Roku Inc (ROKU) 2018 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Third Quarter of 2018 Roku Earnings Conference Call.

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

I'd now like to hand the conference over to James Samford, Head of Investor Relations.

Please go ahead.

Thank you, and good afternoon, and welcome to Roku's Financial Results Conference Call for the Third Quarter ended September 30, 2018.

I'm pleased to be joined on the call 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 much more detail than what we will be covering in the introductory remarks.

The following discussion, including responses to your questions, reflects management's views as of today, November 7, 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 future performance of Roku, including expected financial results for the fourth quarter and full year 2018, and the future growth of our business.

Our actual results may differ materially from those discussed on the 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 of our 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, and I 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 of 2017.

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

Thank you, James, and thanks, everyone, for joining today's call.

We had another great quarter with outstanding results.

The transition to streaming is creating huge opportunities for Roku.

We are executing well, and the fundamentals of our business are strong.

Cord-cutting continues to alter the TV landscape.

We believe the trend will accelerate as more consumers understand the choice and value that streaming offers.

And as traditional pay-TV bundles shrink, more content will move to streaming.

The scale of our customer base now rivals large traditional U.S. cable and satellite companies, and while they're losing video subscribers, we continue to grow quickly.

And I am encouraged by the high level of engagement from our nearly 24 million active accounts.

In our shareholder letter, we set out a number of ways that OTT is a superior solution for advertisers.

For example, this quarter, we announced our Measurement Partner Program.

Our ability to demonstrate effectiveness is unlocking larger and larger budgets.

Already around 2/3 of the Ad Age top 200 advertisers have worked with Roku.

The Roku Channel celebrated its first anniversary this quarter.

We launched it only a year ago, and we've made huge progress growing its reach and engagement, and it's now a meaningful part of our advertising growth strategy.

Roku has a unique position in the industry, and we continue to execute well in the competitive marketplace.

The opportunity before us is large, and it's a great time to be in the streaming business.

Now I will turn it over to Steve for a brief comment on our results and outlook.

Thanks, Anthony.

Our strong third quarter results have put us on track for another record year.

Active account growth of 43% year-over-year and streaming hour growth of 63% year-over-year helped deliver another quarter above our outlook.

Please see our shareholder letter for the full financial details from the quarter, but I'll highlight a few items and provide some color on Q4 outlook.

Total Q3 revenue increased 39% year-over-year to $173.4 million, with Platform revenue up 74% to a milestone of $100 million and representing 58% of total revenue.

There are several key components to our Platform business, and I'd highlight that video ad sales, the largest part of the Platform, more than doubled year-over-year again this quarter.

We also saw very strong results from the audience development business, which is closely linked to our content distribution business since many of our content partners take advantage of our marketing tools to attract audiences to their services.

Player revenue growth of 9% was ahead of the outlook we provided with another strong quarter from retail channels.

Player units were up 15% year-over-year, and ASPs were down 5% as we continue to see strong demand for sub-$50 players, particularly our new 4K Premiere+, which is priced at an incredible $49.99 at retail.

We tightened our Q4 revenue outlook slightly, but as a reminder, Q4 is seasonally our strongest quarter and is very back end-loaded with the bulk of our revenues occurring between Black Friday and the end of the year.

So Q4 is still heavily dependent on how the holidays stack up, given the highly competitive retail environment.

Our key financial performance metric is gross profit, which was up 58% year-over-year this quarter to a record $79 million.

Gross margin was 45.6%, up 560 basis points year-over-year, slightly ahead of expectations due to strong audience development and solid Player gross profit upside in the quarter.

Q4 is more promotional for players, and the mix shift to video ads generally pulls Platform margins down from Q3 levels.

We expect to see that pattern again this quarter, with Platform gross margins down modestly sequentially and Player gross profit dipping to low to mid-single-digit margins.

We are investing in a wide range of growth opportunities for 2019 and beyond, so we continue to invest in attracting top talent to pursue them.

OpEx in the quarter grew 57% to $90.7 million, driven by a combination of continued rapid headcount growth and significantly higher stock-based comp and payroll taxes from stock option exercises.

