roku-8k_20210218.htm
false 0001428439 0001428439 2021-02-18 2021-02-18

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): February 18, 2021

 

ROKU, INC.

(Exact name of Registrant as Specified in Its Charter)

 

Delaware

 

001-38211

 

26-2087865

(State or Other Jurisdiction

of Incorporation)

 

(Commission File Number)

 

(IRS Employer

Identification No.)

 

 

 

 

 

1155 Coleman Ave

San Jose, California

 

 

 

95110

(Address of Principal Executive Offices)

 

 

 

(Zip Code)

(408) 556-9040

(Registrant’s Telephone Number, Including Area Code)

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instructions A.2. below):

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

Title of Each Class:

 

Trading Symbol(s):

Name of Exchange on Which Registered:

Class A Common Stock, $0.0001 par value

ROKU

The Nasdaq Global Select Market

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

 

 


 

Item 2.02

Results of Operations and Financial Condition.

On February 18, 2021, Roku, Inc. (the “Company”) announced its financial results for the quarter and year ended December 31, 2020. The Company’s Shareholder Letter, which is attached hereto as Exhibit 99.1, is incorporated herein by reference.

The information in this report shall not be treated as “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, except as expressly stated by specific reference in such filing.

 

Item 9.01

Financial Statement and Exhibits.

 

(d)

 

Exhibits.

 

 

 

 

 

Exhibit Number

 

Description

 

    

 

99.1*

 

Shareholder Letter dated February 18, 2021

 

 

 

104

Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

    

*This exhibit is intended to be furnished and shall not be deemed “filed” for purposes of the Securities and Exchange Act of 1934.

 


 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

 

 

Roku, Inc.

 

 

 

Dated: February 18, 2021

 

 

 

 

 

 

 

 

By:

 

/s/ Steve Louden

 

 

 

 

 

 

Steve Louden

 

 

 

 

 

 

Chief Financial Officer

 

roku-ex991_6.htm

Exhibit 99.1

 

 

February 18, 2021

Fellow Shareholders,

Roku had both a strong Q4 and 2020. For both periods we achieved record revenue, gross profit and adjusted EBITDA, as consumers and the TV industry continued to shift to streaming. We surpassed 50 million active accounts, driven by the popularity of Roku® streaming players and Roku TV™ models. In 2020, the Roku OS was the No. 1 smart TV operating system in the U.S. with 38% unit share of smart TVs sold. Despite a pandemic-related advertising slowdown in the U.S., our advertising business proved resilient with Q4 Roku monetized video advertising impressions more than doubling year-over-year, as advertisers increasingly followed users from traditional pay TV to streaming. 2020 also saw prominent content publishers reorient toward TV streaming, further expanding the content selection for our users.

2020 Highlights

 

Total net revenue grew 58% YoY to $1,778 million;  

 

 

Platform revenue increased 71% YoY to $1,268 million;  

 

 

Gross profit was up 63% YoY to $808 million;  

 

 

Roku added 14.3 million incremental active accounts in 2020 to reach 51.2 million at year end;  

 

 

Streaming hours increased by 20.9 billion hours YoY to a record 58.7 billion;  

 

 

Average Revenue Per User (ARPU) increased $5.62 YoY to $28.76 (trailing 12-month basis);  

 

 

In 2020, 38% of all smart TVs sold in the U.S. were Roku TV models

 

Key Operating Metrics

Q4 19

 

 

Q1 20

 

 

Q2 20

 

 

Q3 20

 

 

Q4 20

 

 

YoY %

 

Active Accounts (millions)

 

36.9

 

 

 

39.8

 

 

 

43.0

 

 

 

46.0

 

 

 

51.2

 

 

 

39

%

Streaming Hours (billions)*

 

10.9

 

 

 

12.3

 

 

 

14.6

 

 

 

14.8

 

 

 

17.0

 

 

 

55

%

ARPU ($)

$

23.14

 

 

$

24.35

 

 

$

24.92

 

 

$

27.00

 

 

$

28.76

 

 

 

24

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Summary Financials ($ in millions)

Q4 19

 

 

Q1 20

 

 

Q2 20

 

 

Q3 20

 

 

Q4 20

 

 

YoY %

 

Platform revenue

$

259.6

 

 

$

232.6

 

 

$

244.8

 

 

$

319.2

 

 

$

471.2

 

 

 

81

%

Player revenue

 

151.6

 

 

 

88.2

 

 

 

111.3

 

 

 

132.4

 

 

 

178.7

 

 

 

18

%

Total net revenue

 

411.2

 

 

 

320.8

 

 

 

356.1

 

 

 

451.7

 

 

 

649.9

 

 

 

58

%

Platform gross profit

 

162.4

 

 

 

130.6

 

 

 

