Roku, Inc. Class A Stock

Ladies and gentlemen, thank you for standing by. Welcome to the FOX Corporation to acquire Roku Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded.

I'll now turn the conference over to Chief Investor Relations Officer, Ms. Gabrielle Brown. Ms. Brown, please go ahead.

Great. Thank you, Polly. Good morning, and thank you all for joining us to discuss FOX' agreement to acquire Roku. You can find more information about the transaction in a press release and investor presentation on FOX' Investor Relations website at investor.foxcorporation.com.

Joining me on the call today are Lachlan Murdoch, Executive Chair and Chief Executive Officer of FOX; Anthony Wood, Founder, Chairman and Chief Executive Officer of Roku; John Nallen, President and Chief Operating Officer of FOX; and Steve Tomsic, Chief Financial Officer of FOX. First, we will give prepared remarks on the transaction, and then we will take questions from the investment community.

Please note that this presentation may include certain non-GAAP financial measures including adjusted EBITDA or EBITDA, as we refer to it on this call. In addition, the presentation may include forward-looking statements, including statements regarding the proposed transaction between FOX and Roku, including with respect to the expected timing of the completion of the transaction and its benefits.

These statements are based on FOX and Roku's current expectations and are subject to risks and uncertainties, which could cause actual results to differ from current expectations. Please review the cautionary statements and other safe harbors in FOX and Roku's SEC filings and respective investor website.

And with that, I'm pleased to turn the call over to Lachlan.

Thanks, Gaby. Good morning, and thank you all for joining us. Today, we announced the acquisition of Roku, which is a defining moment for us, one that pairs FOX, the leader in live news and sports with Roku, the leading connected TV platform. This acquisition will strengthen and expand our position in the high-growth digital video ecosystem and unlocks new ways to serve our audiences and partners.

Before I go any further, I would like to take this opportunity to recognize the visionary achievements of Roku's Founder, Anthony Wood, who is with me on the call this morning. As an early investor in Roku and long-time commercial partner, we, at FOX, have witnessed firsthand the enormous impact Roku has made in transforming the TV viewing experience. Anthony and I have known each other for many years, and I am extremely pleased that as part of this transaction, Anthony has agreed to join the FOX board and to continue to expertly guide Roku forward. Thank you, Anthony.

This transaction brings together 2 companies at the intersection of the most powerful forces reshaping video consumption, the enduring primacy of live news and sports, and the continued rise of streaming. The result will be a next-generation FOX Corporation that is uniquely positioned with even greater reach and a more complete product offering, leveraging the strength of Roku's preeminent connected TV technology and data platform. The combination not only strengthens FOX' existing business, but more importantly, expands our presence in the highest growth segments of media, connected TV, advertising and subscription aggregation.

It's not a surprise to anyone on this call that the way consumers access and engage with content is evolving dramatically. Throughout this evolution, FOX has remained disciplined, participating in the market carefully and moving with purpose and conviction only when the opportunity is right.

In 2019, we reorientated our company around live news and sports. Two categories that command premium advertising rates, drive appointment viewing and have only grown in strategic importance as the broader television landscape has fragmented. We chose and continue to choose focus over scale-for-scale sake, deliberately sidestepping the arms race that defined and challenge the subscription streaming industry.

In 2020, we acquired Tubi, then a nascent tech start-up in what was an underdeveloped segment of the video ecosystem, free ad-supported streaming. That investment and our subsequent thoughtful execution of a rapid growth plan has proven to be an unqualified success across every metric that counts, top line growth of approximately 25% to generate revenue approaching $1.5 billion in fiscal 2026 with over 13 billion hours of content consumed annually by its 100 million loyal viewers. And less than 12 months ago, we successfully launched FOX One, our innovative direct-to-consumer platform that has gone from strength to strength in its first year.

I must highlight an important part of our culture at FOX that is particularly important to this deal. Integral to our journalistic and creative focus, we've built a business where technology and engineering talent flourish, a place where we're extremely forward-leaning in investing in technology and coordinated in the way that we design, build and deploy cutting-edge platforms across our products and services.

From setting streaming records for the Super Bowl through to the advanced work that our teams are doing with AI, our achievements give us great confidence in our ability to enhance Roku's growth inside the enlarged FOX Corporation. The video entertainment ecosystem is evolving and growing rapidly, and several dynamics are worth highlighting.

Live programming, particularly news and sports, continues to be the primary driver of engagement. FOX has led in both categories for decades, consistently ranking first. This live appointment-driven programming remains foundational to our current strategy of ubiquitous distribution of our content, which delivers highly-engaged audiences, driving value for our distribution and advertising partners alike.

Premium and free content also continued to drive complementary consumer demand and engagement patterns. That dynamic is enduring. Our strategy is centered on these dynamics from which we have derived considerable benefit. What is also changing more fundamentally is how consumers access and navigate content, and this is where we see the most significant opportunity.

Streaming continues to gain share in total viewing and consumer wallet. Nearly 50% of all U.S. television consumption now takes place within the streaming ecosystem, roughly double the level in 2020. And Roku's prominence in streaming throughout this growth has been remarkable. The consumer now subscribes to an estimated 4 services on average, creating an increasingly fragmented landscape where discovery and navigation have become more complex. At the same time, viewing behavior is shifting rapidly.

In response, we are seeing a clear consumer preference for aggregation. Consumers are gravitating towards simpler, more unified experiences on their favorite platforms like Roku and the rebundling of services reflects this trend in real time.

Advertisers are reaching similar conclusions, seeking large audiences, improved digital targeting and more consistent measurement across platforms. These converging dynamics across viewing, aggregation and advertising have fueled the rapid growth of connected TV, and we are still in the early stages of this transition. Within that video ecosystem, Roku is the leader as the foremost connected TV platform in the United States.

On a pro forma basis, the combined company will become the third largest player in U.S. television by share of viewing with an attractive mix of FOX' sports, news and entertainment content alongside free streaming services, Tubi and the Roku Channel. That distribution and scale spans every major viewing environment, broadcast, cable, local and streaming, creating broad and diversified reach. And together, through this reach, we will address the evolving needs of both consumers and advertisers by combining premium live content, scale distribution and leading platform capabilities into a more integrated and compelling offering than either company could build alone.

We are committed to operating Roku as an open partner-friendly platform and to the continued ubiquitous distribution of FOX and Tubi content. Roku's openness is central to what makes the platform valuable for consumers, content partners, advertisers and Roku itself. That will not change.

And for our shareholders, I want to underscore that this transaction continues our disciplined approach to use of capital. Purposely and diligently, we are meaningfully expanding the growth profile of our company, while maintaining investment-grade status and capacity to continue our shareholder capital return program.

Before I turn it over to Anthony, I want you all to know that the opportunity to acquire Roku at this moment as Roku hits its inflection point of growth is a transformational step forward for FOX and for our shareholders.

Thank you for your continued support. And I'll now hand over to Anthony.

Thanks, Lachlan. I'd like to start just by saying how excited we are to be joining forces with FOX to shape the future of television. When I founded Roku in 2002, it was on the premise that all TV would be streamed, and our goal was simple: make TV better for everyone.

We believe the Internet would fundamentally transform television and create entirely new ways for people to discover and enjoy entertainment. Since then, Roku has built one of the industry's leading TV streaming platforms, reaching more than 100 million streaming households globally and 145 billion hours of engagement annually.

Roku is entering this transaction from a position of strength. As the streaming and advertising and AI landscape continues to evolve, we believe partnering with FOX is not only a terrific outcome for our shareholders, but a way for Roku to move faster and smarter with the support and resources of a strong partner. Put simply, it's the best way to accelerate our long-term strategy and continue shaping the future of television.

This agreement follows the conclusion of a strategic review and process overseen by the Roku's Board of Directors with the assistance of an independent financial -- with independent financial and legal advisers. After thoroughly reviewing the offer from FOX, our Board of Directors unanimously determined that this agreement with FOX maximizes value for all of our shareholders.

We're also pleased with the value we deliver -- we are delivering to our shareholders. The cash and stock structure allows Roku's shareholders to receive immediate cash value at closing, while also participating in a substantial potential upside of the combined companies going forward.

As a reflection of my personal commitment to the combined company and the ongoing growth of Roku, I have given my voting support to the transaction and at the close of the transaction, I will have an ongoing role at the combined company, and I will also join the FOX Corporation Board.