Adjusted EBITDA came in at a positive $2 million in Q3, our first positive adjusted EBITDA Q3 ever, and well ahead of our outlook as a result of higher revenue and gross profit.

With that brief overview, let me turn to our outlook for the full year.

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 42% revenue growth and 63% gross profit growth at the midpoints, up from the prior growth rates of 40% and 60%, respectively, when we provided outlook in August.

As a reminder, we plan to reinvest gross profit upside back into R&D and sales and marketing to fuel continued growth and innovation, managing the business to roughly breakeven EBITDA during this period of market expansion.

However, based on the strength of the first 3 quarters of 2018, we expect to deliver between $21 million and $28 million in adjusted EBITDA for the full year, up from our prior estimate of $11 million to $23 million.

For Q4, our outlook is for year-over-year revenue growth of 38% at the midpoint, with Player and Platform revenue growth roughly in line with Q3 levels.

Continued mix shift to video advertising and seasonality in Player margins is reflected in our outlook for year-over-year total gross profit growth of roughly 41% at the midpoint.

While we expect to report positive EBITDA margins of roughly 6% in Q4, stock-based comp is expected to increase to roughly $15 million in the quarter as we see the full impact of RSU grants issued in Q3 to new and existing employees, which are expensed in the quarter that they are granted and as they vest.

We look forward to providing more color on 2019 when we report our full 2018 results in February.

Given the strength of the fundamentals of our business and our leadership position, we continue to see plenty of opportunity to reinvest our business to achieve our long-term growth potential.

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

Operator?

(Operator Instructions) Our first question comes from Mark Mahaney with RBC Capital Markets.

Two questions, one on the Roku Channel and one on the Roku everywhere strategy.

On the Roku Channel, any comments on improvements in either pricing or ad load versus the last couple of quarters and just talk about the forward growth outlook for The Roku Channel?

And then on this Roku everywhere strategy, just talk about traction you've seen for it so far.

How do we think about -- how should we think about the materiality of that, maybe not near term, but over the next course of the next year or 2?

Mark, Scott Rosenberg here.

Great question.

Roku Channel continues to hit on all cylinders.

We mentioned in the shareholder letter, it's a top-5 channel in terms of engagement.

It's grown faster than any channel in the history of the Platform.

It continues to be a very fertile area of investment for us in terms of putting new content into it.

We've added a bunch of news channels more recently.

We had a great night last night, for example, with the midterms.

The events of news drive a lot of engagement.

And so in general, we continue to put more wood behind that fire and drive the growth of The Roku Channel on Platform.

We think that value proposition of free has been proven strong on our Platform by the growth of The Roku Channel.

We do think that, that proposition extends off Roku as well.

We don't probably have anything more to say about off-Roku plans at this point, but we do think we've demonstrated how powerful that free proposition is with The Roku Channel.

Our next question comes from the line of Mark May with Citi.

This is Zach on for Mark.

First question, could you just provide us an update on some of your new initiatives that you announced last quarter, the Featured Free and The Roku Channel on the web, kind of how those are tracking relative to expectations?

And then secondly, last month, you announced a favorable ruling in Mexico to resume the sale of Roku devices there.

So how should we be thinking about that opportunity?

And then kind of taking a more broader picture, just how should we think about international expansion opportunities as we head into 2019?

This is Anthony.

I'll take the Mexico and international question, and then maybe Scott can talk a little bit about Featured Free and TRC.

Yes, we won -- just to recap, we've been handcuffed in Mexico for a while.

We won a court case, so now we're back in full force in Mexico.

So we're happy about that, and that will help our Mexico business.

In terms of international, the way we think about streaming is it's a global business.

It's an international opportunity.

We launched TRC in Canada.

TCL just launched Roku TVs in Canada.

We're in other countries.

But it is also a fact that we -- most of our active accounts are U.S. active accounts.

The domestic market is a large market for us.

And we believe there's a big opportunity internationally, but it's an area that we traditionally haven't focused on.

We are starting to focus on it, but we don't have anything new to announce there yet.