138.5

 

 

 

194.7

 

 

 

300.8

 

 

 

85

%

Player gross profit

 

(0.7

)

 

 

10.5

 

 

 

8.4

 

 

 

20.2

 

 

 

4.6

 

 

nm

 

Total gross profit

 

161.6

 

 

 

141.1

 

 

 

146.8

 

 

 

214.8

 

 

 

305.5

 

 

 

89

%

Platform gross margin %

 

62.5

%

 

 

56.2

%

 

 

56.6

%

 

 

61.0

%

 

 

63.8

%

 

 

130

bps

Player gross margin %

 

-0.5

%

 

 

11.9

%

 

 

7.5

%

 

 

15.2

%

 

 

2.6

%

 

 

310

bps

Total gross margin %

 

39.3

%

 

 

44.0

%

 

 

41.2

%

 

 

47.6

%

 

 

47.0

%

 

 

770

bps

Research and development

 

78.8

 

 

 

88.3

 

 

 

84.4

 

 

 

88.4

 

 

 

94.7

 

 

 

20

%

Sales and marketing

 

61.8

 

 

 

68.2

 

 

 

64.2

 

 

 

71.0

 

 

 

96.1

 

 

 

55

%

General and administrative

 

38.4

 

 

 

39.7

 

 

 

40.5

 

 

 

43.5

 

 

 

49.5

 

 

 

29

%

Total operating expenses

 

179.0

 

 

 

196.3

 

 

 

189.0

 

 

 

202.9

 

 

 

240.3

 

 

 

34

%

Income (loss) from operations

 

(17.4

)

 

 

(55.2

)

 

 

(42.2

)

 

 

12.0

 

 

 

65.2

 

 

nm

 

Adjusted EBITDA 1

 

15.1

 

 

 

(16.3

)

 

 

(3.4

)

 

 

56.2

 

 

 

113.5

 

 

 

650

%

Adjusted EBITDA margin %

 

3.7

%

 

 

-5.1

%

 

 

-1.0

%

 

 

12.4

%

 

 

17.5

%

 

 

1380

bps

Outlook ($ in millions)

Q1 2021E

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total net revenue

$478 - $493

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total gross profit

$234 - $241

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (loss)

($23) – ($16)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA 2

$27 - $34

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1 Refer to the reconciliation of net loss to adjusted EBITDA in the non-GAAP information in an appendix to this letter.

 

2 Q1 2021E reconciling items between net loss and non-GAAP adjusted EBITDA consist of stock-based compensation of approximately $40 million, depreciation and amortization and other net adjustments of approximately $10 million.

 

___________________________

* Reported streaming hours data reflects previously disclosed adjustments to our streaming hours calculations for periods prior to Q4 2020.

Roku Q4 and Full Year 2020 Shareholder Letter

1

 

 


 

Our Business Model

We believe that all TV will be streamed. Our mission as the leading TV streaming platform is to connect the TV ecosystem of viewers, content publishers, and advertisers, thus creating a virtuous cycle that benefits all participants. At the core of our strategy is providing consumers with an excellent streaming experience via an easy user interface, broad content selection, and great value. We seek to grow the scale of our user base, increase engagement by our users, and then monetize the activity on our platform, which we can then reinvest in our platform.

Building Scale

In 2020, consumers spent more time at home due to the COVID-19 pandemic, and streaming continued to gain momentum. These factors contributed to strong active account growth, especially in Q2 and Q3. In 2020, we added over 14 million active accounts, ending the year with 51.2 million active accounts. To put our scale in perspective, Roku’s U.S. active account base is now more than twice the number of the U.S. video subscribers of the biggest cable company.

Roku OS

Central to our platform is the Roku operating system (OS), our purpose-built, best in class OS for TV streaming. The Roku OS, which powers Roku TV models and our streaming players, is loved by consumers for its simplicity and ease of use. It is continuously updated to enhance our users’ experience and to grow our monetization capabilities. In September 2020, we rolled out Roku OS 9.4, which brought our live TV channel guide for streaming channels to Roku TV models, provided surround level control for multi-channel audio on audio products, and enabled Apple Airplay2 and Homekit for seamless integration with Apple products. The Roku OS contributes to Roku streaming players, Roku TV models, and our TV audio products receiving prestigious awards. These include CNET Editors’ Choice award for Roku Streaming Stick®+ and What-Hifi 5 Star review for Hisense Roku TV in the UK. Roku OS is an important strategic advantage for us, and therefore will continue to be a key investment area.