As consumers face increasing content fragmentation, rising subscription costs and more viewing choices than ever before, we believe Roku and FOX will together be uniquely positioned to deliver the value, personalization and simplicity that viewers want.

We'll also be better positioned to help our content partners build, engage and monetize large audiences and to give our advertising partners unique ways to reach our large and loyal base of TV users. And of course, we continue to deliver great, easy-to-use TVs and streaming players in collaboration with our TV OEM and retail partners.

Throughout our discussions with FOX, what stood out most was not just our strategic alignment, but also FOX' deep respect for what Roku has built and genuine appreciation for the team behind it. It was clear that FOX understands Roku's more than a platform. Our people, culture and innovation mindset are central to what makes the company special and will be important to our success going forward.

More importantly, following close, Roku will continue to operate as an open partner-friendly platform supporting the entire streaming ecosystem. I want to thank our employees, partners and shareholders for helping build Roku into the company that it is today.

With that, let me turn it back to Lachlan.

Thank you very much, Anthony. I'll now turn the call over to Steve to walk you through the details of the transaction.

Thank you, Lachlan. Thank you, Anthony, and good morning, everyone. FOX has maintained a disciplined and deliberate approach to capital allocation. From an acquisition standpoint, we have been selective, only pursuing transactions that support long-term shareholder value creation and align with our strategic vision. This morning's announcement is entirely consistent with this selective value-driven approach.

Let me walk through some of the financial detail. As we have announced this morning, FOX is acquiring Roku in a cash and stock transaction valued at $160 per Roku share. In total, 60% of the consideration or $15 billion is cash, and the 40% balance is FOX Class A common stock, comprising approximately 152 million shares. On a per share basis, FOX will provide $96 in cash and 0.9693 shares of FOX Class A common stock for each Roku Class A and Class B share outstanding.

The stock consideration represents $64 per Roku share based on a reference price of $66.03 per share, which was set using the 10-day volume-weighted average price of FOX Class A common stock as of June 10. Upon closing, existing FOX shareholders are expected to own approximately 73% of the combined company and Roku shareholders the remaining 27%.

The cash component at closing will be funded through approximately $8 billion of new debt, with the remainder funded from the roughly $9 billion of pro forma combined balance sheet cash expected at close. We expect net leverage at closing of approximately 2.8x pro forma trailing 12 months EBITDA, inclusive of 50% credit for run-rate cost synergies.

The moderate starting leverage and the rapid deleveraging made possible by the combined company's strong free cash flow profile allows us to maintain our existing mid-BBB investment-grade credit rating. Importantly, the strength of our balance sheet from day 1 will also support our growth plan, along with continuing to return capital to shareholders through share repurchases and dividends.

With respect to share repurchases specifically, we intend to continue with our buyback program post today's announcement, except for mandatory SEC blackout periods. As a combined company, we expect robust long-term growth and significant cash flow generation, supported by approximately $400 million in run rate cost synergies, supplemented by additional revenue upside.

We expect the deal to close in the first half of calendar year 2027 and be free cash flow per share accretive within 2 years of close. Underscoring the transformative impact of this transaction on a pro forma basis, we estimate approximately 30% of revenue will be generated from the scaled digital platforms of Tubi and Roku.

In the near term, we see meaningful opportunity to enhance growth through improved advertising capabilities and cross-promotion across the portfolio. The pro forma business is expected to enhance our long-term revenue growth profile and drive accelerating EBITDA and free cash flow growth. We have provided additional detail on the transaction terms on Page 14 of the investor presentation posted to our website earlier this morning.

And with that, let me turn it over to John.

Thanks, Steve. At the start, I want to make one overarching point. Opportunities of this caliber are exceptionally rare and the acquisition of Roku represents a transformational step forward in the evolution of FOX. You know well that we are very disciplined allocators of capital to drive long-term shareholder returns and we are confident that this acquisition will deliver significant long-term returns given the growth profile that this deal unlocks. Strategically, the combined company will be positioned in the highly attractive growth zones of the video market, advertising and subscription, particularly in the digital sector.

Additionally, this acquisition will enable us to achieve this growth profile without compromising our overall balanced capital allocation approach. Specifically, this acquisition will not impact our shareholder return program, which continues without change and with an ongoing solid investment-grade balance sheet.

Roku pioneered connected TV in 2008 with the launch of its first streaming player. In the years since it has been a central enabler of streaming's growth, serving as both a leading distributor of applications and one of the primary aggregation points through which consumers access their content, in effect, becoming a front door to the streaming ecosystem.

Today, Roku reaches over 100 million households globally and is the #1 CTV operating system in the United States reaching over half of all broadband homes. The vast majority of Roku's total revenue is generated by the Platform segment in 2 digital revenue streams, advertising and subscriptions, areas where FOX is also intensely focused and has a demonstrated decades-long track record.

As Lachlan mentioned, we are excited about this combination as it brings together 2 of the most powerful forces shaping the future of media, live sports and news programming and the rise of streaming. Against this backdrop, the combined company is strategically well positioned, particularly from our vastly enhanced digital presence, footprint and scale.

FOX' digital presence spans all of our content's digital offerings, products such as FOX One, FOX Nation and of course, our premium AVOD service, Tubi, all supported by a state-of-the-art tech stack. Roku's entire focus is streaming and its role cannot be understated. Roku is one of the central partners across the streaming ecosystem. Roku's home screen meets consumers at their moment of intent, a critical juncture in the video journey, which makes Roku a powerful platform for discovery and engagement and the Roku platform generates a rich authenticated data set on consumer behavior, which enables Roku to offer better products and experiences for users and commercial partners alike. The hallmark of FOX is our long-standing entrepreneurial mindset and our relentless focus on growth.

We have come to know that these attributes are shared with the entire Roku management team, which will go a long way towards making the cultural and operational combination of our 2 companies very efficient. We couldn't be more excited by the prospects of closing on the Roku acquisition.

And with that, let me turn it back to Lachlan to wrap up before Q&A.

Thanks, John. With this transaction, we are positioned FOX at the leading edge of where video consumption is going, owning the best content, one of the largest platforms and the direct relationship with large audiences in a single integrated business.

The FOX-Roku combination will represent a growth company responsive to the rapidly changing market, a company that is better positioned for the next decade of video than either of us would be alone. For shareholders, this is the purposeful convergence of 2 businesses that are stronger together than either could build independently.

Our financial profile improves. Our growth trajectory improves and our strategic position in advertising, distribution and international expands materially, all supported by a balance sheet that allows us to maintain our return of capital program. We are confident this is the right transaction at the right moment for all the right reasons. To Anthony and the great Roku team, thank you for choosing FOX as your partner. To our shareholders, thank you for your continued support. And to our new partners across the streaming and advertising ecosystems, we look forward to building this next chapter together.

We can now take your questions. Thank you.

Thank you Lachlan. Now, we are happy to take questions from investment community.

[Operator Instructions]. And we have a question from John Hodulik of UBS.

One quick one and then a follow-up. Could you guys provide any details on the process and whether there are any other interested parties? And then maybe a follow-up to Steve's commentary, what's the target leverage ratio? And given all the cash flow and growth you guys expect from the combined company, what's the time line to get to the new target ratio?

Thanks, John. Anthony can answer to the process, obviously, and Steve can do the details. So I guess Anthony first. Anthony?

This is Anthony. This process was run by our Board of Directors and an independent committee. It was a thorough and complete process. It's the conclusion of a strategic review by the Board of Directors. We thoroughly reviewed the offer from FOX and our Board of Directors unanimously determined that the FOX offer was the right offer for our shareholders. And so yes, we ran a very complete process and very happy with the outcome.

John, it's Steve. Just on leverage. So listen, we feel very comfortable about where we structured the transaction, as you can tell from what you've seen from our financials over the last 7 years and also now with Roku reaching or on track to reach the $1 billion free cash flow milestone in the next year or 2. We think we delever very, very quickly. If you look at the way we intend to set up the permanent financing, we'll be allowing for the opportunity to repay debt in the first year or 2 of the transaction, and we also have -- its outstanding $2 billion note that comes due in January '29, which we would imagine repaying to delever.

So we think we get back down to our target leverage -- gross leverage ratio of between 2.25% and 3%, which maintains our existing credit rating within the first year or 2 after close. And so -- and all of that supports the fact that we'll continue to be buying back stock all the way through. So we think that the way we're structured allows us a lot of balance sheet flexibility.

Next question, please.

We have a question from Michael Morris at Guggenheim Securities.