Mark, with regards to your question about new things that we launched in the quarter, as you mentioned, Featured Free was a feature that we launched.

This is yet another way, another cut for us on celebrating free across the platform.

It's been quite popular as a means to drive consumer awareness of free content that's available across the platform, just as is launching TRC on the web, on desktop, on Samsung.

These are all part of our broader thesis which has borne out in the last year of how important great free ad-supported programming is for consumers.

One other thing I'll mention about a new item in the quarter was we announced our Measurement Partner Program, which is a partnership across 11 different research companies, sort of a who's who in the measurement space, from Nielsen, comScore, Oracle, Kantar, Placed, these are partnerships that, in conjunction with our ad sales, allow us to prove just how much more effective an ad placed on Roku is relative to traditional linear television.

It's really -- it's a signal of our confidence and our transparency in proving to brands that they should be shifting their budgets to OTT.

Our next question comes from Laura Martin with Needham.

Great numbers and thanks for another beat-and-raise quarter.

So I was really intrigued.

I really liked the advertising section.

I was very intrigued, you said that you could measure effectiveness and return on investment of the ads, which has sort of been the Holy Grail, like you're combining digital and linear.

And I'm just wondering if you could give us any harder data points or just examples of that, because I don't really get how you can go end-to-end, which is the Holy Grail of what ROI is, on your ads.

That's one.

And then, Anthony, for you, this hardware number is much better than we had in our estimates.

And so I'd like to, like, put that into this bigger -- is Amazon, did it sort of shoot itself in the foot by only now being in Insignia brands and Best Buy.

And one of the reasons this hardware number over-delivered Player revenue is because you're basically -- is there a pivot going on towards Costco and Walmart, where you're over-delivering this Player there?

Do you see a mix shift where Amazon has hurt itself competitively by aligning with Best Buy?

Those are my 2 questions.

Laura, I'll -- let me tackle your question about ad effectiveness, and I'll share with you just a couple of stats before I get into some examples.

So 2/3 of the top 200 national advertisers have spent with us, 7 of the top 10 brands, 8 of the top 10 auto brands, 4 of the top 6 wireless brands.

We have made incredible progress in penetrating these accounts, convincing them of the value proposition of spending in OTT.

And one of the best ways we do that is by bringing research to the table.

In the last quarter, almost half of every ad impression that ran on our Platform was associated with some sort of research study in which we were showing back to the brand the ROI of their investment with Roku.

And because every ad that we serve on Roku can be measured on an individualized basis, we can tie out an ad exposure to a mid- or bottom funnel KPI that an advertiser cares about.

So just as an example, we mentioned it in the letter that with Carnival Cruises, we were able to directly correlate exposure to an ad on our Platform with a visit to their website.

With Jack in the Box and a partnership with Placed, which does location-based measurement, we were able to prove that we drove 160,000 incremental visits to Jack in the Box stores -- restaurants.

And perhaps, the most influential type of measurement that we're doing right now with TV advertisers is we're leveraging our ACR data to be able to show to an advertiser who they reached through their traditional linear investment and, more importantly, who they didn't reach and who they could be reaching if they're investing in OTT.

So on a pre-campaign basis, we give them an estimate of the incremental TV viewers they can reach by spending with Roku.

And then on a post-campaign basis, we prove it.

And we've done dozens of those types of incremental reach studies with brands like Dell, Home Depot, Panera, Amica, Duracell.

It's one of the most attractive aspects for a TV advertising team when they're investing with us.

Ultimately, what we think helps us win in this space is providing a superior ad solution.

We think the TV ad product that we're selling is the future of TV advertising.

Laura, this is Anthony.

Before I get on -- before I discuss hardware and Best Buy for a second, I just want to add to the measurement and advertising question.

We -- 10% of 18- to 34-year-olds watch their television on Roku.

And so if you're an advertiser and you want to target a video ad at them, Roku is the place you have to go to reach them.

But 10% of the budgets have not moved over to Roku yet or to streaming.

And the biggest obstacle there is just the way advertisers are used to buying ads, just their traditional spending patterns.

And so by using measurement and the ROI analysis, we can help move that along by showing advertisers this new way of advertising really, really works.