Roku Q4 and Full Year 2020 Shareholder Letter

2

 


 

Roku TV

2020 was another strong year for the Roku TV program. Not only did the number of Roku TV manufacturers and brands continue to grow across multiple countries, but also several partners achieved substantial year-over-year unit share gains in the U.S. The Roku TV program offers outstanding value to TV OEMs. In addition to the Roku brand recognition, lower Bill of Materials (BOM) cost and reference design, the Roku OS enables OEMs to offer Roku TV models at a wide range of price points and performance options. We broadened the Roku TV ecosystem with the launch of the Roku TV Ready™ program, and a new wireless surround sound 4.1 system. Roku TV Ready certification enables third-party soundbars to easily connect to a Roku TV and be controlled by the single Roku TV remote control. We believe the Roku TV program will continue to drive scale for Roku as increasing numbers of devices powered by our OS are brought into consumers’ homes.

Streaming Players

For the full year 2020, streaming player unit sales grew 28%, resulting in Player revenue increasing 32% year over year. Player sales were especially strong in Q2 and Q3 due in part to consumers spending more time at home due to the COVID-19 pandemic. Q4 Player revenue growth rate was more aligned with the period before the COVID-19 pandemic.

Our streaming players deliver an outstanding user experience, and we offer a variety of models at various price points allowing consumers to select the device that best suits their needs. We introduced our latest innovation in the player category, the Roku Streambar™, which combines video streaming and soundbar functionalities into one low-cost and compact device. The Roku Streambar received multiple awards including CNET’s Best Soundbar-streaming combo, and Top Gadget of 2020 by Unocero in Mexico and Tech Advisor Recommended in the UK.

Driving Engagement

In 2020, we made excellent progress increasing engagement driven by investments in user experience and expanding content options for viewers. Our users streamed 17 billion hours in Q4, and over 58 billion hours in 2020 overall. Both periods grew 55% year-over-year. Roku active accounts streamed an average of 3.8 hours per day in Q4, up 10% year-over-year. Launches of compelling third-party streaming channels, as well as our continued investments in The Roku Channel, contributed to engagement growth. We believe this momentum will continue. Recent research published by Parks Associates shows that 43% of all broadband households in the U.S. that currently pay for traditional TV are likely to switch to streaming within the next 12 months. The Big Game, which aired on February 7th, was the most live-streamed American football contest ever. And Conviva reported that the Roku platform was the most popular streaming platform with a 41% share of streams, which is nearly equivalent to the next three platforms combined.

 

Roku Q4 and Full Year 2020 Shareholder Letter

3

 


 

TurboTax’s branded sponsorship experience, which shows Roku users where they can stream the Big Game live.

 

Content Promotion

Roku connects content publishers to users at scale, and provides a deep array of promotion tools to help drive engagement and reach. In 2020, we saw the continued strong growth of Disney+ (launched in late 2019), as well as the launch of NBCU’s Peacock and HBO Max. This was followed by the recent launch of Discovery+ in Q1 2021. These services have done well on the Roku platform owing to our large base of engaged users and our promotional capabilities, as described below. The combination of users and content drives a virtuous cycle on the Roku platform.

Peacock’s purchase of the PrimeTime ad, a unit that enabled one-click play of The Office from the Roku home screen.

 

Roku Q4 and Full Year 2020 Shareholder Letter

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In 2020, we continued to enhance our promotional capabilities, including our use of machine learning to drive the outcomes content partners value most. Our biggest content partners now typically buy promotions from us on a cost-per-action (CPA) basis, and optimize on metrics like installs, subscriptions, views and retention. Machine-driven content marketing benefits not only our content partners, who benefit from more efficient advertising, but also our users who see more relevant ads. Bassil El-Khatib, CEO of Frndly TV noted: “For every dollar we spent on Roku versus a large social media platform in July 2020, we had a 65% better return on investment with Roku as their promotional capabilities attract the right customers in the right mindset to build long-lasting relationships.”

The Roku Channel

In 2020, users continued to increase their streaming of content through The Roku Channel. We believe that increased engagement with The Roku Channel was driven by improvements in the quality and quantity of programming options offered to users, as well as our use of our platform's promotional capabilities. Similar to Q3, in Q4 usage of The Roku Channel grew nearly twice as fast as our overall platform and reached U.S. households with an estimated 63 million people, up more than 100% year-over-year.

We continue to add great content to The Roku Channel and enhance its user experience.  We added more than 50 linear channels in Q4, and in June launched our Live TV Streaming Channel Guide to help users more easily discover content across more than 175 linear streaming channels. Coverage of the Presidential Inauguration and Election Day on The Roku Channel drew record audiences, demonstrating that linear live channels resonate with The Roku Channel users.

The Roku Channel drives a virtuous cycle of viewers, advertisers, and content which in turn drives continued growth in viewing hours, reach, advertising revenue, and content options. In January, we acquired Quibi’s global content distribution rights, which we will use to add compelling original programming to our viewers on a free, ad-supported basis. We secured rights to over 75 series and hundreds of hours of programming produced by some of the greatest talent in Hollywood. We will begin launching Quibi content later this year. More broadly, the continued growing scale of The Roku Channel enables us to be more creative and expansive in sourcing cost-effective content that is well-suited to an AVOD business model.