I have one strategic question and one structural question, if I could. First, strategically, how will the combined business balance that focus on growing the FOX audience while also being partner-friendly to this large number of third-party content providers that Roku has worked with in the ecosystem. So how do you ensure that these big businesses like Netflix and Amazon and Disney remain on the platform going forward?

And then on the structural side, the regulatory termination fee is over $1 billion. Can you just talk about what regulatory approvals are required and what gives you confidence in the clearance there?

Thanks, Michael. To your first question, maybe I can start and Anthony can follow on. Look, from -- I think speaking for both of us, at least to start, it is essential that Roku remain an open and partner-friendly business. We're a business that we will have -- Anthony has tremendous partners who really rely on Roku for a lot of their distribution, and we don't see that changing at all.

From a FOX perspective, if you remember, we've done this before. We're not -- it's not our first rodeo. We had Sky in the U.K. and Europe, we had Star TV. Those are all platforms that we have our own content, which we can grow and monetize very effectively, while hosting and distributing broadcasting all of our partners' content. And that's critical both for the business and for the future of the business and also, most importantly, for our consumers. Anthony, do you want to add to that at all?

Yes. This is Anthony. Well, first, I guess, I'll just say that Roku has a very large platform business. It consists of advertising and subscriptions. A lot of that business is driven by promotion of our partners. And our goal is to grow that business. It's not for that business to retreat. So we're going to continue to grow that business. That means working closely with partners to do that.

I'd also say that it's not a new problem for us. We have historically had owned and operated services as well as partner services that we promote on our platform. And the home screen, the platform is a unique asset. It allows us to do that. We have policies and processes in place to allocate inventory appropriately. So we are good at that. We know how to do that. We know how to promote our own services as well as promoting our partner services, and so we intend to continue doing that.

Thanks, Anthony. And to the second question, Michael, from regulatory approvals. Principally, we have HSR approvals in the United States and very, we believe, very limited international approvals.

Next question, please.

You have a question from Robert Fishman of MoffettNathanson.

Lachlan, John, Steve, we've discussed the importance of scale for FOX over the last few years. How does Roku help solve FOX' scale question when competing against the other larger media conglomerates, especially thinking about content spending and competing for sports rights? And then Roku has successfully carved out its leading position within the CTV space. I'm curious as you think about the next 3 to 5 years, what gives you the confidence that Roku can continue to compete against the likes of Amazon, Google and now Walmart after the VIZIO acquisition?

Thanks, Robert. Well, I can answer the scale question as it applies to FOX, and maybe Anthony can then answer the question as it applies to Roku.

On the scale question as it applies to FOX, look, we are entering this transaction in a position of strength. Our business has never been stronger. We've been able to compete aggressively and successfully in the news and sports marketplace. And we would expect to continue to do that with or without this transaction. I think you can see that it's evidenced in our ratings, most importantly, and almost equally importantly in our financial results or equally importantly in our financial results. We reported a short time ago, record Q3, and we're on track to report or achieve more records in our full year results. So we're really entering this transaction in a position of strength. And what excites us about this is it takes us from strength to strength.

Roku takes us to new markets to expand, obviously, digitally in streaming and subscriptions, and drive the business aggressively into the 21st century. Anthony?

Yes, this is Anthony. So just in terms of how we compete and continue to compete more successfully. I'll just start with the basics. I mean, we are the market leader in the United States and other markets. We're the #1 streaming platform in over half of broadband households, we have a -- we just passed the 100 million streaming households. We're continuing to grow that. We have a very loyal viewer base that loves their Roku products. We provide a very simple, delightful interface. And a lot of that is built on something that's unique that we have, which is we're the only streaming platform that's built an operating system from the ground-up, designed specifically for streaming.

We have a purpose-built operating system for streaming, whereas our other -- our competitors generally take HTML or they take a mobile operating system, they port it to television. And there's a lot of advantages to building something from the ground-up design specifically for streaming. It's a better user experience. It's simpler. But it's also importantly, very cost competitive. I mean the PC -- sorry, the TV business is extremely cost competitive.

And so having a lower cost to build hardware, which we've done through our purpose-built software design specifically among other things, to allow hardware manufacturing costs to be lower than any other operating system is a big competitive advantage in the market.

For example, just one example, we use a lot less memory than our competitors. And right now, memory prices are going through the roof. So that advantage is really being compounded. So we have the purpose-built operating system. We have very strong relationships with OEMs.

There's many, many factories and OEMs around the world to build Roku products. Those relationships are strong and growing. So the strengths that have gotten us here to the position we're in today are going to continue. And then I think also, when you think about all the assets that FOX brings combining with Roku, that's going to allow us to be even stronger in the market and offer a better product to our customers and viewers. So I'm very confident in our ability to compete and to continue to grow our competitive position.

Next question, please.

We have a question from Michael Ng of Goldman Sachs.

Just one and a follow-up as well. Just on content, could you talk a little bit about how the combination might change your appetite for things like Tier 3 sports rights, other types of news content. In a few years from now, will we look back at this and see it as an inflection point for more sports and more content generally on the FAST channels?

And then secondly, I was just wondering if you could talk a little bit about the synergies. Is the $400 million a conservative number? Is it kind of appropriate given what we know now? And what are the kind of obvious revenue opportunities that you see that you wouldn't have been able to achieve otherwise?

Thanks, Michael. The first question on sports rights is an interesting one. I think it's too early to say. But I think initially, our sports rights and particularly our Tier 1 sports rights, our most valuable sports rights really sit within our broadcast cable and from a streaming perspective, FOX One and we don't really see that changing.

Of course, the discovery of those sports rights and the viewership of those sports rights can really be assisted with distribution across Roku and discovery through the Roku home screen, which really is the beachfront property in the streaming ecosystem.

In terms of the synergies, we've done, obviously, as you'd expect, very extensive due diligence on the business, which is where we came to the $400 million of cost synergy. And I think we're being conservative, appropriately prudent and conservative in coming to that number.

Obviously, from moving forward today, we'll continue to do more work on whether that's the appropriate number or not. But sitting here today, I think we've been fairly conservative. That does not include, as you rightly point out, any revenue synergies. So we have not announced revenue synergies. But as you can hear from -- answer a lot of your questions and from our scripted comments, we believe the revenue opportunity is very significant within this business, but we're not putting a number to that at this stage.

Why is it significant? Obviously, the market is changing dramatically, both in terms of the viewing of streaming in the United States now approaching 50% of all U.S. television viewing. And what's happening behind that, of course, is the connected television ad spend as a proportion of television ad spend in the last few years has grown from 25% to 41% and that trend just continues.

When you pair that with the reach of our content with FOX News, with live sports and FOX Sports, combined with Roku's really great depth of a rich first-party data and performance marketing tools. It's a tremendous opportunity, and we're very excited about the revenue synergies that we believe will uncover going forward.

Next question, please.

We have a question from Jessica Reif Ehrlich of BofA Securities.

I think, Lachlan, you just touched on one of my questions, which is the advertising upside, like what specifically, what areas can you grow? I mean, it sounds like an area of opportunity that you're not in now? And is it all about that first-party data?

And the second thing that was mentioned early in the call was international opportunities? And can you just maybe put some -- give us some color on how you can expand that? FOX is kind of -- has become more of a domestic company. What could you take advantage of with Roku's footprint? What can you do differently to grow that business?

Thank you, Jessica. Yes. Well, I think I probably answered the advertising question. But the -- if you look at the -- I'll say, if you look at the businesses, I think we can boost the distribution of the FOX content, that will help ratings. We can pair that with first-party data and Roku's tremendous advertising tools. I think Roku really does have unique expertise in performance marketing, which we can bring across our entire platform. I think the advertising synergies or revenue upsides are very significant. You then pair that with our -- at FOX, our direct sort of relationship with our advertisers and clients, it's a tremendous opportunity. So I think the 2 sides and 2 expertise of the companies are very complementary coming together to drive revenue synergies.

On international, you're right that this puts FOX on an international footing again. We did launch aggressively and it's doing very well, FOX Latin America, over the last 12 months. I think the Roku platform will assist those businesses as well.

Next question, please. Operator?

We have a question from David Karnovsky, JPMorgan.

Just with Tubi and Roku Channel, can you talk to your go-forward vision of what that would look like for a consumer? Is there any rebrand or kind of commonality of programming or channels? And then can you just speak to the strategic and cost synergies as it relates to items like content acquisition or marketing for the services?