And so 10% of viewers are on Roku in that demographic, but the budgets haven't moved yet, but they will, and it's just a question of time.

So in terms of your question on hardware and Best Buy, yes, Player sales continue to do well.

Why is that?

Well, I think it's a combination of factors.

One is we build great products.

Our focus on value, ease-of-use, content really pays off.

For example, we recently won the CNET Editor's Choice award for the Roku Streaming Stick+.

So that's one reason.

Another is streaming -- cord-cutting is really happening.

I mean, traditional pay-TV operators lost 1 million subscribers in the quarter, 2 million year-to-date, with 1 million in the quarter alone, whereas Roku added 1.8 million active accounts in Q3.

So cord-cutting is happening, people are streaming more, and we make great products at a great value.

Our business model is to grow our active accounts by licensing our Roku TV Platform to TV companies, and also selling players.

We also work with operators.

In terms of TVs, you mentioned Best Buy.

Best Buy signed a deal with Amazon, but we expect the number of Roku TVs to be sold at Best Buy this year to actually increase versus last year.

So Best Buy is an important partner for us.

We sell a lot of TVs there.

The number of TVs we sell there is growing.

And of course, we can -- our deals allow us to sell anywhere, not just at Best Buy.

So that's great.

And then the result of all that is that 1 in 4 TVs so far -- sorry, 1 in 4 smart TVs sold so far this year in the United States are Roku TVs.

So it's a business that's working well for us.

Our next question comes from Ben Swinburne with Morgan Stanley.

Maybe for Scott, you know if you look at the growth of the Platform business, 75% this quarter, expected for next quarter, what's the limiting factor for that growth, because obviously, you guys are doing lots of things for advertisers that are unique and differentiated?

Is it access to inventory?

Is it advertiser demand for inventory?

Or is it hours?

I'm just curious, if we think about the sort of levers of growth, what is the limiting factor to drive that faster?

Ben, this is Steve.

Let me just talk to you a little bit about overall Platform trends in the part for that, and then Scott can add some color on top of that.

So Q3 was a very strong quarter overall for the business, and Platform had great growth at 74% year-over-year.

Important to note that it hit a great milestone of $100 million in revenue for the quarter, which is the first time that's happened.

In looking into Platform, there are 3 major components: ads; content distribution; and licensing.

And so I think the most important takeaway of the growth trajectory there is that the ad business itself, which is the majority of Platform, has shown consistent strong growth throughout the year in each of the quarters year-to-date.

The content distribution side and the licensing side can be a bit more lumpy.

And where we've seen strong quarters in licensing in Q1 and a particularly strong quarter in content distribution in Q2, those can vary each quarter depending on that.

So overall, I think it's a great trajectory for Platform and especially the ad business.

Ben, with regards to your question about limiters, we don't see a near-term ceiling on our growth opportunity.

The video ad business grew over 100% year-over-year.

As Anthony mentioned, if we have competition, it's really the traditional spending pattern of advertisers, it's traditional TV, and basically, consultatively, coaching our clients to move their spending to Roku.

We've been very effective at showing them the ROI math, that the last dollar that they put into linear TV is reaching a smaller and smaller base, and that if they move that dollar to Roku, it's going to deliver much more reach and ROI.

I'm just -- I mean, backing up more broadly and thinking about our advantages as an ad platform, the reason advertisers come to us in the first place is we're an at-scale platform with the largest, most engaged user base.

It's a unique audience that can only be reached on Roku.

We've got that direct consumer relationship and all the data that flows from it.

And ultimately, it's ads that work.

The -- one of the themes of this call and in our letter is how much work we're doing on the research front to prove to our advertisers that their investment with us delivers more effect than their other options for spending that money.

And this is Anthony.

I'll just -- let me just say that our Platform business is fundamentally strong, it's well positioned, and then we're executing well.

I mean, if you just think about it big picture, there's $70 billion a year spent on TV advertising.

Our Platform business in the quarter was $100 million.

There's a lot -- we're very proud of that, but there's a lot of room to grow that.

Our next question comes from Vasily Karasyov with Cannonball Research.