Monetization

Our ability to monetize the Roku platform continues to grow as we increase scale and engagement and add new capabilities. One way we measure our success in monetizing our platform is via the metric Average Revenue Per User (ARPU). In 2020, we grew ARPU by $5.62 year-over-year to $28.76 (trailing 12-month basis). ARPU growth was driven by increased per-user engagement, as well as our continued investments in our channel distribution, content promotions, billing and advertising capabilities.

Roku Q4 and Full Year 2020 Shareholder Letter

5

 


 

Content Distribution

Our content distribution business demonstrated remarkable growth in 2020 across all dimensions (SVOD, TVOD, buttons, content promotions), owing in part to a surge in pandemic-related device purchases and user engagement. Larger-than-expected device sales led to significant increases in button demand by our content partners, while the launch of major new streaming services and their associated launch marketing campaigns helped drive significant increases in SVOD revenue shares and content marketing revenues. Roku Pay, a key platform capability that simplifies consumer subscription signups and drives purchase and retention for partners, is growing more than twice as fast as overall SVOD users on the platform. 2020 demonstrated the power of the Roku platform to drive user engagement for the benefit of Roku, its content partners, and users.

Disney+ promoted the debut of Soul with a customized sponsorable theme across the entire Roku home screen.

 

Advertising

In 2020, Roku continued to deliver strong advertising growth, as evidenced by a more than doubling in Q4 of Roku monetized video advertising impressions on a year-over-year basis. Important factors contributing to this growth include the continued growing interest in streaming by traditional TV advertisers, as well as our ongoing investment in our OneView ad platform and overall ad tech capabilities. Our robust growth in Q4 and 2020 is particularly notable in light of the pandemic’s impact on marketing spending overall, especially the significant declines in traditional TV.

In 2020, traditional TV upfronts were disrupted by the loss of live event programming due to the pandemic, continued significant declines in linear viewership, and aging demographics of the traditional linear TV audience. The median viewing age for the three major broadcast networks is now over 60 years old, driven in part by the flight of younger viewers to streaming. Even as broadcast primetime household ratings dropped 21% year over year, upfront ad costs actually increased by 13%. These changes accelerated a trend already underway: marketers fundamentally reevaluating their TV investment

Roku Q4 and Full Year 2020 Shareholder Letter

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strategy. In Q4, the six largest agency holding companies more than doubled their investment with Roku on a year-over-year basis, while also committing to significantly larger 2021 upfronts with Roku.

We are seeing robust growth in a number of advertiser segments. One example is retail. While retailers spent 7% less on traditional TV advertising year-over-year during Q4, retail advertising spend on the Roku platform more than doubled year-over-year in Q4. For example, to engage shoppers aged 18-34 during the holiday season, Walmart ran targeted video ads and launched an interactive Roku TV sweepstakes from the Roku home screen. Among viewers who saw a Roku ad for Walmart, 80% had not seen a Walmart ad on traditional TV, and brand favorability increased 65% for adults 18-34.

We continue to invest in capabilities to help marketers use the scale and insights of Roku’s platform to be successful.  In 2020, we rebranded our DSP as the “OneView Ad Platform” and integrated it with Roku-native identity, data and attribution tools. These unique capabilities are driving significant year-over-year growth in the usage of OneView®: spending on OTT impressions through OneView more than doubled in 2020, while spending on impressions delivered on the Roku platform in OneView more than quadrupled.

Global Expansion

TV streaming is a global phenomenon and in 2020 Roku continued to successfully expand beyond our domestic market using the same business model, capabilities and products that have worked so well for us in the U.S. We are seeing strong early evidence that our strengths and differentiators translate internationally. In 2020, Roku TV was the top-selling smart TV OS in Canada, where Roku had 31% market share. We also added CBC and Crave, top local SVOD channels in Canada. In Brazil, we recently celebrated the first anniversary of our successful entry with the launch of our second TV OEM partner for that market, Philco (in addition to AOC). In Mexico, we continue to see good progress in growing scale and engagement, more than doubling the number of Roku TV brands (from 3 to 7) in 2020. In the UK, we launched The Roku Channel and welcomed BT Sport to our platform, which allows us to offer our users the full suite of channels carrying Premier League games. And in Ireland, we signed a deal with the country’s largest broadcaster, RTE.  

We are pleased with the progress we’ve made in our existing markets, but there is more we want to achieve, and we intend to continue increasing our investments in international expansion. We will approach new markets with the same three-phased approach that has proven so effective in the U.S.: build scale, increase engagement, and monetize user activity.