Thanks, David. So if you look at the Tubi and the Roku Channel together, they are incredibly complementary services. There's about 1/3 overlap between the audience -- between the 2 of them so that they're not identical audiences, bringing the 2 of them together effectively triples the reach of the combined service.

It's too early to say, but our expectation is fully to keep the services separate. They serve consumers and their viewers in different ways. Obviously, Tubi is over 90% video-on-demand. The Roku Channel is, I think, around 80% or over -- just a little bit over 80% are FAST channels. This -- the combination of the 2 and how you sell the 2 of those -- the inventory in the market, I think, is a tremendous opportunity and combination.

So our expectation is to keep the brand separate to serve their viewers -- to continue to serve their viewers in the way they do now. I don't know, Anthony, if you have anything to add.

Yes, I think -- well, I think, obviously, the combination of the Roku Channel our ad inventory that we have distributed through the platform and TV creates an extremely large and scaled ad platform. And then the combination of the data and the ad tech are just going to be a very powerful ad platform. So I think that's obviously going to be incredibly helpful for our business. Both platforms distribute content. Among other purposes, they're primarily content distribution platforms.

And so the amount of content being distributed now has significantly increased in scale and that provides a lot of leverage on different dimensions and makes us a more interesting and must-use partner for content owners. So I think that's also super helpful.

And then I guess the other thing sort of add to what Lachlan said, one of the reasons the audiences are different is that the distribution is different. So the Roku Channel, obviously, as we call it off platform, meaning off Roku. It is available off Roku, but most of the distribution is on the Roku platform. Tubi has a lot of distribution, obviously, a successful on Roku as well, but also has a lot of distribution outside of Roku. And so that provides a very broad and comprehensive distribution across different platforms together.

Next question, please.

We have a question from Steven Cahall of Wells Fargo.

On Slide 10, you highlight how the deal moves FOX to 10.2% of U.S. TV time, 1/3 of the industry. Can you just help us understand how you think that math kind of sums up to more than the parts? You mentioned the revenue upside. I know the advertising piece is pretty big. But how do you think that the engagement kind of takes these different platforms and really turns them into something bigger than they are today?

And related, maybe just to Michael's earlier question, do you think about using the Roku platform to really promote FOX content more heavily? I know that would cannibalize a little bit of home screen EBITDA. But just curious if you think that's a bigger opportunity for the content that you've already got.

Thanks Steve. Look, I think obviously, on Slide 10, that's a basic math of putting together where the businesses sit today. What's not expressed in this chart is actually the benefit of putting those 2 businesses together. And the growth that can be achieved by adding the FOX content, FOX Sports, our news content, local stations to Roku and obviously benefiting Roku and benefiting from Roku and the Discovery platform that Roku is.

So I would expect that we can grow our viewership in the U.S. with a combination of Roku technology, Roku's platform, the tremendous content that's on the Roku Channel and the content that FOX brings to it as well.

I just wanted to -- this is Anthony again. I just wanted to talk a little bit about -- you said a comment, which I think I just want to correct, which is that you implied that promoting FOX owned and operated properties on the Roku home screen would somehow reduce profitability for the home screen. I don't think that's true. Actually, it's going to increase profitability. I mean just to kind of level set. So one of the -- so we sell ads on our home screen throughout our UI, obviously. But we also have many, many ways to promote content throughout the UIs that are not necessarily sold.

And we use that to promote partners, but we also use it to promote our owned and operated our own properties. So for example, we have the sports zone, which is very popular on Roku because sports are so fragmented, it's very -- consumers often don't know where to go to find a particular game. So more deeply integrating, for example, FOX Sports in the Sports zone is not going to impact other sports properties, but it will provide more visibility to sports content, and it will be useful to our viewers, and we'll do it in a way -- it's very personalized. So we know what viewers like and what they're interested in, and it will be personalized for the viewer, but it won't be done in a way that's going to hurt other partners. It will be done in a way that will promote FOX Sports content.

So just, for example, the Roku Channel, 25% -- yes, so 25% of viewing to the Roku Channel comes from someone clicking on the tile for the Roku Channel. 75% of viewing comes from some other ingress point whether it's search or what to watch or there's just many, many different ingress points throughout the user experience.

And so what -- and those different ways from a content, they're not "sold out." There's just almost an infinite supply. So we can easily, for example, promote owned and operated properties, which would now include FOX properties, obviously, as well as partner properties, and we can do it in a way that's going to increase the amount of revenue that's generated by the Home Screen.

Most items on the Home Screen are personalized in the sense that we decide what to show a customer based on what they're most likely to watch and what they're most likely to buy. And by having more properties that generate revenue or generate more revenue, and be able to decide when to promote them and when not to promote them will result in overall more revenue being generated by the Home Screen. So that's really the power of the Home Screen. So this will definitely improve profitability of the Home Screen. It will not hurt profitability of the Home Screen.

Next question, please.

We have a question from Rich Greenfield of LightShed Partners.

I guess one for Lachlan, one for Anthony. For Lachlan, when you think about the sports rights that you spend so much money on, particularly the NFL, how does -- maybe talk to us about what opportunities does owning Roku, the Roku Home Screen, what does that unlock for FOX in terms of new ways to monetize sports rights that we might not be thinking of?

And then for Anthony, you mentioned, Anthony, that you ran a strategic review. I think we've long believed you were going to sell the company and that there were buyers. What triggered you to want to do a strategic review in 2026? Like why this year versus last year, your growth is accelerating. Why not next year? Like why was this the exact right moment to sell?

Thanks, Rich. I'll start with the easy one. And so look, in terms of this deal, and you can look at it, you mentioned the NFL or premium sports rights, but this is also true for premium entertainment content and for news content. So the answer is the same for all. We weren't focused particularly on sports rights in this transaction. But absolutely, the combination of FOX and Roku, we really think can expand the reach of all of our premium content, primarily today through -- our premium content is distributed direct-to-consumer through FOX One. FOX One is already a partner of Roku and doing very well, and we would see the opportunity here to drive the take-up further and even further success for FOX One via some of the methods that Anthony just spoke about. And then, of course, as we've already discussed at some length, just the advertising targeting, first-party data and skills that the Roku has combined with our relationships with our clients and agencies, I think will take -- will obviously increase the value of that premium content and increase the monetization of that premium content across both broadcast and cable and streaming. Anthony?

Yes. Rich. Well, first of all, you're right. I mean, things -- I have never been more positive about our business than I am now. If you just look at where we are in the world, like the #1 streaming platform in the United States, over 100 million streaming households over half of broadband households in the United States using Roku to watch television, a brand that people love. We've been posting strong growth quarter-over-quarter.

We're just really well strategically positioned kind of at the center of the streaming ecosystem. So we are in a position of strength and there's nothing special. You said, why now? There's nothing special about this year, but I do think that the -- strongly the -- by combining the assets of FOX with what Roku has really improves our position to continue to execute on our strategy over the long term.

We'll accelerate that progress on that strategy. We'll move it in and allow us to grow faster. So I just think it's a combination that allows us to execute on our strategy even faster than we already are and so -- and improve growth. And it's a great price. And I also just think about what's happening in the ecosystem. I mean we are seeing streaming, advertising, AI landscapes evolving and scale and technology and content are increasingly important to compete in an increasingly competitive market.

So I do think it puts us in a stronger position over the long term to be increasingly even in a stronger competitive position. So that's the reason we're doing this. It just allows us to execute on our strategy faster than we would otherwise buy ourselves, even though we're doing extremely well.

Next question, please.

We have a question from Kannan Venkateshwar of Barclays.

So maybe one on the strategy here. So, Lachlan, when you think about the free streaming approach. Obviously, Tubi has been very successful, and Roku independently has been very successful. But when you combine the 2 into -- under 1 umbrella, there's a lot of content overlap across the 2, but you will have this fragmented go-to-market approach.

So -- and then, of course, you have conflicts on the other side in the sense that so far, when you negotiated with, say, Comcast or YouTube, you were largely a supplier of content, but now you're also a distributor of the content. And so it just creates a lot of complications, both with respect to how many brands you own, what those brands individually do as well as your distribution strategy.

So could you just talk about the approach and over time, how this scales and how you manage these conflicts across time? That would be useful.

Thanks, Kannan. So in terms of the -- I think you mentioned content overlap, I don't think that's quite the case. As I mentioned before, if you look at the -- look at Tubi and you look at the Roku Channel, they are both incredibly successful platforms, but they do have somewhat of a different viewer base. As I mentioned, there's about 1/3 overlap between the viewers of Tubi and the viewers of the Roku Channel. And the experience of -- both experiences are excellent, but they are different.