I was wondering if you could provide some color.

Scott, I think this question is for you.

What is the retention rate or whatever is the right metric of how much repeat business you do with the advertisers?

You cited a very impressive list of clients there.

And what is -- what are the major hurdles that you have to get them over in order to spend more with you?

And how do you resolve those bottlenecks?

You mentioned data.

But is there a structural issue?

Are the media buyers unwilling to let their clients buy through you?

So if you could give some color on that, I would appreciate that.

Yes, it's a great question, and it's part of our everyday operation as a team.

We have extremely, extremely high retention rates.

Typically, a relationship with us starts with a small test spend.

And as I said, we aggressively package research with that first spend because of our confidence that, that research is going to show high ROI.

Very quickly, that rolls into multiples of spending from that brand.

That said, while we've worked with 2/3 of the top 200 national advertisers, there's another 1/3 out there, and that's just in the top 200 list.

So I would say our focus is both on renewal and, importantly, expansion of current accounts as well as tapping into all the accounts that have not yet started to work with us.

All that, both renewal and expansion as well as new account acquisition, is driving 100% growth in our video ad business.

All right.

And a quick follow-up.

Sling TV reported subscriber ads that people were disappointed with.

Do you see any divergence in how virtual MVPDs are performing on your Platform?

This is Anthony.

There are -- MVPDs is a great category for us.

They're a great way to get access to certain content, sports, for example, ESPN.

All virtual MVPDs are growing on our Platform.

So it's -- we can't talk about any one in particular, but we carry all of them, I believe, and it's a good business for us.

They are actively using the tools that we offer and the products that we sell to help them build audience and expand their engagement.

Our next question comes from Jason Helfstein with Oppenheimer.

Two questions.

First, can you talk about how the mix between ads and then content distribution impacted ARPU in the third quarter?

And then kind of particularly about supply and demand factors in the ads business, i.e., said supply pretty likely outdriving demand right now.

And then secondly, can you talk about how your participation in the upfront will impact fourth quarter and 2019 given that this is new versus last year and kind of how you strategically use that event?

Yes, Jason, it's Steve.

I'll take the first part of that.

So in terms of ARPU, ARPU, along with all the other key operating metrics, are on a great trajectory.

ARPU was up over $17 on a TTM basis, up 37% year-over-year.

In terms of kind of the mix within that, as we mentioned in the letter and Scott mentioned earlier, the ad business continues to have strong, consistent growth throughout the year, with video advertising notably more than doubling yet again on a year-over-year basis.

So in terms of the mix, that continues to grow the mix there.

As I mentioned on an answer earlier in the call, the content distribution side can bounce around depending on the quarter, and this is one of those quarters where it bounced down on a relative growth basis.

But important to note that all parts of the Platform business are growing over time, so we're very happy with the trajectory there.

Jason, with regards to your question about supply and demand, I'll talk about both our audience development and our brand advertising business.

It depends on the time of the year and the growth of the business.

There are times on the home stream when we're supply-constrained because of the activity and the interest of -- from our content partners in promoting on the Platform.

But in general, most of that task is focused on optimization, optimizing what ad we're going to show to a user in order to drive the highest possible outcome.

So it's -- I wouldn't say it's as much supply-constrained as it is about an optimization problem.

On the video advertising side of the equation, the Platform, the ad opportunities on the Platform, continue to grow very aggressively.

Ad-supported viewership is our fastest-growing segment.

The Roku Channel is growing very aggressively.

Ad-supported publishers on our Platform, who we partner with to monetize, are growing aggressively.

We generally are worried less about supply and focused more on stoking more demand.

Along the lines of what we've been talking about on this call is partnering with advertisers to show them the unduplicated incremental users that they could be reaching in OTT.

That's a good setup for your question about upfronts.

Our goal going into upfront discussions with advertisers was to engage them upfront literally as they're planning out their annual TV spending cycle and to show them what they needed to be spending in OTT to complete their TV reach plan.

We've been very effective at that.

And there are really 2 main results from those upfront discussions.

One is significant increases in spending commitments from agencies and brands in that cycle.