Outlook

We are pleased with our 2020 results and the resilience of our business, and are optimistic about the year ahead. We believe we have sufficient visibility in the short-term to provide formal outlook for Q1. However, as we look farther ahead, the level of uncertainty compounds when trying to assess the net impact of a variety of factors such as the timing of the vaccine rollouts, emergence of new COVID-19 variants as well as the lasting economic impacts of the pandemic. Consequently, instead of providing a formal outlook for the full year, we will provide some directional perspective.

Historically, Q1 is our seasonally softest quarter from a revenue perspective (typically revenue has been roughly 25% lower sequentially than our seasonally strong Q4). Our Q1 outlook calls for similar seasonality with the midpoint of total net revenue of $485 million (up 51% year-over-year). We anticipate total gross profit of roughly $238 million at the midpoint. Strong gross profit growth outpacing OPEX growth is expected to result in adjusted EBITDA of $31 million at the midpoint.

We are mindful that in 2021 year-over-year comparisons will be quite volatile. In the first half of the year, we expect strong financial comparisons as compared to the first half of 2020 which includes early impacts from COVID-19 and the resulting economic lockdown. While in the second half of the year, we anticipate much tougher comparisons thanks to our exceptional performance in 2H20, and Q3 in particular, as consumer interest in streaming surged and our monetization efforts rebounded from slower Q2 growth levels. Thus, for the full year, our overall year-over-year revenue growth will fall below levels we expect to see in the first and second quarters of 2021. We expect our overall 2021 gross margin to be in the mid-40% range as platform margins remain fairly stable and we operate the Player segment at a gross margin close to zero to continue driving device sales and growing active accounts. Given the size of our opportunity and progress to date, we will continue investing in our business to enhance our competitive differentiation and seed future growth. In particular, these investments will include: R&D initiatives to bring new features, technology, and content to our platform; growing our Sales & Marketing efforts

Roku Q4 and Full Year 2020 Shareholder Letter

7

 


 

to drive increased scale and engagement of our user base and building out our G&A infrastructure to support a global scale business. As such, we anticipate returning to robust year over year OPEX organic growth rates similar to 2019 (vs. most of 2020 where we constrained headcount growth).

Conclusion

2020 was a pivotal year to start the streaming decade as pandemic related disruptions served as a catalyst in the fundamental shift to TV streaming and demonstrated the power of our strategy, technology, and execution. Our strategy and execution are working well, and we are seeing the results in our financial performance, our continued position as America’s No. 1 TV streaming platform by streaming hours, and our early international successes. Our purpose-built platform for TV streaming offers superior outcomes for the entire ecosystem – including users, content publishers, and advertisers.  We will continue to invest in innovation and growth, and are looking forward to a successful 2021.

 

Thank you for your support and Happy Streaming™!

 

Anthony Wood, Founder and CEO; and Steve Louden, CFO

 

 

Roku Q4 and Full Year 2020 Shareholder Letter

8

 


 

Conference Call Webcast – 2 p.m. PT February 18, 2021

The Company will host a webcast of its conference call to discuss the Q4 and fiscal year 2020 results at 2 p.m. Pacific Time / 5 p.m. Eastern Time on February 18, 2021. Participants may access the live webcast in listen-only mode on the Roku investor relations website at ir.roku.com. An archived webcast of the conference call will also be available at ir.roku.com after the call.

About Roku, Inc.

Roku pioneered streaming to the TV. We connect users to the streaming content they love, enable content publishers to build and monetize large audiences, and provide advertisers with unique capabilities to engage consumers. Roku streaming players and TV-related audio devices are available in the U.S. and in select countries through direct retail sales and licensing arrangements with service operators. Roku TV™ models are available in the U.S. and in select countries through licensing arrangements with TV brands. Roku is headquartered in San Jose, Calif. U.S.A. 

Roku, the Roku logo and other trade names, trademarks or service marks of Roku appearing in this shareholder letter are the property of Roku. Trade names, trademarks and service marks of other companies appearing in this shareholder letter are the property of their respective holders.

 

Investor Relations

Conrad Grodd

cgrodd@roku.com

Media

Kim Sampson

ksampson@roku.com

Use of Non-GAAP Measures

In addition to financial information prepared in accordance with generally accepted accounting principles in the United States (GAAP), this shareholder letter includes certain non-GAAP financial measures. These non-GAAP measures include Adjusted EBITDA. In order for our investors to be better able to compare its current results with those of previous periods, we have included a reconciliation of GAAP to non-GAAP financial measures in the tables at the end of this letter. The Adjusted EBITDA reconciliation adjusts the related GAAP financial measures to exclude other income (expense), net, stock-based compensation expense, depreciation and amortization, and income tax (benefit)/expense where applicable. We believe these non-GAAP financial measures are useful as a supplement in evaluating our ongoing operational performance and enhancing an overall understanding of our past financial performance. However, these non-GAAP financial measures have limitations, and should not be considered in isolation or as a substitute for our GAAP financial information.

