Roku Inc (ROKU) 2018 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q4 2018 Roku Earnings Conference Call.

(Operator Instructions) As a reminder, this conference call may be recorded for replay purposes.

It is now my pleasure to hand the conference over to James Samford, Head of Investor Relations.

Sir, you may begin.

Thank you.

Good afternoon, and welcome to Roku's financial results conference call for the fourth quarter ended December 31, 2018.

I am 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 much more detail than we will cover in the introductory remarks.

The following discussion, including responses to your questions, reflects management's view as of today, February 21, 2019, 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 first quarter and full year of 2019, and the future growth of our business.

Our actual results may differ materially from those discussed in 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 of 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 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 to everyone for joining today's call.

I'll take a moment to highlight a few points from our shareholder letter.

First, we had a great 2018 wrapped up by a strong Q4.

2018 revenue was up 45% from 2017, and our U.S. market share lead grew.

I credit our success to a combination of the incredible talent of the Roku team, having the only purpose-built OS for TV, the unstoppable shift to streaming, and consistent excellent execution.

Second, I am excited about our plan for 2019.

We expect to pass $1 billion in revenue, 2/3s coming from our Platform business.

I'll conclude by putting out 3 trends that cause me to believe we're still in the early days of our growth, and why I expect our leadership position in streaming to continue.

First, smart TVs are adopting a licensed OS, just like phones did.

Our OS, which we have been developing for the last 10 years is the leader in this shift because it is incredibly user friendly, yet powerful, and built solely for the TV ecosystem.

Second, TV advertising is a $70 billion market.

And it is in the very early stages of transitioning to streaming.

We have built advanced features for advertisers into our OS, and independent studies show that Roku TV advertisements are more effective than traditional linear ads.

Our leading TV streaming OS market share will allow us to capture a large part of the advertising market as a shift to streaming from linear TV.

And third, The Roku Channel to become a large aggregator of content on our Platform.

A change that benefits our users, content publishers and advertisers.

I expect The Roku Channel to grow from a relatively small share of viewing hours to a larger percentage, owning and operating The Roku Channel allows us to control the promotion and presentation of content and to monetize an increasingly large supply of video advertising inventory.

With that, I'll turn it over to Steve Louden, Roku's CFO.

Thanks, Anthony.

Our strong fourth quarter results capped off another great year.

We executed well and delivered record results.

Before taking your questions, I'll walk through operational and financial highlights and address outlook.

We saw continued strong demand for players and TVs in the fourth quarter, which resulted in an incremental 7.8 million active accounts for the year, and ending 2018 with 27.1 million active accounts.

Our scale has expanded rapidly over the last several years.

We added just under 6 million active accounts in 2017, and nearly 8 million more in 2018.

In addition to increasing our scale, we continue to see growing engagement on the Platform.

With 2018 streaming hours up 9.2 billion year-over-year to 24 billion.

As we mentioned in our shareholder letter, Roku users streamed more in the 1.5 years than in the entire prior 9 years combined.

Not only are more people choosing Roku as their streaming platform, but they are also streaming more than ever.

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

But I'll highlight a few items and provide our Q1 and full year 2019 outlook.

Total Q4 revenue increased 46% year-over-year to $275.7 million, with Platform revenue up 77% to a record $151.4 million, representing 55% of total revenue.

Player revenue growth of 21% year-over-year, again, came in ahead of our expectations with another strong quarter from retail channels and a well-executed holiday season.

Player units were up 30% year-over-year.

And ASPs were down 8% as we continue to see strong demand for sub-$50 players.

Our key financial performance metric is gross profit, which was up 53% year-over-year this quarter to a record $112 million, marking our first quarter above $100 million.

Gross margin was 40.7%, up 170 basis points year-over-year, driven by solid Platform margins, partially offset by the impact of Player promotional activity during the holiday season that drove high unit growth in active accounts.

We had a record number of net new hires in the fourth quarter, and ended the year with over 1,100 employees, up 36% year-over-year.

We are attracting outstanding talent and believe the investments we are making in R&D, sales and marketing and G&A are bolstering our market position now and strengthening our future growth opportunities.

One of the key ways we attract talent is through competitive salaries and equity compensation.

In 2018, we transitioned to an RSU-based comp structure and provided existing employees with their first post-IPO equity refresh grants.

This created a step function increase in our stock-based comp, which increased from $11 million in 2017 to $38 million in 2018.

We expect stock-based comp to increase to roughly $73 million in 2019.

When compared with benchmarking data, we believe our stock-based comp is in line with our peers.

OpEx in the quarter grew 67% to $106.8 million.