Tubi primarily drives its ad impressions through video-on-demand programming. And the majority of Roku's advertising impressions are currently sort of a fast channel program. So it's different content, a somewhat different viewer experience and I think very complementary to bring together. So we think the opportunity there to bring those together and have this fantastic reach, as Anthony mentioned a couple of questions ago, I think it's incredibly exciting.

In terms of any sort of conflict between content and distribution, look, I just don't think that's the case. I think we're partners now in many ways with YouTube and YouTube TV and Comcast. That doesn't change. Those businesses themselves, in many cases, are both distributors and content providers. That doesn't change. So this is the business and the ecosystem that we exist in today, and we exist in going forward, and we look forward to continued healthy partnerships with all of our distribution partners.

And we have time for one more question.

Final question will be from Peter Supino of Wolfe Research.

. Congratulations. Steve, you recently mentioned the importance of neutrality to FOX. And Anthony, your company has always emphasized consumers and the consumer experience. In that light, I'm wondering if maybe each side could talk about the things that are most important to preserving the virtues that are obviously going to be more in conflict as you try to get the benefit of this combination.

Peter. So yes, listen, from a FOX perspective, I think Lachlan has covered it pretty extensively on the call already in terms of sort of our approach on neutrality. And I think we covered it in the script earlier. But we see a key strength at FOX is our existing distribution footprint and having absolute ubiquity of distribution of our content across all platforms, and we don't see that changing as part of this transaction at all. And so we like that set up.

And then our sort of thesis going into acquiring Roku is not to sort of upset or dislocate any of the relationships that Roku has in terms of being sort of the Switzerland of distribution for so many other content providers. And so we don't see this as being a sort of a transaction that activates conflict.

If anything, we see that the benefit of both platforms having that ubiquity on both sides of the distribution sort of side of things as being a key strength.

Anthony, do you want to follow on?

Yes, this is Anthony. I'll just -- I guess, I think one of the things that is exciting about working with FOX is the mutual respect that we have for each other. And also I would say FOX' commitment to letting Roku continue to do what it does, which is distribute content, grow our existing business, which involves working with third parties and distributing third-party content, allow our employees the freedom they need to continue to build and innovate great products in the streaming ecosystem.

So I think that's one of the things I'm looking forward to is the increased resources of FOX and increased assets, but still the freedom and the entrepreneurial nature and the ability to continue to drive our business the way we always have. So I don't think that's going to change.

Thanks, Anthony. Just in summary, I would just like to say, I think for those of you who have been on our earnings calls over the last several years since the new FOX spun out of the old FOX. We've talked about our disciplined approach, our disciplined use of capital, but also the fact that we have a world-class best-in-class balance sheet that we were and have been looking at leverage for the right acquisition to take company forward. And as we've spoken about many times before, we are actively looking for the right opportunity.

And I think we applied that disciplined approach to many opportunities that we saw before. Nothing has the upside and the massive scale and opportunity that this transaction has. We are incredibly proud to be partnering with Anthony and Dan and the entire Roku team. The Roku team is incredibly impressive. And bringing these 2 companies together really will help define the future of television in the United States and in many other markets around the world.

We're excited. We hope you are, and this really does bring a step change in terms of not just for our businesses, but for the streaming and television ecosystems going forward. So thank you very much for your attention, and we look forward to talking again.

Great. At this point, we are out of time. But if you have any further questions, please give me or Charlie Costanzo a call. Thanks so much for joining us today.

Ladies and gentlemen, that does conclude the FOX Corporation to acquire Roku Conference Call. A recording of today's presentation will be available on the FOX Investor Relations website. Thank you.

So good afternoon, everybody. Welcome back to the conference. Rob Coolbrith from the Evercore ISI Internet research team. Really pleased to have Roku's CFO, Dan Jedda, here with us today. So Dan, good to see you, and welcome to San Francisco.

Thank you. Thanks for having me.

Great. So I guess maybe we can start with what's relatively new 6 days ago, exciting for me personally. I've now -- I've just told Conrad, I've now kitted out my entire house, not the kids' rooms with Roku Sticks, and we're excited about the new operating system. I bought them at Walmart, by the way. So I don't know if that helps, but that's where I bought. I'll have a question on that later.

But, first of all, so when you talked about it in April, it sounded like it was still early, you're still sort of kicking the tires on it. It sounded like it been testing at scale. But I've gotten feedback from some people, hey, this is a little bit earlier than we expected. So people ask me, was this baked into what you're expecting for Q2? And then if you could talk about how this drives the business?

Yes. You're referring to the new home screen, I assume.

Absolutely.

Yes. So let me talk about the home screen. We're very excited to roll it out. We have been talking about it for, I would say, 2 quarters. We've been testing it a long time because we wanted to roll it out right. Our home screen hasn't changed a lot prior to 2024. And so this is a pretty big move for us. We put a content row at the top of the home screen in 2024. We put video in the ad unit earlier, and I think that also was 2024.

But by and large, the home screen remained relatively static. And one of the areas that we decided to focus on was making the home screen much more personalized because when we simply put a content row at the top of the home screen, we saw engagement go up. We saw subscriptions that we monetize go up. We saw hours into the Roku Channel go up. And it was a win for streamers as well because they love having that personalized row. So we basically took that and said, "Hey, let's do -- let's look at the whole home screen." So we spent many quarters, months and quarters testing the right home screen, which is what we're rolling out now. It's about 20% rolled out, and we'll slowly roll it out over the next couple of months.

And that new home screen does a couple of different things. It makes the whole top of the homepage almost all above the fold, very personalized. It also collapses the left nav. There was a left nav unit that is now collapsed. So you start your experience with the home screen, you just have to right click over. So a couple of things that I love about it, both from a streamer experience standpoint, it's much more personalized, it will drive more engagement into areas that we monetize. From a streamer experience standpoint, that's great.

From my CFO hat, I love it because we can monetize the home screen better. And let me just give you a couple of examples. First of all, now -- that video ad unit now automatically plays if it is a video ad unit, sometimes it's a static display ad. Sometimes it's a video ad unit, but you no longer have to click to the right to see that. It simply auto plays. It's video right from the start. That means more ad impressions, that means bigger reach, that means more ways that we monetize that ad unit.

Also the -- within the personalized home screen now, we will drive more streamers into areas that we monetize, whether that's more into the Roku Channel, more into Howdy, more into Frndly, more into subscriptions, premium subscriptions primarily, which I'm sure we'll talk about. We will drive more engagement into that. Now that's not why we did the home screen. We did a home screen literally to make it a better streaming experience, but we also are going to benefit from more monetization.

And what you won't see, which is also very exciting, which I believe will eventually happen is now that we've laid out this home screen, we can add more monetization into it with like a biddable in-tile app unit, which is something I'm very excited about. And we'll eventually do that. We're not going to do it right away, but we'll eventually build in biddable ad units, whether they're guaranteed CPA, which is a cost per 1,000 impressions or an actual auctioned biddable ad unit, we will eventually do that, which is another very unique way that we can not only personalize because it will be very endemic to the streamer experience, but it will also be a big monetization, a new ad product for us that we can monetize. We don't have a pure biddable ad unit yet on the platform. And so that would -- an area like that would be perfect for our first.

Great. So the other questions that I've gotten about this are -- so where do you think you are in terms of innings on home screen monetization today? And how much runway do you see for improvement there?

Yes, the home screen -- so 125 million people start their experience on our home screen. So when you have that kind of reach, there's a lot of runway ahead of you to figure out how to optimize the home screen. You can -- we're going to be very smart about it. We're not going to have it be like a plastered ad unit like a NASCAR race car ad units everywhere. We would not do that. That is not the right streamer experience. But you can make it in a way that is both positive for the streamers and positive for the monetization.

So, like I said, I think we're in very early innings of the home screen monetization. Again, prior to 2024, it was very static. It was just app tiles. There was an ad unit, there was a static ad unit, and it was app tiles. It's now changing quite a bit, and there's a lot more we can do. And the flexibility of the home screen is now dynamic.

So imagine like if I take it to its end degree, like imagine where everybody in this room gets a different home screen experience based on true personalization of what they're watching, what we think what our algorithms would tell us that they like to watch or should watch, whether it's areas that we can monetize more using GenAI to truly personalize like that's the -- that's down the road, like it can be very personalized. Right now, of course, this is literally like, I would say, very early innings on our focus on home screen monetization.