Forward-Looking​ ​Statements

This shareholder letter contains “forward-looking” statements that are based on our beliefs and assumptions and on information currently available to us. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as “anticipate,” “believe,” “continue,” “could,” “design,” “estimate,” “expect,” “may,” “seek,” “should,” “will,” “would” or similar expressions and the negatives of those terms. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements represent our beliefs and assumptions only as of the date of this letter. These statements include the growth of TV streaming and increased competition in the OTT space; the benefits, impact, features and availability of our streaming players, our audio devices and our partners’ Roku TV models; our international expansion; the impact of the COVID-19 pandemic on the shift to TV streaming and the re-organizing of content producers around streaming; the impact of the COVID-19 pandemic on U.S. advertising expenditures and our ability to drive growth in our ad business in spite of such impacts; the impact of the COVID-19 pandemic on our results of operations, including net revenues, earnings and

Roku Q4 and Full Year 2020 Shareholder Letter

9

 


 

cash flows, and on our operating expenses and capital expenditures; our prospects for financial performance and growth following the COVID-19 pandemic; our strategic plan; the strength of the Roku brand, OS and platform; the growth and monetization of The Roku Channel; our users’ continued engagement with The Roku Channel; the launch of Quibi content and its performance with our users; the importance of our direct customer relationship and data; the benefits, impact, and importance of our partners and sponsorships; our plans to hire additional employees; our financial outlook for the first quarter of 2021; our investments; and our overall business trajectory.  Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in the forward-looking statements, even if new information becomes available in the future. Further information on factors that could cause actual results to differ materially from the results anticipated by our forward-looking statements is included in the reports we have filed with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2019 and our Quarterly Report on Form 10-Q for the quarter ended September 30, 2020.  Additional information also will be available in our Annual Report on Form 10-K for the year ended December 31, 2020. All information provided in this shareholder letter and in the tables attached hereto is as of February 18, 2021, and we undertake no duty to update this information unless required by law.

 

Roku Q4 and Full Year 2020 Shareholder Letter

10

 


 

ROKU, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited)

 

 

Three Months Ended

 

 

Year Ended

 

 

 

December 31,

2020

 

 

December 31,

2019

 

 

December 31,

2020

 

 

December 31,

2019

 

Net Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Platform

 

$

471,179

 

 

$

259,619

 

 

$

1,267,744

 

 

$

740,776

 

Player

 

 

178,707

 

 

 

151,611

 

 

 

510,644

 

 

 

388,145

 

Total net revenue

 

 

649,886

 

 

 

411,230

 

 

 

1,778,388

 

 

 

1,128,921

 

Cost of Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Platform (1)

 

 

170,349

 

 

 

97,236

 

 

 

503,177

 

 

 

262,655

 

Player (1)

 

 

174,079

 

 

 

152,347

 

 

 

466,992

 

 

 

371,042

 

Total cost of revenue

 

 

344,428

 

 

 

249,583

 

 

 

970,169

 

 

 

633,697

 

Gross Profit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Platform

 

 

300,830

 

 

 

162,383

 

 

 

764,567

 

 

 

478,121

 

Player

 

 

4,628

 

 

 

(736

)

 

 

43,652

 

 

 

17,103

 

Total gross profit

 

 

305,458

 

 

 

161,647

 

 

 

808,219

 

 

 

495,224

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development (1)

 

 

94,731

 

 

 

78,792

 

 

 

355,784

 

 

 

265,011

 

Sales and marketing (1)

 

 

96,089

 

 

 

61,814

 

 

 

299,457

 

 

 

178,855

 

General and administrative (1)

 

 

49,487

 

 

 

38,425

 

 

 

173,231

 

 

 

116,417

 

Total operating expenses

 

 

240,307

 

 

 

179,031

 

 

 

828,472

 

 

 

560,283

 

Income (Loss) from Operations

 

 

65,151

 

 

 

(17,384

)

 

 

(20,253

)

 

 

(65,059

)

Other Income (Expense), Net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(762

)

 

 

(930

)

 

 

(3,432

)

 

 

(2,366

)

Other income (expense), net

 

 

2,213

 

 

 

2,234

 

 

 

5,233

 

 

 

6,506

 

Total other income, net

 

 

1,451

 

 

 

1,304

 

 

 

1,801

 

 

 

4,140

 

Income (Loss) Before Income Taxes

 

 

66,602

 

 

 

(16,080

)

 

 

(18,452

)