Excluding stock-based comp, OpEx was up 49% year-over-year, which is more in line with revenue and gross profit growth.

Adjusted EBITDA grew 70% year-over-year to a record $24.5 million in Q4, and well ahead of our outlook as a result of higher revenue and gross profit.

With that, let's turn to our outlook for the full year.

As you saw in our letter, the midpoints of our 2019 outlook call for just over $1 billion in revenues, and $450 million in gross profit.

Each up roughly 36% year-on-year.

Included in our outlook is Platform revenue growth to roughly 2/3s of total revenue, and roughly flat Player revenue growth.

For modeling purposes, you should plan for full Platform gross margins in the low 60s as a percent of revenue, driven by continued mix shift to video advertising and introduction of premium subscriptions.

For Players, for modeling purposes, you should expect us to manage the player gross margin to low single-digits margins in 2019.

We remind you that we are not optimizing for Player gross profit given our focus on account growth.

And our strategy of trading player margin for account growth and Platform revenue growth is working well.

In prior forward-looking statements, we have consistently discussed managing the business to adjusted EBITDA breakeven, and our 2019 outlook reflects that continued approach.

We are more confident than ever about Roku's fundamental competitive advantages and the huge opportunities that lie ahead.

And we have carefully prioritized a robust list of opportunities to pursue.

While a meaningful portion of our OpEx is discretionary, we believe reinvesting gross profit back into the business is the right thing to do to drive long-term shareholder value.

Our outlook calls for an $85 million net income loss in 2019 at the midpoint.

But as a reminder, this includes expensing $73 million of noncash stock-based comp and $12 million of depreciation and amortization.

Q1 is seasonally the lowest revenue quarter for the year.

For Q1, we expect Player revenue to drop nearly 50% sequentially, and Platform revenue to fall nearly 20% sequentially.

For Q1, our outlook is for year-over-year revenue growth of 37% at the midpoint.

Platform revenue growth of roughly 60% year-over-year includes a tough comparison with Q1 2018 from the delivery of a new product to one of our Roku Powered partners.

Excluding the impact of this item in the prior year, Platform revenue growth would be more closely in line with Q4 growth rate.

On the Player side, our Q1 outlook factors in roughly high single-digit Player revenue growth.

Continued mix shift to video advertising is expected to be a drag on Platform gross margin.

And when combined with single digit Player gross margins, our gross profit growth outlook for Q1 is roughly 39% growth at the midpoint.

One of the challenges that the Street seems to be struggling with in modeling Roku is that our OpEx is not seasonal.

Headcount-related expenses account for roughly 3 quarters of total OpEx.

And we have been and we'll continue to grow headcount throughout the year.

As a result, Q1 OpEx is expected to be roughly $10 million higher in Q1 than in Q4, as we recognize the full quarter impact of the hiring that took place in Q4 as well as new hires in Q1.

As a result, we expect to report an adjusted EBITDA loss of roughly $10 million at the midpoint and net income loss of roughly $30 million, which includes stock-based comp of $17 million and $3 million in depreciation and amortization in the quarter.

We encourage you to factor in the seasonal revenue dynamics we have discussed, and the sequential growth trends for OpEx going forward as well.

I'll summarize by saying how pleased we are with the performance of the business by sharing a little perspective on where we have come from and where we are going.

In 2015, Roku had 9 million active accounts, and a $50 million Platform business and a $6 ARPU.

In 2018, Roku had 27 million active accounts with a $417 million Platform business and an $18 ARPU.

As we look to 2019, we expect to achieve $1 billion in revenue with roughly 2/3s of that coming from Platform monetization.

The fundamentals of our business, the difficulty in replicating our strength, and our laser focus on streaming, all give us confidence in our ability to deliver significant long-term shareholder value.

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

Operator?

(Operator Instructions) Our first question will come from the line of Mark Mahaney with RBC Capital Markets.

This is Shweta for Mark.

2 questions, please.

One, could you please talk about a little bit about Platform revenue?

And potentially providing any visibility within the Platform revenue as it relates to content distribution and licensing.

And then two, on International strategy, it'd be great to hear a little bit more about progress that you've made so far, understood that the contribution will come next year.

But what -- where are you right now?

What do you expect to do this year?

This is Anthony.

I'll take the international question first and then Steve can talk a little bit about Platform revenue.

So international, so just in summary, Roku has more than 27 million active accounts globally today.

Most of those are in the United States.

But we believe many of the assets we built for the U.S. market will help us expand into other markets.

And clearly, streaming is a global opportunity with 1 billion households worldwide.

Netflix has more international than domestic subs.

So in 2018, we started to invest more substantially into our international business.