Importantly, two, we've been asked, because we're a leader in this space, to help agencies and brands proactively plan for OTT as a category.

And because of our scale and our reach and our toolset, like our ACR tools, we've been able to help them with that planning cycle, which, ultimately, for us, builds a much deeper relationship with the buy side of this business.

This is Anthony.

I will just add that there's a lot of things we're working on to improve our platform, a lot of tactical things to make sure we're scaling correctly, a lot of things we do to grow our ad business.

But really, the fundamental limiter is this -- and ultimate, I think, indicator that it's going to be a large market is so what's happening here is what happened in mobile.

In other words, the viewers move first to these platforms and viewers move to mobile a few years before the ad dollars caught up, which they eventually did.

And that's the same phenomenon we're seeing on OTT, where viewers are moving to streaming.

Like I said, 10% of that key demographic, 18- to 34-year-olds are now only reachable, not just on streaming, but only on Roku.

And the ad dollars are flowing over and that's growing fast, but it's going to take a little bit of time for it to completely move over.

Our next question comes from Evan Wingren with KeyBanc Capital Markets.

I joined a bit late, so apologies if this is duplicative at all.

But I just wanted to ask about The Roku Channel expanding internationally.

I just wanted to understand at this point what the gating factors are at all, if any, as you continue to expand it globally past Canada.

And then on the content side, it seems like a lot of the incremental content that you're adding on the live side is around news.

I'm just trying to understand if -- what the gating factors, similar, are on additions of content in terms of how you're partnering with new media companies as well.

This is Anthony.

So in terms of international, I mean, yes, we think there is a large international opportunity.

We don't have anything new to announce there.

I mean, I'm just repeating the -- our strategy for The Roku Channel is to continue to expand the amount of content that's available in the channel, to expand the geographies that's available and to continue to add different content categories.

In terms of content categories, so we started with movies -- entertainment, movies and TV shows.

We continue to add a deeper depth of movies and TV shows to the channel.

We then added news.

We've continued to add more news partners.

So for the midterms, we've focused on beefing up our news offering, which was a very successful strategy for us.

I mean, we're proud that we delivered broadcast-quality live news services from a great set of partners for free to our customers.

So that's been a good strategy for us.

And we'll keep adding more categories, but we don't have any to announce today.

(Operator Instructions) Our next question comes from Scott McConnell with D.A. Davidson.

So a question on tariffs.

In the event the next round of tariffs is on everything out of China, what could you do to mitigate the risks, maybe such as moving your manufacturing out of China or possibly negotiating manufacture price?

This is Anthony.

So, so far, we haven't seen any -- with the tariffs that have been announced so far, we haven't seen any impact on our business.

They don't apply to televisions or streaming players.

We're monitoring the situation carefully.

But we don't have anything other than that to say.

Okay.

And then if I could get one follow-up.

So you shared your impressive market share gains for the Roku TV in the U.S. TV market.

Any comments on how the smart TV market shares -- gains are going in international markets?

Yes.

So, so far, we've launched Roku TVs in the U.S., Canada and Mexico.

They're doing well in all those markets.

There's obviously a lot more countries in the world than those 3. And as we said in the past, our goal is to keep expanding internationally, but we don't have any plans.

I mean, I will say that I think the same strategy we've used in the U.S. for TVs will also work internationally, which is to focus on a purpose-built Roku operating system -- sorry, a purpose-built operating system for TVs specifically versus porting a mobile operating system.

That has some fundamental advantages that will result in TVs that cost less to build, that have a more TV-optimized user interface.

And they're just better TVs.

And so we think that strategy will be effective internationally, but we don't have any specific plans yet.

Our next question comes from Ralph Schackart with William Blair.

First, can you maybe provide an update on the Samsung partnership, give us a sense of how it's progressing versus your expectation?

And then a follow-up question.

Steve, I think in the remarks, you talked about managing the business at roughly breakeven in 2019.

As you look at '18, you'll do about $25 million of EBITDA.

So just trying to get some more color on the '19 comments.

And perhaps, does it contemplate a step-up in spend?

Ralph, Scott here.