 

 

(60,919

)

Income tax (benefit) expense

 

 

(704

)

 

 

(363

)

 

 

(945

)

 

 

(982

)

Net Income (Loss) Attributable to Common Stockholders

 

$

67,306

 

 

$

(15,717

)

 

$

(17,507

)

 

$

(59,937

)

Net Income (Loss) per share attributable to

    common stockholders—basic

 

$

0.53

 

 

$

(0.13

)

 

$

(0.14

)

 

$

(0.52

)

Net Income (Loss) per share attributable to

    common stockholders—diluted

 

$

0.49

 

 

$

(0.13

)

 

$

(0.14

)

 

$

(0.52

)

Weighted-average shares used in computing net income (loss)

    per share attributable to common stockholders—basic

 

 

127,375

 

 

 

118,644

 

 

 

123,978

 

 

 

115,218

 

Weighted-average shares used in computing net income (loss)

    per share attributable to common stockholders—diluted

 

 

138,763

 

 

 

118,644

 

 

 

123,978

 

 

 

115,218

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)  Stock-based compensation was allocated as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of platform revenue

 

$

198

 

 

$

104

 

 

$

847

 

 

$

342

 

Cost of player revenue

 

 

397

 

 

 

296

 

 

 

1,407

 

 

 

1,072

 

Research and development

 

 

16,936

 

 

 

12,016

 

 

 

58,412

 

 

 

40,036

 

Sales and marketing

 

 

11,602

 

 

 

7,624

 

 

 

42,846

 

 

 

24,179

 

General and administrative

 

 

9,595

 

 

 

5,982

 

 

 

30,564

 

 

 

19,546

 

Total stock-based compensation

 

$

38,728

 

 

$

26,022

 

 

$

134,076

 

 

$

85,175

 

Roku Q4 and Full Year 2020 Shareholder Letter

11

 


 

ROKU, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data)

(unaudited)

 

 

As of

 

 

 

December 31,

2020

 

 

December 31,

2019

 

Assets

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,092,815

 

 

$

515,479

 

Restricted cash

 

 

434

 

 

 

1,854

 

Accounts receivable, net of allowances of $41,236 and $27,521 as of

 

 

523,852

 

 

 

332,673

 

December 31, 2020 and 2019, respectively

 

 

 

 

 

 

 

 

Inventories

 

 

53,895

 

 

 

49,714

 

Prepaid expenses and other current assets

 

 

26,644

 

 

 

25,943

 

Total current assets

 

 

1,697,640

 

 

 

925,663

 

Property and equipment, net

 

 

155,197

 

 

 

103,262

 

Operating lease right-of-use assets

 

 

266,197

 

 

 

283,291

 

Intangible assets, net

 

 

62,181

 

 

 

76,668

 

Goodwill

 

 

73,058

 

 

 

74,116

 

Other non-current assets

 

 

16,269

 

 

 

7,234

 

Total Assets

 

$

2,270,542

 

 

$

1,470,234

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

112,314

 

 

$

115,227

 

Accrued liabilities

 

 

347,668

 

 

 

198,347

 

Current portion of long-term debt

 

 

4,874

 

 

 

4,866

 

Deferred revenue, current portion

 

 

55,465

 

 

 

39,861

 

Total current liabilities

 

 

520,321

 

 

 

358,301

 

Long-term debt, non-current portion

 

 

89,868

 

 

 

94,742

 

Deferred revenue, non-current portion

 

 

21,283

 

 

 

15,370

 

Operating lease liability, non-current portion

 

 

307,936

 

 

 

301,694

 

Other long-term liabilities

 

 

3,119

 

 

 

1,701

 

Total Liabilities

 

 

942,527

 

 

 

771,808

 

Stockholders’ Equity:

 

 

 

 

 

 

 

 

Common stock, $0.0001 par value;

 

 

13

 

 

 

12

 

Additional paid-in capital

 

 

1,660,379

 

 

 

1,012,218

 

Accumulated other comprehensive income

 

 

29

 

 

 

29

 

Accumulated deficit

 

 

(332,406

)

 

 

(313,833

)

Total stockholders’ equity

 

 

1,328,015

 

 

 

698,426

 

Total Liabilities and Stockholders’ Equity

 

$

2,270,542

 

 

$

1,470,234

 

Roku Q4 and Full Year 2020 Shareholder Letter

12

 


 

 

ROKU, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)

(unaudited)

 

 

 

Years Ended December 31,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(17,507

)

 

$

(59,937

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

36,206

 

 

 

15,669

 

Stock-based compensation expense

 

 

134,076

 

 

 

85,175

 

Amortization of right-of-use assets

 

 

28,743

 

 

 

22,328

 

Amortization of content assets

 

 

22,392

 

 

 