The other thing I've noticed about -- and my one ask on customization is maybe if I could change the color, purple is not my favorite. But yes, the one thing that I've noticed about is, okay, lightning fast actually get to watching something, which is, obviously, sometimes you'll be able to [indiscernible] and bargaining and whatever about what we're going to watch. So what have you seen in the test in terms of actually getting people more quickly into streaming content? And then what kind of impact do you think that could have on actual monetizable hours?

Well, sometimes like we may intentionally not put them right in streaming content because they don't know what to watch. We might put them into the NFL zone where they can pick from a variety of games that they want to watch. Imagine like that's the power of owning the OS. So maybe you don't know what you're going to watch. By the way, some of this is like a testament to the personalization and the algorithms learning over time.

But yes, we -- whether it's a continued watching, whether it's you may want the subscription or you may want to watch this show or if it's a bit of ad unit where it's like a content partner that says, hey, I think this person should want to watch this new show like Marshals and actually shows an actual creative to go watch Marshals and sign up for Paramount+, like we can do all that with this new home screen.

So -- and I do think like there are many times where streamers come in and they are not quite sure what to watch. By the way, we see this with FAST a lot. I mean that is the -- that was the reason why FAST was so successful. You go, you pick a FAST channel that you want to watch and you just start watching it because you're not quite sure. The home screen is not FAST, it's personalization, but the theory is still the same, like a lot of folks don't know what they want to watch or we can show them something that they hadn't thought of and they want to watch.

Got it. I want to switch gears a little bit and talk about some of the DSP integrations. Obviously, you've done -- you've gone from closed to open in a hurry, and you've done a fantastic job there. We often get the comment from people in the industry that this is one of the best companies out there to partner with. So I wanted to start with the Amazon DSP integration. Again, the inning question, how much further can you take that? And how do you think about the progress that they're making in terms of bringing their demand to bear against your inventory?

Right. So first of all, like all the DSP integrations we've done, and we've now integrated with all of them. We most recently announced DV360, which will launch in H2. We've signed the deal and announced that in partnership with Google. But specific to your question on Amazon, I get this question a lot, like how much is Amazon contributing. Let me just back up and remind you of our DSP strategy. You're right, we were close. This is a big difference between the Roku of 3 years ago and the Roku of today. 3 years ago, if you wanted to transact through a DSP, you had to come through our DSP, a product we call OneView, which is an acquisition that we made, which is very limiting.

And we pivoted that strategy in probably late 2023, early 2024 to say, hey, let's open this up. We have so much inventory. TRC is doing so well. We have partner inventory that we can sell. Let's open up our demand-side platform strategy to more partners rather than force an advertiser who wants to run through a DSP to come through our DSP. So -- and prior to that, it's -- I'm being intentionally vague, but prior to that, like the DSPs were considered competitors.

So Trade Desk would be Amazon now, Yahoo!, they were actually competitors. That's how we view them, not as partners. We've completely flipped that. And we've integrated with all the DSPs, and we've integrated with as deep as they're willing to go. So if they have a unique identifier like UID 2.0 for Trade Desk, there's an Amazon unique identifier. We will adopt those unique identifiers and go as deep on the integration as they're willing to go. The one unique difference is Amazon, which is platform-wide, not just Roku as a publisher, but from a platform side. So that is a fundamentally different shift, a very -- that is a full-on pivot on where we were.

So you fast forward to where we are now. We're integrated with all of them. Amazon launched in Q4 and is ramping. And to answer your question, because I'm not shying away from it is, as the Amazon DSP ramps, so will Roku in partnership. It's a long-term deal. It's a platform-wide deal. It's -- we're fully integrated with Amazon, where we can match our customers to their purchase graphs and Amazon can do multiple things within their DSP because we allow them to from our platform for anyone that calls from our platform, we will help Amazon recognize that, and we will monetize that with Amazon.

So as Amazon DSP grows, so will we -- we'll grow right along with them. So part of the answer to your question is it really depends on the success of the Amazon DSP as far as what inning we're in. I personally think Amazon will do very well in the demand-side platform. I've got some experience with that. I came from Amazon, and I think they'll do very well. But we do not tell our advertisers where to transact. We integrate with all the demand-side platforms. And wherever the advertiser wants to transact via DSP, we will be integrated and they can buy Roku Media through the DSP.

Got it. So I think you already touched on Google a bit, but I wanted to maybe put a finer point on that. So recently announced Confidential Publisher Match. I think you were the launch partner, maybe the only announced launch partner. So that's, I think, a credit to you and your ability to partner there. But it sounds like it's going to be ramping over the course of H2. Do you think that's going to be more or less up and running for the holidays?

It will be up and running. Again, but to that question, like the success of DV360 is predicated on how well DV360 does as a demand side platform. So I would say it this way, like there's this idea that -- there was an idea, call it, I want to say 2 years ago that the walled gardens, I lived through this at Roku, where the walled gardens were going to rule all of CTV because the walled gardens had all the inventory. And by walled gardens, I mean Amazon, I mean Netflix and YouTube for all intents and purposes. They were walled gardens, and they were the ones who are going to have all the inventory and everybody else is in tough shape.

And we knew that, that was not the case. We knew that our scale would give us an advantage over -- to partner with the DSPs rather than compete with the DSPs. And so Amazon did announce a DSP, and they don't just focus on Prime Video. They have a whole DSP strategy, and we're partnered with them. Trade Desk, we've been partnered with them for a while under UID 2.0, which is their hashed e-mail that we've adopted.

YouTube is no longer going to be complete -- going to be a walled garden in so much as DV360 will incorporate YouTube, but they'll incorporate all of the publishers as well. We're integrated with that. You could go to Yahoo!, you can go to Wurl. You can go to all the DSPs. We're integrated with all of them. And so I say this in so much as there's no -- the walled garden approach is really -- is no longer accurate to say the walled gardens will win in CTV. What will win in CTV are -- is the most performant ad inventory.

And that is something we strive to do is have the most performant ad inventory because every streamer, all 100 million households plus, 100 million-plus households are logged in. We know who they are. We know what they watch. And we can integrate our -- we have amazing first-party data. We integrate with other outside data and measurement companies to make our platform very performant. So if an advertiser wants to transact through Amazon or through DV360 or through Trade Desk, we will be a performant platform for which they can bid on our inventory on the programmatic pipes, and we'll do very well on that.

Yes. I think that -- as I was setting up all these slides -- I, of course, got the question about my ACR data. And I like -- I'm a big supporter of the company. But maybe you can talk a little bit about that, some of the unique advantages of operating the platform and in terms of what you're able to offer advertisers in terms of reach and global reach and frequency control and things like that.

Yes. So it's a great point, and it's one I think is really important if I take a step back because this is also something that was talked about in 2023 is like, hey, there's companies out there that have massive IP, call it, Luca and Pixar or Stranger Things. There's -- all the NFL, which is owned by 3 or 4 players with Prime Video coming in with Thursday Night Football and you have Fox and you have Paramount and you have ESPN and now you have Netflix. And so -- and there was like all this massive IP out there.

And I got this question, what is Roku's advantage? Well, we have 100-plus million streaming households. And they start their experience every day, watching multiple hours a day with our UI. So we control the user interface. That is our competitive advantage. That is our version of the NFL, if you will.

And I would say, over the last 3 years, we've gotten very good at monetizing that -- those 100 million streaming households in a way that's beneficial to the streamer and a way that's beneficial to us from a platform monetization standpoint because we have -- again, we have the data, we have the ACR data. We have, of course, what you watch on our platform within our owned and operated apps. We can integrate with other measurement companies. We can integrate other third-party data. And so we're in this unique experience to control the UI and therefore, increase areas that we monetize. I get this -- and as a litmus test, just so everyone understands like how powerful that is.

The Roku Channel is the #2 app on platform, so -- in the U.S. So we used to say it was a top 5 app. Then we said it was a top 3 app. Now we say it is a top 2 app. People can -- people know who the #1 app is, but the Roku Channel without big sports budgets, without huge content budgets is the #2 app by streaming hours on the platform, and that is because of controlling the UI and nudging people where to go and where to watch content. It turns out that when you nudge streamers into certain areas, they'll go watch content if they know it's available.