I don't have any specific updates on the Samsung partnership except to comment that it's early days.

We do think this value proposition of great free ad-supported programming exports beyond our set of Roku devices, and that's what drove us to write the Samsung partnership.

It's also got an ad relationship to it as well.

But it's still early days for us in that relationship.

Ralph, it's Steve.

Just talking about some more color on '19.

So yes, correct.

So as we've mentioned before, our plan is to continue to run the business at around the adjusted EBITDA breakeven.

That was our goal this year and again in '19.

So we are -- our plan is that as we generate incremental gross profit, that we're funneling that back into the business.

We're fortunate to have a great set of road maps for the business.

We're the leading streaming TV platform in the U.S., and we're at the early days of a massive shift over to OTT.

And so we feel great about the opportunities for high ROI investments to continue to grow the platform, improve engagement and drive up monetization over the long term.

We'll have a lot more detail in the next call as we unveil more specific 2019 outlook.

But I'll just point to you, since you mentioned the expense side, a few things we mentioned today.

We're continuing to hire -- grow and hire great talent.

There is a trend, based on our transition from private to public company, of our stock-based comp is increasing rapidly.

And then as we mentioned in last call, and it was in our Q, is that we've also factored in our new headquarters building or set of buildings, our leases on that, which will phase-in over '19 and '20.

So those are some factors, and we'll give you more detail on the next call.

Our next question comes from Richard Greenfield with BTIG.

It's Rich Greenfield.

Just real quick on when I think about the cable operators, Anthony, you talked about how cord-cutting obviously is accelerating.

They're losing a lot of subs.

There's been a lot of increased discussion.

Charter kind of leading the way that they're looking -- I think they signed a deal with Apple, where they're looking at basically shipping or leasing out Apple boxes versus their own boxes.

On the Altice call, I asked them about it, and they said they're open to working with third parties instead of their own Altice One box.

If I go back in time, you were actually the first company to ever do that when you signed a deal with Time Warner Cable for one of their kind of IP-based platforms.

Just wondering, as you think about kind of becoming the box that actually cable operators roll out, where are you?

Is that a significant opportunity as we move into '19 for Roku?

I mean, you've got bigger market share than Apple.

I'm just curious like how people or how the cable companies are thinking about working with you versus Comcast, it sounds like, is building their own version of a box.

Where do you fit in all of that, and how big of an opportunity could that be as they get rid of their antiquated hardware?

Rich, thanks.

Yes, so I mean, operators are an important channel for us.

We distribute our players through operator channels today.

If you're an operator and you're launching a streaming service, one of the things you quickly figure out -- or even not just operators, but virtual MVPDs, other SVOD services, one of the things -- one of the first things they figure out is consumers who use that service and watch it on TV through a streaming box versus just -- or a streaming TV versus, say, just using a mobile device to access it or a laptop, have much higher engagement and higher retention.

So it's a common promotion for a service or an operator to offer a discounted or free Roku Player or other streaming device when a customer signs up for a cable operator -- when the customer -- end customer signs up for their service.

So -- and we often win those deals, and those deals are usually competitive.

The reason we often win are the usual reasons.

We have a very low cost structure, so we often have an attractive price that they can purchase the boxes for.

Also, our products are incredibly simple to use.

Our customers love them.

They get great reviews.

And in the streaming world, even from operators, it's a much more competitive situation.

So having a great streaming player as part of the offer is important.

And that's -- so that's -- So the fundamentals that we focus on, value, ease-of-use, content, just a great experience, winning the reviews help us win those deals as well.

And with that, I show no further questions.

So I'd like to turn the call back over to Mr. Wood for some closing remarks.

Thanks.

So I'd just like to close by reiterating how pleased we are with the quarter's results.

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

I'm particularly excited about how quickly we are bringing innovations to market from the new Roku TV and Player models for the holidays, to Roku TV Wireless Speakers, ad-measurement tools, enhancements to The Roku Channel and more.

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

Happy streaming.

Ladies and gentlemen, that does conclude today's conference.

Thank you for your participation.

You may all disconnect.

Have a wonderful day.