Roku is bouncing back from a slump in ad sales growth … somewhat.
The company’s total revenue grew 20% YOY in Q3, while platform revenue, which encompasses ad sales and content distribution, was up 18% YOY.
Compared to Q1, when platform revenue dipped 1% YOY, and Q2, when recovery in ad sales growth was still shaky, things are certainly looking up for Roku, which blamed its past weaker performance on macroeconomic concerns and the twin strikes by Hollywood writers and actors.
But now “we’re seeing a solid rebound in [revenue from] video ads,” said CFO Dan Jedda during the company’s earnings call on Wednesday.
Although studios and actors still can’t reach an agreement, economic conditions are improving and Roku has been busy creating new ad units, expanding programmatic supply for buyers and growing its account base.
Roku added 2.3 million new accounts globally last quarter, the same steady growth rate it reported this time last year. Roku now has 75.8 million monthly active global accounts, a 16% YOY jump.
People are also spending more time watching TV on Roku. Global streaming hours on Roku grew 22% YOY, and streaming hours are up 50% YOY on The Roku Channel specifically, which is free to users who already own a Roku device.
Roku credits that growth in large part to having expanded its content library with sports and free ad-supported TV channels, content that doesn’t hinge on production schedules.
Ads, baby
But the real star of Roku’s Q3 was the “strong contribution from video advertising,” said CEO Anthony Wood.
Roku expanded the ad units on its home screen to brands from any vertical in Q2 to create more ways for advertisers to reach ad-free viewers. (Amazon made a similar ad update for Fire TV this week.)
Roku also rolled out new full-screen interactive ad units called “showrooms” in Q2 and introduced video ads to the Spotify app within Roku’s OS in September.
More inventory and more programmatic availability are both behind the new growth in ad sales, according to Wood.
Roku is still working to make more of its inventory available in demand-side platforms other than its own. Transactions through third-party buying platforms “grew meaningfully” in Q3, Wood said, although he didn’t share exact numbers.
Proceeding with caution
But Roku isn’t totally out of the woods yet.
Average revenue per user (ARPU) dropped 7% YOY to $41.03, which is the same percentage of YOY decline as the prior quarter, when account growth was outpacing the growth of its platform business. Still, ARPU is up quarter-over-quarter for the first time since Q3 of last year, Jedda said. (Roku ended Q2 this year with an ARPU of $40.67.)
“[Roku’s] ARPU will continue to benefit from a recovery in the ad industry,” Jedda said, referring to the macroeconomic conditions that interfered with ad revenue growth for most streaming services throughout this year. Expect similar growth in ARPU this quarter, he added.
“However, we remain cautious amid uneven market recovery,” Jedda said.
Ad spend overall is growing at an unpredictable pace because it varies by brand type. Spend across health and wellness and in the consumer-packaged goods verticals is growing steadily, whereas financial services and media and entertainment ad spend isn’t growing as quickly, Jedda said.
These lags will “challenge” ad revenue growth in Q4, he said, particularly in the media and entertainment category considering the ongoing actors strike.
But here’s some decent news for Roku: Revenue from TV device sales, historically a low-margin business overall, is up 33% YOY, thanks in large part to Roku launching its own TV sets earlier this year.
So, despite suboptimal ARPU numbers and uncertain ad sales growth, “we’re optimistic about the ongoing rebound in video advertising on our platform,” Jedda said.
