Roku posts strong Q3, sees smart TV sales and ad momentum

Roku posted strong third-quarter results, marking 20% revenue growth and adding active accounts in a period that saw its TV sales unit growth outpace the industry.

Roku reported total net revenue of $912 million, compared to $761 million in the same period a year ago.  The company attributed revenue growth to strong performance in content distribution and video advertising, as well as sales of Roku-branded smart TVs that debuted in March.

Q3 revenue beat Wall Street expectations and Roku’s Stock soared 30% Thursday after the better-than-expected results.

The launch of Roku branded smart TVs, which first became available at BestBuy, as well as smart home products helped drive 33% year over year growth in device revenue, which reached $125 million in Q3. On the TV sales front, Roku in a letter to shareholders said in the U.S. Roku TV sales “grew significantly faster than the industry” with the Roku OS in Q3 again the No. 1 selling TVOS in the U.S.

Platform revenue grew 18% over the prior year period to $787 million. Platform revenue comes from digital advertising sales and content distribution. And despite a challenged U.S. ad market, Roku Media President Charlie Collier said during Wednesday’s earnings call that it “had a solid, really solid rebound in video ads in third quarter,” with year-over-year video advertising growth outperforming the overall ad market and linear TV ad market in the U.S.

Still, it remains cautious. Collier pointed to uneven ad recovery by category, noting verticals of CPG (consumer package goods) and Health and Wellness “growing and doing quite well” while others like financial services and insurance aren’t recovering as fast.

Roku, in its letter to shareholders, said part of the advertising traction is thanks to diversification of advertiser demand sources and expanding partnerships. Roku is now integrated with more than 30 programmatic partners and cited meaningful growth of spending on the platform through automated third-party demand sources in Q3.

“This is a result of our ability to tap into new budgets from existing advertisers while growing the number of new advertisers, including SMBs (small- and medium-sized businesses),” wrote Roku to shareholders. “We are also driving growth through expanding partnerships. Spotify partnered with Roku as its first TV streaming partner to introduce video ads in the Spotify app on Roku devices.”

The streaming company also pointed to advertisers like Walmart utilizing Roku City integrations and shoppable ads.

Roku also marked growth in active accounts and streaming hours in Q3. Net active accounts increased by 2.3 million from Q2, bringing its total to 75.8 million. Streaming hours, meanwhile, reached 26.7 billion, up 4.9 billion – and for the first time surpassed 100 billion hours on a trailing 12-month basis.

On the earnings call Mustafa Ozgen, president of Devices at Roku, said net adds in the quarter were driven by “a combination of strong growth in international markets, as well as in the U.S. market.”

In its letter to shareholders, the streaming platform pointed to its consumer-friendly user experience to help ease navigation as helping to drive engagement. In Q3 streaming hours originating from Roku’s Home Screen menu grew more than 90% year over year.

The company in October debuted new platform features focused on personalizing the streaming experience, including enabling “favoriting” for users to track their favorite sports teams within Roku’s Sports Experience, and streamlining browsing in its Live TV section.

Roku’s free ad-supported streaming TV (FAST) service, The Roku Channel, also continues to perform well and remained a top-five app on the platform by reach and engagement in Q3. Roku Channel streaming hours were up more than 50% year over year. In September The Roku Channel represented captured more than 1% of all TV streaming, per Nielsen’s The Gauge.

Asked by investment analysts about programming on the FAST, Collier said “Really our focus is on bringing the right mix of content to The Roku Channel, content that our customers love and watch across what is really that curated mix of licensed content, the FAST channels and original content.”

He noted that originals are a key part of the strategy, but the foundation of Roku’s content spend is on third-party licensed content that it then surfaces for viewers through its UI. It now counts over 400 linear FAST channels.

During the period Roku added sports FAST channels including FIFA+, DraftKings Network and CBS Sports HQ, as well as local Fox and CBS news channel. And it debuted the NFL Zone under partnership with the league within its Sports Zone in September.  It also grew entertainment FAST channels with classic shows from NBCUniversal and the first FAST channel from popular YouTuber MrBeast.  

Roku’s Q3 Adjusted EBITDA was $43 million. It reported a $350 million net income loss, compared to a net loss of $147 million a year ago. In September Roku disclosed job cuts, laying off 10% of employees, as well as cost-cutting measures to reduce office facilities and remove select content from the platform, as it worked to reduce the company’s year-over-year operating expense growth rate. That followed previous job cuts in March and last November.

While Roku had a solid Q3 and expects to grow ad share, looking ahead, it warned “we remain cautious amid an uncertain macro environment and an uneven ad market recovery.” It also noted difficult year-over-year growth rate comparisons in content distribution and M&E, which could impact platform revenue growth in Q4.

For Q4 Roku expects total net revenue of roughly $955 million and Adjusted EBITDA of $10 million.