We created an international BU.

We're in 20 countries today.

But there is a lot more we can do.

We're adding more local content, expanding our relationships with international retailers.

And we think that you'll start to see -- we'll start to see the results of this increased investment bearing fruit in 2020.

And then Steve, do you want to talk about?

Yes, sure.

This is Steve.

In terms of the question on the Platform revenue.

We think of the Platform segment as the segment that really speaks to our monetization strategy.

And in terms of the big drivers, one of the things we pointed out was that our Roku monetized video ad impressions more than doubled in 2018.

And that's one of the key drivers along with other parts of advertising and then the content distribution.

In terms of the segment, there are a lot of those pieces of business are interrelated in agreements and relationships regarding our content publisher relationships.

And so we look at that more on the ARPU basis overall, and then, like I said, the driver we've disclosed, we think is a key part of that is the video ad impressions that Roku monetizes.

And our next question will come from the line of Mark May with Citi.

Is there any way that you can help quantify the amount, just looking for more details around the international expansion efforts.

Maybe two parts, can you talk a little bit about what countries and kind of the go-to-market strategy there.

And is it possible to help quantify the amount that you're investing this year?

How much is that effort dragging on EBITDA?

Mark, it's Anthony.

We haven't announced our -- we haven't really outlined our international strategy at this point, we're not ready to do that.

We also haven't broken out the numbers.

I mean, I would just reiterate, we think it's a big opportunity, we are starting to invest in the team and projects.

And again, we haven't broken out the amount, but it's one of the -- international is probably one of the top 4 areas we're investing in along with Roku TV, The Roku Channel and International.

So we'll have more information as the year plays out.

Our next question will come from the line of Evan Wingren with KeyBanc Capital.

I was just wondering, on the Platform business.

Can you give us a bit more insight into the components of the guidance for the year in terms of accounts versus ARPU?

And sort of how you expect the seasonality to shakeout of those mechanics based on what you know today?

And then the follow-up question would be on The Roku Channel.

You referenced adding features and content in the letter.

Just wondering if you could provide a little bit more detail on kind of what you're expecting there.

And Anthony, I think your comment was that's a relatively small percentage today, going to a larger percentage.

Wondering if you could maybe box that in a little bit further for us.

Sure.

This is Anthony.

So yes, I mean, I'm super excited about The Roku Channel, it's a big opportunity.

And why don't we start with that, and Scott can take that.

And then maybe Steve can talk a little bit more about your Platform question.

Evan, Scott here.

Roku Channel is off to a great start and has exceeded our expectations in many ways.

It's already a top 5 channel on the Platform in terms of the number of accounts it reaches each month.

We started in late 2017 with about 1,000 free movies and TV episodes and have expanded that now to around 10,000.

In September of last year, we added live news services with partners like ABC, Cheddar, People TV.

And we just launched, and are still rolling out, premium subscriptions with partners like SHOWTIME, STARZ, EPIX and others.

So it's been a pretty dramatic expansion not just as the consumers consuming inside The Roku Channel, but the content that's available.

The Roku Channel is an essential part of our overall Platform strategy.

It's not just a major source of ad inventory for us, but it's a highly strategic one.

The power of O&O ad inventory as opposed to ads that we access within third-party channels are that we own that inventory outright.

We think it's a best-in-class consumer ad experience in terms of ad loads, frequency, new ad formats.

If we're just better targeting then it's available to us in third-party channels.

And it allows us because we're licensing the content and have the opportunity to promote it to really fan the audiences that we know are in demand by advertisers.

And finally, it affords us the opportunity to create new ad products, whether that's sponsorships or limited commercial interruption movies.

So overall, we're very excited about the progress that we've made on The Roku Channel, and we expect to continue to fan those flames.

Evan, it's Steve.

Just on your Platform question.

So as mentioned before, the overall guidance for revenue for 2019 includes $1 billion of total revenue, 2/3s of that being in Platform.

In terms of some of the other components around ARPU and account, what I would say in there, right, is we've seen great growth in the active accounts, adding almost 8 million accounts to 27 million.

Right now, the streaming hour growth has been strong.

We don't traditionally provide guidance on the key operating metrics, and aren't doing that this time.

But in general, we're very happy with the growth path of the business.

One thing I'll remind folks is, just the monetization continues to grow faster than the streaming hours and the active accounts.

Although, there is not a direct correlation between those things.

In terms of seasonality throughout the year, we did mention in the comments that -- reminder that there is quite a bit of seasonality on a quarter-to-quarter basis.

We mentioned that Platform, we expected to decline about 20% quarter-over-quarter.

