the response, Alan, from content partners in their partnership with us on TRC has been great.

The important thing to know is that there's just mountains and mountains of IP out there of great programming that's being undermonetized.

And The Roku Channel, because of its success, has become a really powerful vehicle for content partners to reach consumers and monetize in our platform.

Our success there is a big part of how we are now exporting TRC to other platforms.

Our content partners want to partner with us in that endeavor.

You had a question about geographies.

Yes, I mean, as you go into other geographies, the licensing teams or paradigms tend to shift.

But within the U.S., our cross-platform deal tends to be a singular deal.

And regarding TVs, the TV business is really doing well and we're growing market share there.

Other than the outlook we've given, we don't have any particular outlook for the second half of the year.

But I would say that just our TVs are getting great reviews.

The TCL 6 Series is an awesome TV, just won CNET Editors' Choice.

Roku TVs are the top selling TVs on amazon.com that our fundamental thesis that all TV manufacturers will license an OS has not changed.

We believe that to be the case and that the -- if you -- our market share in the first half with 1 in 4 Smart TVs in the U.S, that means 3 in 4 are not Roku TVs.

And those are almost all what we would call homegrown operating systems.

And I do believe that the dynamic of a Roku TV having a better cost structure and much more content and a better user experience is going to result -- will -- is resulting in more and more OEMs switching to a licensed OS, of which Roku is the #1 licensor of OSs in the U.S., and we expect to remain in that position.

So I think the market share is going to continue to grow as TV manufacturers switch to licensed OSs.

And our next question comes from Rich Greenfield with BTIG.

I've got a couple.

First, when I see on The Roku Channel things like Cheddar programming or People TV, I assume that those are channels that are content that is more than willing to benefit from the advertising opportunity that Roku presents given the amount of usage that you're getting off of that channel.

But when I see things like The Matrix Trilogy, which is kind of the highlight today on The Roku Channel, are you buying that content or essentially paying upfront for that content from Warner Bros.?

Like how does that work when we're seeing kind of really high-profile movie content showing up front and center on The Roku Channel?

Are the economics different?

And I think essentially tied to the last question that Alan asked.

Like do you have access to The Roku Channel up in Canada and across all devices?

Or does it vary based on platform and country, et cetera?

And then I have a quick follow-up.

Rich, this is Anthony.

I'll let Steve, answer -- Scott, sorry, answer your question on The Roku Channel.

But first, I just wanted to note that not a single person on our call has congratulated me on our quarter today.

So I'm not sure what's going on.

I was hoping it would be Rich.

That was amazing.

Yes.

But anyway...

Great quarter, Anthony.

Yes, thank you.

Rich, the answer is it's a mix of bottles.

It's evolving.

It's still early days.

Certainly that's the case for international.

I mean, we really just launched TRC in another geography in Canada as part of a new push abroad for us to take some of the same ad capabilities that we've built here in the U.S. to other geographies.

Our economic models are a mix of licensing rev shares.

And then many of our content partners with apps on our platform are now also syndicating content into The Roku Channel.

So they have like a Cheddar, they have...

Like Tubi TV as well, things like that?

Yes.

Well, since you brought up Cheddar, there's a Cheddar app on Roku, but then there's a Cheddar livestream within The Roku Channel.

And our view is that at the end of the day, for IP owners, what's going to matter to them is traffic and monetization and that partnership with us around a property like The Roku Channel is a way to supercharge the audience and earnings that they see on the platform.

And so we should assume that there is some amount of capital that you're committing towards actual licensing of content, a minimal amount but some level of capital?

This is Anthony.

We do directly license some content.

But I think like, for example, The Matrix, titles like that show up on The Roku Channel, I think -- well, I know it's just a reflection of the increasing scale of The Roku Channel and the ability to operate with the same economic model that offer more popular content.

We've got a little less than a year under our belt.

We're getting more and more confident in predicting what users are going to consume, what's going to resonate with them.

We're getting more and more expert at not just at prediction but actually promoting and driving traffic around it, and that's why you'll see us get bolder with great titles like The Matrix Trilogy.

And then just a quick follow-up or a separate question.

So one of the most interesting apps that I've seen launch over the last few years has been something called Locast, which is launched on Android, basically is providing free over-the-air television in New York and Dallas.

They don't have a Roku App yet, but it would seem like a great way for you to offer on Roku devices and potentially even on The Roku Channel, a wide array of high-quality premium content.

Is that something you're interested in and looking at other ways?

I mean, I know Aereo, I think, had a channel on Roku at one point before that was shut down.

But how do you think about kind of new forms of over-the-air television making its way onto your platform?

Most of what I know about Locast is from reading your note on it, Rich.

But I won't comment on future apps coming onto the platform.

We do remain an open platform, and I think we've demonstrated interest in all kinds of programming coming onto the platform.

I don't think we're in a position to comment specifically on their strategy or its merits.

This is Anthony.

There's no reason Locast couldn't be on the Roku platform, and we're curious to see how it does.

Ladies and gentlemen, thank you for participating in the question-and-answer portion of today's call.

I would now like to turn the call over to Mr. Anthony Wood for any closing remarks.

Thanks.

I'd like to close by saying we are pleased with this quarter's results and the positive outlook for the rest of 2018.

We're making great strides in growing active accounts, engaging avid TV viewers and helping content publishers and brands reach them.

I'm particularly excited about our rate of innovation.

This quarter alone, we introduced the Audience Marketplace, Featured Free, Roku TV Wireless Speakers and expanded The Roku Channel.

Thanks for all your support and for joining today's call, and I look forward to seeing you again next quarter.

Happy streaming.

Ladies and gentlemen, thank you for participating in today's conference.

This does conclude the program.

You may all disconnect.

And have a wonderful day.