$ROKU Roku Q1 2026 Earnings Conference Call

Hey Brett, this is Anthony. Thanks for your question. I'll turn it over to Dan in a second to answer your actual question, but let me just say a few things. First, I just want to say that I'm very happy, super happy with the trajectory of our business. We're on a great path and I'm really excited with how things are going. We delivered an outstanding quarter and are executing against our monetization initiatives. For example, advertising revenue grew 27% and our third-party partnership strategy is working. Adoption of Ads Manager is growing, and overall, we're building a highly performant connected TV ad platform. Subscription revenue grew 30% driven by premium subscription sign-ups. We're expanding our tier one partners in premium subscriptions. We recently added Apple TV in March and this week we announced Peacock. And of course, we just recently passed 100 million streaming households, which I'm very excited about. It's a huge milestone for us. So, we're focused on execution and we're super well positioned. But I'll let Dan answer your exact question.

Yeah, so your second question was about memory prices in our devices segment. First, I just want to highlight that the Roku TV operating system requires significantly less memory and storage than all our competing platforms. We spent a lot of effort building a highly customized OS designed specifically for television. One of the main things we focused on was bill of materials cost. One of the ways we achieve lower bill of materials cost is using less memory and also being more versatile in the types of memory we can use, because in the TV business, every dollar matters. It's a hugely price competitive market. So while memory prices are going up, and that's something in our first-party business we need to manage, most of our business is actually third-party products. And with third-party products, as memory prices go up, the bill of materials advantage that we have versus our competitors gets bigger. The price difference expands, and that attracts TV OEMs and retail partners, which is good for our business. It helps us win more accounts and win more retail placements. So although there are issues around memory that we have to manage, it's generally great for our business because it gives us a bill of materials cost advantage, allowing us to have a lower cost than all competing products, and that gap is just widening right now by a pretty wide margin. But Dan, do you want to talk more about the specifics?

Hey Sean, Charlie will take your question.

Thanks, Justin. Charlie will take your question on Originals and then maybe I can take your second question on AI.

Then your question about AI. Let me just talk generally about how we think about AI. At the highest level, AI is a very big opportunity for Roku. It's a powerful tailwind for our business. We're integrating across our entire technology stack. In our platform, we use AI to improve discovery, increase engagement, improve advertising performance, and unlock new monetization opportunities. We've used AI in the platform since the beginning, but what's been happening over the last year or two has been moving our algorithms to modern generative AI algorithms, which just improves the performance. The more we can personalize the experience, the more engagement we get, the more ads viewing we can drive, the more subscription sign-ups we can drive. On engineering, we're rapidly adopting AI. It's definitely accelerating feature development and the speed at which we can develop new features. It's enhancing the productivity of each of the engineers. And then of course content, AI is going to lower the cost of content creation, both for entertainment content and for ads. That'll result in lower cost content, which will drive engagement on our platform. On the advertising side, using generative AI in our platform is helping us build the most performant connected TV ad platform. We're making great progress on that. We're really leaning into performance across a bunch of different aspects. And then also, Ads Manager is only possible because of generative AI, which is opening up an entirely new market, a big market of performance advertisers and small and medium-sized businesses. That product is built entirely on generative AI, including the creation of the videos. And then finally, we're using AI across the entire company for operations to drive operational efficiency and productivity. So it's a big opportunity. We're really leaning into it, and AI is strengthening our platform, improving monetization, and enhancing the performance of our business. In terms of controlling costs, we're still watching it carefully. AI on the efficiency side will improve productivity, and that'll show up in other ways in OpEx. There are definitely ways to manage the costs, but at this point, it's very manageable. We're just watching it carefully.

Thanks for your question. Let's start with Dan. He can answer the question on advertising gross margin, and then I'll talk about OEM.

And then to answer your question about first-party versus third-party, just to level set on what those terms mean. When we say first-party products, we're talking about our streaming players, streaming sticks. These are products that we build and sell and distribute and market ourselves. And then we also make first-party TVs. These are TVs that we build, sell, market. And these are sold under the Roku brand as well as the Hero brand, which is one of our first-party brands that we use. It's a known brand. And then third-party means working with other OEMs like TCL, Hisense, but there's many, many others.