Seasonally, Q4 is the heaviest quarter, both from Player and Platform.

So just a reminder to everyone, not just when you're looking at Q1, but throughout the year, to study that quarterly seasonality because I think Q4 has been the strongest quarter, and sometimes the seasonality can be a bit disconnected there.

This is Anthony again.

Let me just add a couple of comments about streaming hours and monetization.

Streaming hours, the way I think about streaming hour is, they're loosely coupled to monetization, and over time, they're probably more tightly coupled.

But monetization tends to lag streaming hours.

The streaming hours have been -- streaming hours are, I think, an important indicator of how important Roku is to our customers in their lives.

And that's how I kind of think about it.

And just one stat there that I like is the Roku users streamed more hours in the last 18 months than in the previous 9 years combined.

So customers are streaming.

We said about the drive -- one of the drivers of the ad business is -- I would say, there's 2 drivers.

But one important one is that viewers are moving to streaming and advertisers are following but they haven't caught up yet, right?

I think we said this consistently and it's still true.

A lot of viewers are shifting to streaming, but advertising dollars are still relatively small compared to the number of viewers that have shifted.

But we are starting to see that change.

As -- for example, our monetized ad inventory last year more than doubled.

And we expect that to happen again this year.

And our next question will come from Jason Helfstein with Oppenheimer.

And 2 point -- 2-part question, and will add on.

So when we talk to senior people at some of the bigger agencies, both on kind of the TV buying side and on the digital, and we ask kind of how is OTT doing?

How is Roku doing?

They still universally say how difficult it is to buy OTT and not referring to you specifically, but broadly.

So what are you trying to do to simplify the buying process on your own and kind of potentially with other industry initiatives?

The second question, and I think this keeps coming up as the sustainability of that $30 CPM, particularly, since there is inventory that can be bought around you at prices lower than $30.

Kind of how you're addressing that?

And I know you made some moves toward the end of last year around data.

So maybe elaborate about that, about kind of what you're doing with data exclusivity?

And then lastly, I know a question we continue to get, and I think you get is about increasing transparency around video advertising specifically.

And I think the commentary in this shareholder letter was pretty consistent with last shareholder letters as far as it's doubling year-over-year.

But if there's any plans to expand further transparency around that?

Jason, Scott Rosenberg here.

I'll take the first 2 of your 7-part question here.

Great question though.

We're making great progress on the Street with the ad community.

We're in the early stages of a secular shift out of TV linear ad spending into OTT.

I think Roku is driving this transition better and more smartly than anybody in the market.

One of the most essential ways that we do that is by showing advertisers the reach arithmetic, the number of users who left linear who are now in OTT and only reachable on the Roku Platform.

Multiple third parties will tell you that well more than 10% of TV viewing is happening in OTT.

And yet nowhere near 10% of TV ad budgets are yet spent in OTT.

Said another way, if your brand that is still spending 100% of your budget in linear, you're wasting more than 10% of your budget.

So we are regularly in market helping advertisers understand that reach arithmetic and plan around it.

Just 2 quick examples I'll offer, by way of example, both Baskin-Robbins and RE/MAX in the latter parts of last year bought with us.

We showed them that respectively 86% in the case of Baskin-Robbins and 81% in the case of RE/MAX of Roku users never saw their linear TV ad.

And that when they invested with us, they delivered, again, respectively 10.6% incremental reach and 9.2% incremental reach over their linear ad buy.

That kind of planning tool, that kind of research is the elixir, the kind of data that the buy side is looking for in order to get through this transition that you're referencing.

And I think Roku is unique in showing them that math.

With regards to your question about the sustainability of rates, we continue to command premium rates.

That is at the end of the day, a testament to the significant increases in demand for OTT.

And ultimately, a proof point of how powerful and how much better Roku media performs relative to linear TV.

Steve, do you want to take your question around?

Yes, sure.

Yes, just in terms -- Jason, in terms of video advertising and transparency.

One thing I'll note is, it's part of our monetization strategy, and as I mentioned earlier to the Q&A, the Platform segment is the segment that connects to the monetization strategy.

One of the things that is the key driver of that is this Roku monetized video ad impression.

So that's something that we haven't specifically talked about, the trending on that, and that is a key driver.

So certainly understand that there is a thirst out there, but one of the things for us is that there are a lot of components within Platform that are all very interconnected with these relationships we have within the ecosystem.

And so we wanted to highlight that Roku monetized ad -- video ad impressions because that is a critical driver.

Our next question will come from the line of Ralph Schackart with William Blair.

In the shareholder letter, you laid out sort of 4 areas of reinvestment in '19 between advertising, Roku Channel, Roku TV and international.

