Roku execs mum on Walmart, Vizio report, cite ‘strong retail relationships’

Roku on Thursday reported Q4 earnings where the streaming company grew active accounts to 80 million, alongside increased usage.  On the earnings call, executives declined to comment on a Wall Street Journal report earlier this week that Walmart is in talks to buy rival smart TV maker Vizio, but did emphasize strong relationships with retailers.

Roku grew its active account base after adding 4.2 million net accounts in the quarter, with a base up 10 million from the end of 2022. And the streaming platform marked increased engagement, with streaming hours up 21% year over year to 29.1 billion in Q4 and surpassing 100 billion hours for the full year for the first time.

Asked by analysts on Thursday’s earnings call about its relationship with Walmart and whether there is any risk to changes of the existing situation where its TV operating system is used by Walmart’s house brand Onn TV, Roku CEO Anthony Wood said he couldn’t comment on the WSJ report, categorizing it as rumor.

But speaking in general, the chief executive did respond that Roku has “strong retail relationships” including “a great relationship with Walmart” and distribution both in and outside the U.S. Roku, which introduced branded smart TVs at the start of 2023 that were exclusively sold at Best Buy and a new high-end premium line in early 2024, recently expanded U.S. retail relationships to include Costco and Amazon.

Wood pointed to its active account tally, saying consumers love the Roku brand, product and simplicity of the OS, with many viewers counting multiple Roku devices in their home. He also cited lower hardware costs.

“We have lower hardware cost than any other TV manufacturer I’m aware of,” he said. “All of this gives me a lot of confidence that we’re going to keep growing our distribution.”

Analysts warn of Walmart-Vizio impact to Roku

Roku’s stock dropped earlier this week on the Walmart and Vizio news. In an earlier note to investors following the WSJ report, MoffettNathanson analysts warned an acquisition of Vizio by Walmart could have impacts for streamers and advertising, particularly Roku, as Walmart is one of the leading channels for less expensive retail connected TV’s.

Analysts led by Michael Nathanson, in a February 13 note to investors, pointed out that Walmart has marketed its Onn TV brand, powered by Roku’s OS, alongside other lower-end models.

“Logically, a purchase of Vizio would allow Walmart to prioritize their products over competing low-end sets,” wrote Nathanson. “This is a significant challenge for Roku, given that, through the first 9 months of 2023, Walmart (which assume is Customer C in Roku’s reporting) accounted for 40% of Roku’s device revenues.”

It also poses implications for the advertising landscape, where TV makers might not mind losing money on unit device sales in favor of platform business profitability, driven by advertising and revenue shares, according to the analysts.

Indeed, Wood on Thursday’s earnings call said that in 2024 Roku will be redirecting much attention “to platform growth and innovation, where I see lots of opportunity.”

In Q4 Roku’s platform revenue was $829 million, up 13% over the prior year period. A core strategy for the company, Wood said, is to take better advantage of its position as the programmer of the home screen or TV entry point for its 80 million active accounts.

“We use this to grow ad reach, which correlates to ad revenue, as well as to grow our streaming service distribution activity,” Wood commented. Streaming hours originating from the Roku home screen doubled yoy in Q4.

Still, prior to Roku earnings, MoffettNathanson highlighted increased competition, noting Amazon will have more retail media and monetization opportunities available from its inclusion of ads on Prime Video’s base offering, alongside data from its massive e-commerce business. It’s an area where the firm said Walmart’s reported interest in acquiring Vizio can challenge the CTV ad landscape as the retailer can also pair first-party data with full-funnel ad inventory. In addition to Walmart and Amazon, Nathanson sees Alphabet’s YouTube as having the ability “to be highly disruptive to CTV incumbents.”

“Ironically, while our negative thesis on Roku…is based on increasing competition from better capitalized rivals, we did not think Walmart was one of them,” wrote the analysts.

Challengers on multiple fronts

And Roku’s fourth quarter earnings report didn’t seem to alleviate the analysts’ concerns, as it sees competition coming in for the streaming platform on multiple fronts.

“Recently, we believe that there is a strong and growing body of evidence that supports the view that Roku is at the precipice of being squeezed by the emergence of challengers on all flanks,” wrote Nathanson in a Thursday note to investors after Roku’s earnings report.

In terms of devices, MoffettNathanson said that amid a shift from streaming devices or sticks to smart TVs, Roku has the challenge of maintaining operating market share in an increasingly tight space that has the likes of Amazon and leading OEMs that want to go it alone. And the surprise interest from Walmart in Vizio would result in “another well-scaled entrant to compete with Roku in their most important retail channel.”

“Roku’s decision to create their own branded TVs perhaps is an acknowledgment that the road ahead will not be as easy as the prior road that was less traveled by many of these players,” wrote Nathanson.

Roku reported Q4 device revenue of $155.6 million, up 15% year over year, driven by Roku-branded smart TVs. Its device business posted a gross profit loss of $20.5 million.

In a letter to shareholders, Roku emphasized its operating system was the number one selling TV OS in the U.S. for the fifth year in a row and the company continued to expand its Roku TV partner licensing program internationally, including launches in Canada, Mexico, Central America and the U.K.

Roku executives during the call were also sure to highlight that innovations on the hardware-software combination for Roku-made TVs are being exported to its more than 30 partners that license the OS. That includes improvements that help lower the cost of the hardware as well as performance enhancements, according to Roku’s Mustafa Ozgen.

On the advertising front, MoffettNathanson’s Thursday note cited a material shift in CTV advertising as a result of Amazon’s Prime Video ad-supported entry, while noting focus from Netflix and Disney on ad-supported offerings. Analysts also pegged the potential for “a significant challenge to Roku’s incumbency” if Walmart does end up acquiring Vizio, in part thanks to the retailer’s brand relationships and trove of shopping data.  In addition, the FAST channel space and AVODs like Tubi and Pluto bringing inventory to the market are both contributing “to depress CPMs a la display inventory at the start of the Web 1.0 period.”

“We find it odd that, in light of the collapse of linear ratings, two Hollywood strikes that crippled scripted content and the nascent state of ad competitors, Roku’s advertising revenues are not showing faster signs of growth,” wrote the analysts. “Again, we worry that, despite the collapse of linear advertising, this could be as good as it gets.”

In its letter to shareholders, Roku attributed platform revenue growth to streaming services distribution and video advertising, offset by lower M&E (Media and Entertainment) promotional spend. Roku said it saw continued signs of advertising rebound in the quarter and outperformed the overall ad market and traditional linear US TV in Q4. Still, executives warned of a “challenging” environment for M&E in 2024 while emphasizing it’s “still a big opportunity for us” and citing growth in advertising categories of consumer packaged goods, health and wellness and telecom.

In Q4 Roku decreased total quarterly operating expenses by 12% year over year to $542 million and improved net losses, which totaled $104 million in the period. Total net revenue in Q4 grew 14% to $984 million and quarterly Adjusted EBITDA was $47.7 million.