As a streaming-media company that makes money in part from media companies, Roku Inc. has been in a strange spot lately, and the ongoing Hollywood strikes threaten to add a new dimension to its predicament.
Roku
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generates revenue in a number of ways, including by selling devices to consumers, taking a cut of subscriptions purchased through its platform, licensing its operating system to TV manufacturers and selling ads. Ad spots on the Roku platform are especially popular with media and entertainment companies, which see opportunities to attract users with demonstrated viewing intent over to their programming in a crowded world of content.
Roku Chief Executive Anthony Wood explained the company’s resonance with M&E advertisers, its largest vertical, on Thursday’s earnings call.
“One of the biggest roles we have is helping viewers find something to watch across all the different content and services on the platform,” he said. “And there’s a bunch of ways we do that, but one way we do that is through our M&E promotions, which are generally integrated into our [user interface], and they’re a very effective way and a very user-friendly way to expose content.”
“‘One of the biggest roles we have is helping viewers find something to watch across all the different content and services on the platform. … One way we do that is through our M&E promotions, which are … a very effective way and a very user-friendly way to expose content.’”
Given the “current state of the economy and the ad cycle we’re in,” M&E advertising has been down, he said, although Roku thinks it is picking up shares of the dollars that exist in the market.
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Dan Jedda, the company’s chief financial officer, flagged on the call that Roku expects media and entertainment advertising “to be further pressured in the second half of this year by the limited all-release schedules arising from the current labor strikes,” although executives said they’ve been focused on diversifying Roku’s exposure and ad opportunities.
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One way the company is doing this is by introducing brand tie-ins to Roku City, a screensaver that’s become a cult favorite with streamers.
“For the first time, Roku City was opened for major brand advertisers, such as McDonald’s and Mattel, which have integrated brand-specific visuals into our iconic screen saver, allowing them to reach consumers in a way that only Roku delivers,” the company said in its shareholder letter. Roku has been working with several advertisers outside of the media landscape “to place ads on Roku’s home screen, all while maintaining an outstanding streaming experience for viewers.”
Charlie Collier, the president of Roku Media, added on the earnings call that the company now has “more demand than capacity in Roku City” and is “looking for ways to expand thoughtfully.” The limited moves so far seem to be resonating with some streamers, according to Collier, who shared comments from fans excited about Barbie virtual installments.
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Amid a confluence of factors including media-ad pressures as well as signs of potential recovery in other ad categories, Roku’s third-quarter revenue forecast implies expectations for a sequential decline, although that outlook did exceed the consensus views.
Shares were roaring nearly 20% higher in Friday morning trading, and analysts wondered whether the company’s view might be too conservative.
The outlook “has more opportunity than risk,” Steven Cahall of Wells Fargo wrote in a note to clients, flagging the potential for Roku to log a sequential improvement in revenue per hour and thus help its monetization.
The company “has history of conservative guidance,” added Oppenheimer’s Jason Helfstein.
This post was originally published on Market Watch