Just curious if there was one area, in particular, that you might have some outsized reinvestment in '19?

Or is it going to be evenly spread?

And then just a follow-up to that question would be, occasionally, we provide an update in terms of what percent of your hours are ad supported.

And just seeing if you could perhaps provide an update to that step.

This is Anthony.

Let me -- I'll talk about the investment areas.

So the 4 that we outlined in the letter are our top 4. There's other areas that we're also working on, that are also, we think, high ROI.

I mean, we haven't broken out how much we're spending on each area.

But they're listed in order of how much we invest.

And they're not that too far apart.

And then what was the second question?

Ralph, this is Steve, I'll take that.

Yes, I mean, we don't have a specific update to the ad-supported hours.

But obviously, there continues to be strong interest in that.

And certainly with the growth of The Roku Channel, continues to speak that free ad-supported content is a strong interest for our consumers.

And certainly, I think a lot of the industry is catching up to us in terms of understanding that that's a key component of the OTT offering.

And our next question will come from the line of Laura Martin with Needham.

Can you hear me?

Yes.

A couple of things.

I think the first one, Anthony, if I add up your operating expenses in 2018, it gets to that $340 million, you're projecting $1 billion of revenue and 0 EBITDA, which means you're going to add $250 million, I think, to that cost structure, which, round numbers, is nearly a double, okay, not quite, Steve would demur.

But can you add -- can you double your cost structure practically in a year, looking at these investment categories that you're making?

Laura, it's Steve.

I'm going to take a crack at that and Anthony can add some color on the top.

Just in terms of the guidance, we're excited about the top line guidance of $1 billion, as you mentioned.

That's a huge milestone for us.

Our total gross profit guidance for full year 2019 is around $450 million-ish at the midpoint.

And then we are -- our outlook does anticipate running around adjusted EBITDA.

One thing to note on that -- and so I think your math is a bit off when you look at the 2018 OpEx number versus what the implied OpEx is for a gross profit guidance of around $450 million.

But it is a increase certainly.

One of the things I'll just note on that is that OpEx increase includes significant year-over-year uptick in stock-based comp, which is noncash.

So that's going from $38 million in 2018 up to $72 million as well as there's another $12 million of depreciation and amortization on that.

So that's about $85 million of noncash in that number.

But we certainly continue, as we mentioned in my prepared remarks, we certainly do continue to grow headcount.

We grew headcount in 2018, and specifically in Q4, we had a record hiring as well, that headcount grew 36% year-over-year.

We'll continue to hire around that same pace in 2019.

So between the full year impact in some of the investments areas, that will be an increase.

But we think there is a great opportunity out there.

We're the leading TV platform, streaming TV platform in the U.S. And Anthony, talks a few different ways about some of our key investment areas around ad, The Roku Channel, Roku TV and international.

So we think it's the right time to continue to invest into the opportunity and to strengthen our advantages.

Yes, this is Anthony.

I'm just going to add that we have created some fundamental strategic advantages for us.

The reasons that we win in the market, things like our purposeful OS, our large engaged user base, The Roku Channel, our ad platform, and low bundle cost, et cetera.

And we just leave at the right call at this point.

If you keep investing both to just grow those advantages that we've already built, increase our lead, but also create new opportunities and there is a lot of opportunity in streaming right now.

Okay.

All right.

So my next question is, you say in the press release here that you had 3 million U.S. households cut the cord, and you added 8 million.

So by implication, that implies the other 5 million in your mind are being added to the big bundle.

That's the first, a. And then b, do you still think you have 10 million cord cutters that can't be reached on linear TV, that are just on Roku/OTT?

Yes.

Well, I think what we said in the letter is that we -- the industry had 3 million cord cutters in U.S. And we added 8 million active accounts.

I mean, some of those -- they're not -- obviously, we didn't 8 million cord cutters.

I mean, we said, historically, roughly half of our subscribers are cord cutters and the rest are -- I would characterized them as cord shavers.

So it's a mix of that.

And then your second question I think it was one for Scott.

There is 10 million.

Do you still have 10 million cord cutters?

Cord cutters remains a key targeting segment for us as we're working with advertisers.

As I mentioned earlier, the opportunity to reach consumers who've cut or shaved the cord are -- or basically, who simply no longer reachable through a linear ad campaign is why advertisers invest with us.

But...

And are you using 10 million, Scott?

Yes, we've never broken out the exact number.

But we have said, roughly half of our viewers, I believe, we -- yes, we said, roughly half of our viewers, plus or minus are cord cutters, or...

Do not have a traditional TV.

