Roku Posts Strong First-Ever Earnings Report, Thanks to Growing Advertising, Licensing Business

Streaming device maker Roku released its first-ever quarterly earnings report Wednesday, a mere six weeks after it went public — and the debut couldn’t have gone better for the company: In the quarter ending on September 30, Roku was able to handily beat analyst expectations.

Roku generated $124.8 million  in revenue during its third quarter, compared to $89 million during the same quarter a year ago. The company’s net losses came in at $7.9 million, compared to $12.7 million during the same time last year.  Analysts had expected revenue of $110 million, and losses of $12.7 million. Investors reacted by sending Roku’s stock up more than 26% in after-hours trading.

“Roku had an outstanding third quarter,” said CEO Anthony Wood.

A significant part of Roku’s revenue growth came from its advertising and licensing business. Platform revenue, as Roku officially calls all of its non-hardware business, brought in $57.5 million during the quarter, whereas Roku made $67.3 million with the sale of its iconic streaming players.

Year-over-year, the platform business grew 137%, whereas the company’s hardware business only grew 4%. Wood said during Wednesday’s earnings call that advertising now makes up for two-thirds of all platform revenue.

The slower growth of hardware revenue can in part be explained by a move away from more expensive streaming boxes to cheaper players, as well as the growing importance of TVs powered by Roku’s operating system that are built by companies like TCL.  The company ended September with 16.7 million monthly active accounts, with more than half of the new accounts coming from licensed hardware running Roku’s operating system, be it Roku TVs or streaming boxes distributed by pay TV operators.

It’s the first time that Roku has ever seen licensed hardware become the major contributor of new accounts. “That is a huge milestone,” said Wood in an interview with Variety immediately following the earnings call.

Wood also acknowledged that owners of Roku TVs stream slightly less programming than consumers who own a Roku streaming device, but said that he wasn’t concerned at all about this. “We are happy with the amount of streaming we get on TVs,” he said, adding that Roku also has ways to monetize TVs in ways that aren’t available on streaming devices, including via automatic content recognition (ACR).

Wednesday’s earnings also showed that Roku has significantly grown its research and development expenses, while only slightly growing its marketing expenses. Wood attributed the latter to the growing brand power of the company’s products, arguing that Roku had become synonymous with streaming. This, in turn, requires the company to invest little in traditional brand advertising, he said. “We are starting to get leverage out of our brand.”

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