2,914

 

Provision for doubtful accounts

 

 

3,801

 

 

 

704

 

Other items net

 

 

524

 

 

 

1,101

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(196,046

)

 

 

(110,225

)

Inventories

 

 

(4,181

)

 

 

(14,129

)

Prepaid expenses and other current assets

 

 

(3,450

)

 

 

(9,934

)

Deferred cost of revenue

 

 

 

 

 

1,143

 

Other noncurrent assets

 

 

(1,128

)

 

 

(3,060

)

Accounts payable

 

 

6,410

 

 

 

9,409

 

Accrued liabilities

 

 

103,218

 

 

 

74,512

 

Operating lease liabilities

 

 

12,999

 

 

 

11,658

 

Other long-term liabilities

 

 

618

 

 

 

(3,024

)

Deferred revenue

 

 

21,517

 

 

 

(10,597

)

Net cash provided by operating activities

 

 

148,192

 

 

 

13,707

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(82,382

)

 

 

(77,180

)

Purchase of business, net of cash acquired

 

 

 

 

 

(68,132

)

Proceeds from escrows associated with acquisition

 

 

1,058

 

 

 

 

Purchase of intangible assets

 

 

 

 

 

(7,428

)

Purchases of short-term investments

 

 

 

 

 

(12,365

)

Sales/maturities of short-term investments

 

 

 

 

 

54,810

 

Net cash used in investing activities

 

 

(81,324

)

 

 

(110,295

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from borrowings, net of issuance costs

 

 

69,325

 

 

 

99,608

 

Repayments of borrowings

 

 

(74,325

)

 

 

 

Proceeds from equity issued under incentive plans, net of repurchases

 

 

16,806

 

 

 

28,181

 

Proceeds from equity issued under at-the-market offerings, net of offering costs

 

 

497,242

 

 

 

330,539

 

Net cash provided by financing activities

 

 

509,048

 

 

 

458,328

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

575,916

 

 

 

361,740

 

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

 

 

 

 

29

 

Cash, cash equivalents and restricted cash —Beginning of period

 

 

517,333

 

 

 

155,564

 

Cash, cash equivalents and restricted cash —End of period

 

$

1,093,249

 

 

$

517,333

 

Cash, cash equivalents and restricted cash at end of period:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

1,092,815

 

 

 

515,479

 

Restricted cash

 

 

434

 

 

 

1,854

 

Cash, cash equivalents and restricted cash —End of period

 

$

1,093,249

 

 

$

517,333

 

Roku Q4 and Full Year 2020 Shareholder Letter

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Years Ended December 31,

 

 

 

2020

 

 

2019

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

3,470

 

 

$

3,095

 

Cash paid for income taxes

 

$

1,014

 

 

$

759

 

Supplemental disclosures of noncash investing and financing activities:

 

 

 

 

 

 

 

 

Issuance of common stock for business combinations

 

$

-

 

 

$

69,684

 

Unpaid portion of property and equipment purchases

 

$

1,242

 

 

$

10,762

 

Unpaid portion of acquisition related expenses

 

$

-

 

 

$

2,190

 

Unpaid portion of purchased intangibles

 

$

-

 

 

$

400

 

Unpaid portion of at-the-market offering costs

 

$

-

 

 

$

144

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NON-GAAP INFORMATION (in thousands, except per share data)

(unaudited)

 

 

 

Three Months Ended

 

 

Year Ended

 

 

 

December 31,

2020

 

 

December 31,

2019

 

 

December 31,

2020

 

 

December 31,

2019

 

Reconciliation of Net Income (Loss) to Adjusted EBITDA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

67,306

 

 

$

(15,717

)

 

$

(17,507

)

 

$

(59,937

)

Other income (expense), net

 

 

(1,451

)

 

 

(1,304

)

 

 

(1,801

)

 

 

(4,140

)

Stock-based compensation

 

 

38,728

 

 

 

26,022

 

 

 

134,076

 

 

 

85,175

 

Depreciation and amortization

 

 

9,639

 

 

 

6,499

 

 

 

36,206

 

 

 

15,669

 

Income tax (benefit) expense

 

 

(704

)

 

 

(363

)

 

 

(945

)

 

 

(982

)

Adjusted EBITDA

 

$

113,518

 

 

$

15,137

 

 

$

150,029

 

 

$

35,785

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarterly streaming hours published vs. revised streaming hours (billions) 0b 2b 4b 6b 8b 10b 12b 14b 2017 q1 2017 q2 2017 q3 2017 q4 2018 q1 2018 q2 2018 q3 2018 q4 2019 q1 2019 q2 2019 q3 2019 q4 2020 q1 published streaming hours revised streaming hours

 

Roku Q4 and Full Year 2020 Shareholder Letter

14