Yes, more accurately, they don't have a traditional pay TV subscription.

Okay, so that's half of that 27 million.

So my 10 million is way too low by now.

Because, I guess, that's what data imply, right?

Yes.

Okay, cool.

Best Buy and Amazon, there was a lot of headlines earlier in the year that because Amazon was doing an exclusive with Best Buy and they're introducing a new 4K TV.

But that might hurt you.

Did you see any impact on that in the fourth quarter?

Or did yours -- did your Best Buy performed just as well for Roku as it has in prior years?

We don't break out by reseller.

But we are very happy with both our player sales in retail and general across the board.

And also our OEM partners sold a lot of Roku TVs, we're also very happy with that.

Over 1 in 4 smart TVs sold in all of 2018 where Roku TVs.

I mean, at Best Buy specifically, you can get a TCL 6 Series right now, which CNET's Editors' Choice for $550, for 55-inch TV, it's a great -- it's an awesome TV.

We do sell a lot of TVs at Best Buy.

Okay.

And finally, TCL reorg.

There were a lot of headlines earlier in the year that the TCL reorg might negatively affect you.

Have you seen any negative impact from TCL?

It sounds like not from your prior answer.

No, there is no impact.

I mean, there was a lot of confusion around that.

And -- but it had no impact on us or their dedication to the TV business.

Our next question will come from the line of Ben Swinburne with Morgan Stanley.

Anthony, just picking up the TV OS part of the business.

You talk about the house brands being increasingly uncompetitive in the market.

Are you expecting or should we expect some significant ramp in your share of smart TV sales in '19?

Is that sort of underpinning part of the guidance?

Or is this sort of assuming kind of status quo with the partners that you have?

Any color you can give us on the outlook for new partnerships on the OEM front would be helpful.

And then just as a follow-up for different topic for Steve.

Can you help us at all on the OpEx in '19?

How much is tied to your International plans where we're really not seeing any revenue yet.

Just might be helpful to sort of understand kind of the underlying non-International OpEx trends, even if it's qualitative, I'd just be interested in how substantial that is this year?

So I'll go first.

This is Anthony.

So regarding our TV OS.

Well, first, I would just say that our -- in U.S. about our outlook, I would say that our outlook, obviously, incorporates kind of all aspects of our -- what we expect to happen to our business over the year, including growing monetization and including growing active accounts.

And I would say another -- so in terms of active accounts, I mean, one of the best thing to happen to us in 2018 was our market share in Players, we're #1 -- we believe we're #1 in market share in Players in the U.S., and we believe that market share actually grew in 2018.

And we believe same is the case for TVs that we believe we're #1 in market share for TV OS.

And we believe our market share grew.

Now most of that growth -- the biggest untapped segment of TVs for which the license -- which might end up licensing our OS are TVs that are -- you called it -- well, I'm not sure what you called it, but those TVs are using what we call homegrown operating system.

Yes, you said, house brands.

Sorry, homegrown house brands.

Yes, right.

House brands are -- yes, so homegrown, meaning a software stack that the TV company made for their TV.

And that's still the majority of TVs out there.

And we still -- and I still believe that those TVs, over time, will end up moving to a licensed OS.

And in the licensed OS, we are the #1 licensed OS and we have a large lead there.

So I think our -- again, our growth in active accounts will come from Players, it will also come from TVs.

And to dig in to the TVs a little bit.

It will come from TV companies getting more shelf space for their Roku TVs, for their Roku OS-based TVs.

As -- so one of the factors that drives our business is that our partners all tend to be partners that are growing market share in the TV space.

And so as they grow market share and they get more SKUs at retail, that grows our -- the number of Roku TVs out there.

So that's one factor.

Another factor, we do regularly add more OEMs.

But we're not ready to talk about any new OEM at this point.

Our next question will come from the line of Tom Forte with D.A. Davidson.

Great, I want to talk a little bit about your long-term investment spending beyond 2019.

So I was wondering when you think about your investment spending, how much of an advantage you consider to be maybe short term and strategic versus, call it, long term in nature like your international investment spending.

Tom, it's Steve.

I'll start.

Yes, I think we -- on our road maps, we have a mix of short-term feature capabilities ads and then longer-term capabilities or new product categories that we're working on.

So it's always a mix.

I think there is a material amount of OpEx that goes to stuff that will not pay off in this year, and it is a mix of stuff that traditionally or generally will hit in the next year or 2. So I don't have a specific break out, but it -- we are managing the business for the long term and we do have a vision where we think we're going, and we're putting resources against that.