Got it. I want to go back to the ability to partner and how that's influenced by sort of CTV industry supply dynamics. Now those have made changes over the last couple of years. There was a sense that when APV went to flip to free that, that had an impact on the market. It seems like that's largely digested now and the market is looking for incremental sources of supply. How do you think that plays out for Roku just given where you are in terms of fill rates, in terms of CPMs and so forth?

Yes. So again, I think you're referring to the fact that we had a lot of supply over the course of the last many years and...

In the industry, yes.

Yes. And that is absolutely true. It turns out as the hours shifted from digital -- from linear to digital, the ad budget started to shift, and therefore, there was a lot of monetizable impressions. If you take a step back and just look at it from an industry perspective, first and foremost, the industry itself, it's about $90 billion in the U.S. Just talk to the U.S., it's about $90 billion. A little over 1/3 of that has moved to CTV. The hour is much more than 1/3. It's closer to 2/3 of the hours have moved to digital. So that's just supply.

The demand is shifting faster and faster because now everything is available on CTV, whereas before, sports were the last holdout of linear. A lot of sports was not available on digital. Now that's not the case. As a matter of fact, now you have a lot of different sports, specifically in the NFL that's only available on digital. You have exclusive -- you have Prime Video on Thursday Night Games. You have exclusive games on Peacock. You have Netflix having games. So some of the sports are only available on digital.

My point is all the hours shifted in advance of the dollar shifting. And now that's catching up. But yes, because of all those hours shifted, there was a tremendous amount of ad inventory on the market. I do think that continues to normalize because the dollars are now shifting quite fast from linear into digital. There's also new TAMs, if you will, that are moving into CTV, specifically the SMB market, which is highly performant. Maybe we'll talk about that. That's a whole new bucket of dollars that are moving into CTV from an advertiser perspective, and it's a huge opportunity. We're very excited about it.

So you do have the secular tailwinds of the TAM expanding to help out with the supply. But what happened when that supply was more than the demand is CPMs did compress. That didn't scare us. We were just fine with that because we had a lot of impressions that we had to fill. But what I think ultimately happens now as more demand comes is I think the most performant ad inventory is what's going to be in demand.

So what does that mean? It means the inventory that is -- whatever you're trying to do from a performance standpoint, whether it's reach, whether it's a KPI, whether it's an action, that inventory is going to be in high demand, and there's also lower demand ad inventory out there that I think will just generate very low CPMs. So I think you're going to have the CPM demand curve. The good news for Roku is we play along the entire CPM demand curve. We have ultra-premium CPMs like the Roku home screen, which is not available through programmatic.

Roku City, which is not available through programmatic. We have mid-tier CPMs because we have great first-party data, which will have CPMs, call it, anywhere from $15 to $22. And then we can play in the low CPM space on some of our other inventory, if it's like something like an app install, which generally has lower CPMs. So my point is we have -- we play along the entire CPM demand curve. And so we're in a good spot from that.

It seems almost as though if you -- not just your commentary, but also more broadly, if you talk -- listen to the SSPs, like there was some kind of inflection point maybe around Q4, where it wasn't just the linear inventory coming -- or the linear demand coming to bear, but it was also some mix shift from traditional digital and so forth, display and video, that kind of stuff that was normally running in web or in mobile app that was suddenly coming to the market. Is that something that you've observed as well?

We have observed a lot of demand coming our way for video, which I would say is more performance-based. Again, it's performance means different things. From a brand perspective, that's going to be very different than an action-based KPI from an SMB. But we are experiencing a lot of demand when it comes to having high reach, high-performing ad inventory. Take the video on our home screen. We added video to our home screen about 18 months ago. That used to be a static display ad.

That static display ad was really good for M&E advertisers, media and entertainment advertisers, but not great for any other vertical, if you will, simply because those other areas like health and wellness, like insurance, like retail, they wanted video, like auto. They wanted to see video in that. So what we did is we added video to that ad unit. And it had -- what it did is it opened up that specific ad unit, which was 99% plus M&E to an entire set of new verticals.

Now we have Walmart in there. We have car dealerships, autos in there. We have insurance in there. We have health and wellness in that ad unit, and it's doing very well. Some of that was incremental demand. Some of it was a shift from in-stream video to this new video ad unit, but that's -- we're fine by that because that home screen video ad unit is very high margin. There's no cost of goods sold for us on that. So it's very, very high margin. It's a very high-margin ad unit. So we're happy even if it does shift from an in-stream video ad to this particular ad unit.

But where I'm going with this is the demand that we see is for the performant-based inventory, which again is something Roku over-indexes on because, again, we've got such broad reach at over 100 million streaming households. Over half of broadband households in the U.S. have a Roku TV in their household. Again, they are logged in. We know who they are. And therefore, we can utilize that from an advertising perspective.

Got it. I just want to switch gears a little bit to the political environment, what your expectations are, maybe political and cyclical events, we can lump those together. But are you seeing any sort of early indications of what political could shape up to be for this cycle?

Yes. Our indications are we think it's going to be similar to the general election of 2024. It's a little hard to judge that right now. It's a little early. We're seeing bookings on par with what we saw in the general, but political comes very late because, of course, they need to figure out where to spend specifically, comes very late, hence, why a lot of it is run through programmatic, which is great for us because that's where we really do shine is on the programmatic side.

A lot of political is hyper geo targeted. Again, that's something because everyone's logged in. It's great for us. We're very good at geotargeting. So we feel like we're in a good position for this year's political. And I would be pretty surprised if it didn't equal general election in this midterm cycle, but it's a little early for us to tell.

And the last cycle, how is that covered for you in terms of the pacing? Some people say it's Q3 weighted, some people say last 6 weeks...

It's end of Q3. It's definitely into Q4. October is a very big political month. It really does depend on where -- that one, I'm not quite sure how that is with the general versus the midterms. I think the dollars are going to be similar. How they're spent up until November, early November is to be seen. And I'm not quite sure on that. It depends on what the competitive elections are and what are the outcomes that all the spend goes against.

But it does hit -- October and the first part of November are quite heavy. By far, the heaviest month is October. Now you do have a full Q3 spend because the spend does really start in, call it, the early part of Q3 and is in pretty heavy throttle at the end of Q3. So as you exit September, but October is a big month for political.

Okay. I want to switch gears to subscription, talk about that for a bit. You've had some sort of unique tailwinds over the past 12 months. You've obviously added Frndly, launched Howdy. You've added some more premium subscriptions. Just how are you thinking about the sort of sustainable growth trajectory of the subscription business? And just given some of those particular tailwinds and maybe some of those things are things that can sort of experience an S-curve, if you will.

Yes. So similar to how I talked about our DSP business going from 2023 to now premium subscriptions -- sorry, subscriptions, of which premium subscriptions is a major part of subscriptions has had a similar, call it, ramp, if you will, of focus. So we've had a subscription business for a long time. We have a payments product. A lot of what we call direct-to-consumer or D2C subscriptions, which is where you sign up with the partner, but on our payments platform through Roku Pay.

And we've said before, we've monetized tens of millions of subscriptions. But it had not -- prior to 2024, it had not been a big focus. It didn't have a leader. There was not a lot of product, not a lot of innovation being pushed to it. There was no personalization at that point in time on Roku. So subscriptions wasn't a, call it, a top investment initiative. Now it is. We changed that. We said it very clearly exiting 2023 that subscriptions was going to be a high priority because it is -- because overall platform monetization was a high priority.

So you fast forward to today, where premium subscriptions now is doing extraordinarily well, and it's doing well because of the way the premium subscriptions is really embedded in our UI. So if you have a premium subscription, the content is ingested on the Roku -- on Roku, and you see that content throughout the user interface, whether it could be on the personalized home screen, it will definitely be in the Roku Channel, all that premium subscription content is part of the unique experience.

As opposed to a D2C subscription, the real only way into that is directly through an app. You have to go into the partner's app. Maybe you have a button, it could be the button. It's an app or a button. You're not going to see a lot of it on the content row. We might see a little bit, but most of the ingress into the partner is going to be through the app tile. That's not the case for premium subscriptions. The ingress is very little of it is through the app tile. Most of it is through the user interface, the user experience throughout the UI that we control.

So we've done -- we have multiple Tier 1 partners sign up for premium subscriptions. We just announced FOX One. We had Peacock sign up. We had Apple TV sign up. In last year, we had HBO sign up for Tier 1. We have a very, very strong torso and tail of Tier 2, Tier 3 partners, all in premium subscriptions, all driving that premium subscription initiative. Also, what premium subscriptions does allow us to do is have more product focus on the subscription itself. I get a lot of questions like, hey, has it reduced churn?