In terms of monetization, first-party and third-party are pretty similar. I don't think there's any real difference, but there are slight differences by channel depending on the retail outlet. You have different types of customers that can result in slightly different monetization, though I don't think it's huge. TV size also affects monetization a little bit—bigger TVs have slightly higher monetization—and players and TVs might differ slightly. None of these things are particularly large, so probably not worth focusing on. We lean into third-party a lot. Our partnerships are very important to us. The vast majority of Roku TVs sold are third-party TVs. The reason we have both first-party and third-party is because it's a very complicated distribution system. When you sell enough TVs to be in over half of all broadband households, that means probably over a thousand different models we certify each year across first-party, third-party, different countries, regions, and retailers. Different retailers want to differentiate with different brands, products, models, price points, and features. So offering a variety of third-party and first-party products gives us maximum flexibility to go into channels and maximize distribution. It gives us options. For example, Hero is currently exclusive at Target, which helps us get distribution there. That's a simple example, but there are lots of reasons we do it.

Thank you.

Thanks, Rich. Thanks for the questions. It's great to hear from you. On the home screen, we've been testing the new home screen for a while. It's a big change—every Roku customer in the world will get it. It's not strictly optional, so you want to make sure customers are happy and that they're going to like it more than the old home screen. It's easy to get most customers to like it more, but a little harder to get almost all customers to like it more. We've been focused on making sure it improves monetization—subscriptions and ads—improves engagement. Those are the things we've been focusing on. The home screen is a super important asset. It's in households with over 125 million people, and they start their TV viewing experience with our home screen every day. It's very iconic. We're also focused on not losing that iconic look—most connected TV platforms all kind of look the same. Our home screen looks unique and more delightful. It's in testing in a fairly large number of homes and will be rolling out to everyone soon. The results we're seeing are definitely more engagement, improved viewer satisfaction, and increased monetization. For example, the marquee ad is now visible when you first launch the home screen, whereas before you had to scroll right to see it. That change alone is driving more click-throughs, making the ad unit more visible and more valuable. Making content more prominent drives engagement, allows us to promote subscriptions and ad content. We're also making app tiles more viewer-friendly. There are lots of detailed changes, all designed to improve viewer satisfaction and monetization. The testing was good—it's going to be a good change for us. Regarding Howdy, I can't confirm third-party numbers, but Howdy is our owned and operated subscription streaming service at $3 a month. Our main owned and operated service is The Roku Channel, which is free ad-supported—it's the number two app on our platform, over 6% of all streaming viewing in the US. Howdy's not as big because it's a lot newer, but it's doing extremely well. It's ad-free, SVOD, very affordable. It's going after a segment that's not currently served except by Howdy—streaming services have been raising prices and increasing ad loads, so a low-cost affordable streaming service didn't really exist. That's the segment we're going after and intend to stay in, and I think it's a very large segment. Content will keep getting better as we get more viewers, allowing us to invest more in content—a positive cycle. I think it can be a very large part of the market.

We don't have plans right now for original programming. Original programming is expensive and generally requires a more expensive service. But I think as we continue to improve content quality and as the number of viewers gets bigger, we'll likely have originals someday. We do have Roku originals today, but they're not the blockbuster originals you're probably thinking of. They tend to be unscripted, like Laguna Beach, which is doing really well. We don't have a lot of scripted originals today. So when you said originals, I was taking it to mean blockbuster-type originals. Those are going to come, I think, but that's not happening right now. Right now we're focused on improving content quality and promoting it in our UI and off our platform. We just launched on Amazon Prime and in Mexico—those are all doing really well.

Hey Peter, thanks for the question. Charlie will take the question.

Dan will take that.

Hey Laura, thanks. On content, we talked about the Netflix announcement today—they're going to do clips. We do have that kind of content on Roku in a lot of places. We're a distribution platform for third-party services—we carry YouTube, which is very popular and has all the low-cost content. In our own services, we distribute clips from Saturday Night Live, movie trailers, sports highlights from multiple leagues. So we do have a best-of-the-clips strategy. In our own and operated services, we aren't currently trying to compete with YouTube—we carry it and it's a great product. On content costs, with Howdy we are focused on offering a low-cost service, meaning we're on the lookout for both high-quality expensive content and high-quality less expensive content—things like content that's lower cost because it incorporates AI production, or unscripted content. We're definitely focused on a broader array of content including lower-cost content. On devices, I'll let Dan take that question.

Thanks, David. Dan will take your question.

Thanks. It was an outstanding quarter and I'd just like to thank our employees, customers, advertisers, and content partners. And thanks to all the listeners for listening.