And one thing to just clarify based on the earlier question is, sort of this longer-term investment is not just happening in brand new categories like -- or newish categories like international, even our existing businesses, be it on the Players side, or TVs or advertising, there is long-term investments that are happening on capabilities, that won't pay off in this year, certainly much less maybe a year or 2.

Yes, this is Anthony.

I just add, in the letter, we called out 4 specific areas.

I mean, there are other areas that we're investing in.

But Roku advertising, The Roku Channel and Roku TV were 3 that we called out.

And those are examples of areas that are already very important to our business.

But that -- there's still a tremendous amount of room for innovation and we're still in early days in what's possible in those categories.

So that -- those are examples, which are actually our top 3 areas, that fall in both categories, they're both important today, and they're both important in the future as well.

Our next question comes from the line of Matt Thornton with SunTrust.

A couple of quick ones, if I could.

And I apologize if I missed these.

But did you talk at all about the active accounts, the percentage that came from TV versus Players.

If you could give us any update on how that trended this quarter?

I know it's usually kind of above or below 50% roughly.

Secondly, similarly on the Platform business, in the past, you quantified advertising as a percent of Platform roughly 70% give or take.

And then within advertising versus audience development and sponsorships, again, any quantification there?

And then just third, housekeeping.

On the Players, the 4Q number was very strong, the outlook for '19 is very strong.

So I'm just curious if you're seeing any of that strength to provide whether it's speakers, or the Roku Powered White Label program, or if that is pure just retail player driving that strength.

Any color there will be helpful.

This is Anthony.

I'll take the player question, and then Steve can take the other first 2 questions.

Just in terms of players, I would say that the drivers there are that people are streaming more than they used to.

And they're buying streaming player.

So that's the big driver.

And then our market share is growing as well.

So that's helping as well.

Yes, Matt, just on the first two.

In terms of the mix of active accounts.

Similar to before, kind of 50-plus percent of the new accounts are coming from licensed sources.

So we're -- which is predominantly TVs.

So since TVs are the contributor to the new accounts, continues to be very strong.

But as you mentioned, the Player business, especially, I mean, the holiday season on Players side, it was great, 30% year-over-year unit increases.

So very -- the Player business is doing very well, as Anthony mentioned.

In terms of the Platform biz, the disclosure we mentioned this time, we're focused on talking about the Roku monetized video ad impressions that more than doubled in '18, and we think that will more than double again in '19.

And so kind of where we're focused on that driver and just talking about the Platform overall in our monetization strategy.

And no updates on those other things.

And our next question comes from the line of Michael Morris with Guggenheim.

A couple of questions.

First, how does Viacom's acquisition of Pluto TV impact your business, if at all?

So if Viacom were to sell Pluto inventory directly, for example, would that have any impact on your revenue and profitability?

And then maybe more broadly on that, just what's your view of competition in that AVOD space right now?

It seems like anytime we get a headline that says that Amazon might want to participate in that, people seem to worry about the Roku Channel.

And I'd be curious, your take on competition there.

And then I do have one on MVPDs, If I could.

This is Anthony.

So in terms of the Viacom-Pluto merger, I mean, we don't comment on third-party acquisitions.

But, I guess, just in general, there is a lot of M&A activity in this space.

Because I think streaming is obviously becoming even more important to both new streaming companies like Roku as well as the incumbents.

But I'll let talk Scott talk about your AVOD question.

Yes, we are excited to see all the activity in this space.

We are the original, original in terms of bullishness on AVOD, both in terms of its value to consumers and its importance in the OTT business model.

We see AVOD growing very nicely on our platform.

And clearly, a growing recognition in the industry of the importance of AVOD.

Just a quick reminder on how we monetize in AVOD.

As a content owner, there are only 2 ways on to our platform.

You can publish an app and then work with us to promote that app through ads, through featured free.

And Roku participates in that process typically by selling a portion of the inventory.

Or you could syndicate that content directly into The Roku Channel, in which case we drive the promotion and awareness of that content and the monetization and share back with the content owners.

Ultimately, we win in both models and view ourselves as a key partner for any entity in this space who's going over the top with an ad-supported business model.

The winning factors here, in our view, in the end ultimately are having a direct relationship with the consumer and the rich data that flows from that in order to power targeted advertising and power the marketing of that content.

Roku has these fundamental advantages as a platform and we think it makes us an essential partner to anybody in the AVOD business.

Maybe if I could follow on that a little bit, but on virtual MVPDs, can you help us understand how they benefit you?

So if a consumer signs up for a service away from the Roku Platform but uses Roku as the primary interface.

Do you have a relationship that allows you to monetize that?

Like are you able to monetize any portion of their live advertising inventory?

And is that material for you, if so?

