Roku is feeling confident enough to enter acquisition mode, despite the looming tariff threat.
Roku announced Thursday it acquired subscription streaming service Frndly TV for $185 million. The deal is expected to close in Q2.
Roku tied the Frndly TV deal announcement to its Q1 earnings report. The company reported $1.02 billion in total Q1 revenue, up 16% year over year.
However, Roku’s Q2 revenue projection of $1.07 billion came in under investor expectations, leading to a 5% dip in its stock price in after-hours trading.
Roku did not break down its advertising revenue for Q1. But it reported that on-platform revenue was $881 million, up 17% YOY, and that video advertising grew faster than overall platform revenue.
The Frndly acquisition underscores one of Roku’s three pillars of growth going forward, Founder and CEO Anthony Wood told investors – namely, “to really lean into subscriptions,” he said.
The other two pillars? To improve ad monetization by deepening relations with Roku’s DSP partners and to find new ways to wring revenue from Roku’s home screen experience, Wood said.
Tariffs and the TV biz
On the home screen front, Roku has been open about its plans to roll out new ad inventory. For example, Wood pointed to Roku’s introduction of a content recommendation widget last year, which, he said, has been driving “significant” subscription sign-ups and was “one of the reasons that the Roku channel grew 84% globally year over year in the quarter.”
Still, some of Roku’s new home screen ad formats – such as auto-playing video takeovers – have riled Roku’s user base.
But don’t expect Roku to pump the breaks on its ad experience anytime soon.
According to Wood, Roku still has revenue left to wring from audiences – and advertisers – shifting from linear TV to streaming. And, in his view, TV advertisers are also moving budgets out of direct deals and into programmatic CTV, which is another tailwind for Roku, given its efforts to shore up its programmatic business.
For example, the company launched its self-serve ad platform, Roku Ads Manager, in September, which allows advertisers to buy ads across Roku’s network via direct insertion order, or via third-party DSPs through biddable and programmatic guaranteed deals.
“We’re tapping into more ad demand sources through our deeper integration with third-party DSPs, and we have a lot of supply that continues to grow,” Wood said.
However, the Trump administration’s constantly shifting tariff strategy could prove to be a headwind for Roku’s growing device manufacturing businesses, Wood said.
Hence the soft Q2 outlook. Roku projected tariffs will cause its device revenue to dip 10% YOY next quarter.
However, Roku believes tariffs are unlikely to hurt its market share, which currently accounts for over 90 million streaming households, Wood said in response to an investor question. And, he added, tariffs or not, Roku is on track to surpass 100 million households.
And when it comes to advertising, tariffs could actually be a slight tailwind, Wood suggested.
“Macro uncertainty causes advertisers to look for more performance,” he said. “They start looking for higher ROI, more performant ads and more flexibility, and Roku is good at all those things.”
Plus, uncertain times mean advertisers are prioritizing flexibility in their ad spend, said Charlie Collier, President of Roku Media.
The shift from direct to programmatic is being “driven by our clients’ really understandable need for greater flexibility in this macro environment,” Collier said.
He added that advertisers are already shortening their planning cycles in response to tariff-induced uncertainty.
“What used to be quarterly planning for some can now even be as short term as weekly,” he said. “As a result, we are seeing changes in media-buying patterns across our platform, particularly a shift from longer-term guaranteed commitments to shorter-term non-guaranteed campaigns, usually executed programmatically.”
Incremental or not
But, inquired one investor, is the shift from direct to programmatic bringing Roku any incremental revenue, or is it just shuffling budgets from one buying channel to another?
“Some of the programmatic revenue we’re seeing is clearly incremental,” especially from platform partnerships, Collier said. “But overall, it is a mix,” and there are “many enterprise and independent clients” that have shifted budgets from direct to programmatic guaranteed.
The real source of incremental growth, he added, is Roku expanding ad-buying capabilities to enable a number of different execution strategies. That’s bringing in more small to midsize advertisers via the Roku Ads Manager, he said.
And the company’s efforts to shore up audience authentication to aid measurement, as well as prioritizing data interoperability with platform partners, is encouraging advertisers to spend more, Collier said. “All of this is unlocking new revenue and deepening existing relationships.”