This is Anthony.

So I would just say, in general, virtual MVPDs are great for Roku.

And I'll give you some specific examples of how.

One is, they convince some people to -- people move to streaming for a variety of reasons.

For many people, a virtual MVPD is sort of the thing they need to move to streaming.

So it drives more streaming usage on our platform, which makes -- which means that Roku is more relevant to consumers -- our consumer's lives.

If they sign up for the subscription service through Roku, then we generally get a rev share, that's our general subscription business model.

If they sign up off of Roku, then we don't generally get a rev share, but there are ways we monetize.

For example, virtual MVPDs are -- customers of ours will -- for our audience development business.

So they are often buying promotion, placement in Roku user interface or other audience development products that we sell.

So they're big customers of audience development even if they -- the customer comes off of Roku.

And then we have a variety of ways we participate on the advertising front with our partners, including virtual MVPDs, and those don't always have a direct relationship to where the customer signs up for the service.

So in general, they're great customers and partners for us.

(Operator Instructions) And our next question will come from the line of Rich Greenfield with BTIG.

I got a couple.

One just quick follow-up.

Just to be clear, Anthony, in that MVPD answer, there is no ad revenue share that you get.

So out of the time that a YouTube TV or a Hulu Live, you're not sharing any portion of that ad revenue stream even if you can help them sell ads, that isn't currently happening.

Do you think that's an opportunity over time to help them?

Rich, Scott here.

I'll comment on that.

Without getting into the details of any specific virtual MVPD partnership, I will say that we do have partnerships where we are helping with monetization of their ad inventory.

And have you ever qualified how much -- Anthony just mentioned on the Platform side that you're getting some form of benefit when somebody signs up for a YouTube TV or a Sling or whatever it may be through the Roku Platform.

Have you ever qualified how much of platform revenue is advertising versus nonadvertising?

Rich, it's Steve.

We don't have an update on that.

Okay.

And then just final question.

There's obviously this massive wave of shifting to streaming.

And it seems like every single media company or even tech and media company is now talking about streaming.

Apple's coming in, Warner, NBC, Disney, everyone's doing it.

Some like NBC are obviously moving in the ad direction, although a lot seemingly are not moving in the ad direction.

How do you think about the mix between advertising and non-advertising?

Obviously, Viacom is making a big bet on the ad side.

More like where do you see that shaking out?

Or do you think just that the overall trend toward streaming works in your favor even if there are a lot of non-ad supported apps coming?

Yes.

So, I mean, we found -- I founded this company on the belief that all television was going to be streamed.

And it wasn't that many years ago when there was no streaming, and then the only streaming was Netflix.

And it was -- it took a long time for the incumbents to embrace streaming, but they have, and that's very gratifying to see every major media company in the world developing streaming strategies, which is great, it's great for us because we're the leading streaming platform.

And so that helps our consumers, that helps our business.

We said before that we think advertising is -- that on-Roku advertising is not that we think -- on-Roku advertising is the fastest-growing content category.

And we believe that just like in sort of legacy world of linear TV viewing, the business model, the mix of subscriptions and advertising, we think that same business model applies to streaming as well.

Yes, I'll just add on to that, Rich, that our view is we win in either case.

But certainly over the last year, there's been a growing awareness of the opportunity around ad-supported OTT, and now that's what's causing all the activity we see in this space.

And we're particularly bullish on our ability to add value as AVOD grows as a category, both as a seller and an enabler of a kind of advanced ad capabilities that these parties are going to need to succeed in this next generation of TV advertising.

Our next question will come from the line of Mark Mahaney with RBC Capital Markets.

Quick question.

Steve, can you please clarify, maybe we didn't hear it right.

The Q1 revenue guide for Platform revenue, you mentioned down 20% sequentially.

And for Player, down almost 50%.

But if we do that based on Q4 numbers, it's still coming below your lower end of Q1 guide.

So can you please clarify that?

Yes.

Well, again, those are directional sequential guidance, to give you a little bit of sense of the mix.

I would focus on the actual revenue outlook range in terms of where we think we're going to end up.

This concludes our question-and-answer session for today.

It is now my pleasure to hand the conference back over to Mr. Anthony Wood, CEO, for any closing comments and remarks.

Thanks.

So around the world, the business of TV distribution and advertising is changing more rapidly than ever.

And at Roku, we're laser focused on this opportunity and the fundamentals of our business are strong.

I'm super excited about our market position and plans for 2019.

So thanks for your support, and joining our call today.

Ladies and gentlemen, thank you for your participation on today's conference.

This does conclude our program, and you may all disconnect.

Everybody, have a good day.