We haven't had a noticeable impact in churn yet, although I think that will change over time. But what it does allow us to do is do bundles, for example, which we're testing right now. It allows us to, again, put the experience into the checkout process, for example. If you're on another app and you just want to add a new app like Howdy, which we do now, where you're checking out on something, hey, you want to add Howdy for $2.99, you can do that.

Premium subscriptions allows us to have much more unique features in the subscription business, more unique experience within the Roku OS, and that's driving a lot of the subscribers in premium subscriptions. It's been a big win for us. We also launched it in Mexico. We launched Howdy, which -- Howdy is a premium subscription partner. Frndly isn't there yet, but we're working on that. It will be soon. There's just some technical things we're still working through on the Frndly side, but Howdy is a PS partner. We launched PS in Mexico -- we launched Howdy in Mexico. We'll launch more countries with premium subscriptions. It's a huge positive for us.

And the streamers themselves are incentivized, it sounds like because they get more of their content displayed across the UI that drives more viewership, it's more ad...

It drives more hours into that content. It drives more experience. We'll have -- on the left nav, we'll have zones, we'll have sport zones, so we can have these zones have whether it's an NFL zone or as World Cup comes or soccer zone, et cetera, we'll drive subscriptions into those premium subscriptions.

Got it. And on Howdy, also -- maybe your newest Howdy subscriber right here?

It's doing very well. We're very happy.

It seems to be doing great based on the antenna data. Do you think that, that's a unique enough swim lane where you want to say, okay, more people need to know about this. Yes, we promoted on -- obviously, on the platform, on the home screen and so forth. And it sounds like you're also doing some to attach it to your other premium subscription sales. Do you think about putting more marketing dollars more generally behind it?

Yes, that's all the time. We launched it off Roku. It's actually available on Prime Video, doing very well on Prime Video. Why is it doing well on Prime Video? Well, it's a very inexpensive ad-free subscription with great content. So it does very well off Roku as well. We launched it in Mexico. We'll launch it in more countries. So stay tuned on that. So yes, we -- and we're putting more marketing beyond the owned and operated marketing that we currently have. We are absolutely doing that.

Got it. So I want to switch over to devices a bit. So I was just in my neighborhood, in Walmart, like I told you. And there were absolutely Roku-powered onn devices still very much on sale. But that's a question we get from investors, what the runway is there for that -- the continuation of the Roku partnership with onn? Is there an opportunity to maintain some SKU share there over time?

Well, certainly, the partnership with Walmart will continue to be ongoing, whether it's with the private label brand, which is what you're referring to and onn and it is to be seen. But definitely, we will be at Walmart. We will sell millions of units at Walmart. Through our OEM partners, we also have our own first-party TV where we are the hardware and the software provider that's doing very well. And of course, we still have players. So I would say that our overall footprint in Walmart has shrunk because of the onn transition, but our footprint in other retailers continues to grow.

Our expansion with our OEM partners continues to grow and is doing very well because of a variety of reasons. One, we're investing more in our OEM partners. Two, there's a memory cost advantage with the Roku OS that's really important right now, and we're seeing a lot of benefit from that. I can touch on that. But our overall distribution strategy is still working, notwithstanding the onn transition.

Got it. And you've talked about some of the incentives that you may bring to bear, particularly in the back half of this year. And then, of course, the BOM cost advantage that you have to, obviously, just structurally, but then in addition, given you the memory cost issues that are obviously taking place across the space. So you could talk about maybe your ability across partners, broadly speaking, to gain SKU share?

Yes. So part of it is -- there's a couple of things going on. One, of course, as Walmart has transitioned, we've taken our hundreds of millions of dollars that we invest in distribution and we invested in other areas. That's just part of it. So we've invested with other retailers. We have invested it more with our OEM partners, which is helpful to just gain more of their share on the third-party side. And our own first-party TV continues to grow very well across the retail distribution channels. We've also come up with some unique SKUs.

For example, we have a product called Hiro at Target, which is branded, which is a private label for Target, but it is our hardware and software, doing very well at Target. But to your point on memory, memory has gone up exponentially, and that's only now starting to hit the market. It's gone up. It went up, call it, 6 months ago, but those -- that new memory is just now hitting the market through the manufacturing cycle.

The benefit of Roku is it's a purpose-built operating system for TVs. It's not the same memory footprint as a phone or a laptop. It's a much lower memory footprint. And because it's a lower memory footprint, and we're the only ones out there, at least on the TV side that has that low memory footprint because we have a much lower memory footprint, the BOM cost for our operating system is significantly less than our competitors and peers.

And that matters a lot to the OEMs, to the third-party OEMs because now in this memory -- in this type of environment where memory is up 7 to 15x, when you think about a 45 or a 55 or even a 75-inch TV, but specifically on the smaller models, the percent of the BOM cost that memory -- bill of materials cost, BOM cost stands for bill of materials. The percent of the bill of materials cost that memory represents has gone up tremendously. And we can help -- we do help our partners offset that in a very material way.

So not only are we investing more in terms of dollars into our OEMs, but we're also giving them an opportunity to significantly lower their BOM cost. And that is working very well. OEMs are contacting us saying, hey, we want to do more with Roku. We want to do more in the U.S. We want to do more outside the U.S. because not only is your operating system amazing and streamers love it, but guess what, it has a far lower BOM cost as well.

Maybe I'm getting over my skis a little bit on this, but I think Sony and TCL just did a tie up. I perceive maybe an opportunity to sort of march higher into the sort of more premium range of the market. Maybe that has a follow-on...

Yes, that's always on our mind. We're always working that. I think that will happen. I do think that operating systems will consolidate. I think Roku is going to be the winner in there, of course, because of our -- not just our overall penetration and our market share, but simply because we have the best operating system from a user experience standpoint. I mean the streamers just love it. They love the Roku Channel. They love the latency of it. They love the home screen, they love the remote. There's so much going for it.

Clearly, still price is the biggest difference -- is the biggest input into buying a TV. I fully agree with that. But in addition, as long as we can maintain price competitiveness and we can, the operating system is just unbeatable from a streamer experience standpoint. So like there's a lot of opportunity to go upscale into other areas, higher -- call it, the higher end. We're always looking at that.

But for right now, TCL and Hisense are 2 very large OEM partners. We just signed multiyear agreements with them. We have many other mid-tier OEM partners that we're signing more. I could list them, but there's so many of them. We're doing -- we're growing our share in the non-Walmart retail outlets, specifically Target, Amazon is doing very well, Best Buy and a lot of the regional areas, we're doing very well in, and we continue to gain share from that perspective in those specific areas.

Yes. And so I just wanted to talk a little bit about the -- or touch on the OpEx trajectory and just -- yes, any thoughts there on sort of margin directions, margin ceilings and how we should be thinking about...

Yes, it wouldn't be a fireside chat if we didn't talk about OpEx.

Yes, talk a little bit about numbers.

Yes. Can I talk a little bit about free cash flow, too?

Yes, that too.

That's also really important. Excellent. So to answer your question on OpEx. We said for several years now, we are going to grow our OpEx at mid-single digits. We've actually come in lower than that. We said for this year, mid-single digits is what we're going to grow our OpEx while we grow our platform business double digits. And our growth rate is doing very well. We've accelerated our growth rate coming into Q1 and into Q2 relative to prior quarters while actually maintaining that mid-single-digit OpEx growth for the full year of 2026 per our guidance.

So let me just take a step back. In 2025, we did $421 million of EBITDA. We guided to $675 million of EBITDA in 2026. That's -- we grew 260 basis points of margin in 2025. We're going to go get the 330 basis points. I believe that's what the $675 million equates to 330 basis points of improvement in EBITDA margin for 2026. We've said that free cash flow is going to grow more -- is going to be more than EBITDA. We said that in 2024, our free cash flow was, I believe, $480 million, if I'm not mistaken. In 2025, free cash flow, again, will be higher than EBITDA for 2026. The guidance is $675 million. We'll do over $700 million of free cash flow in 2026.

Our SBC, which is a very real expense, something I track very closely, is going down. We were down $25 million in SBC in '25. Our guide implies another $25 million to about $325 million on a run rate for SBC, which all this means our dilution is essentially -- was negative dilution for the first time in the company's history in Q1. We were -- our gross dilution was 2% to 3%. We're now negative dilution. So all this is to say that our North Star is free cash flow and free cash flow per share. We're doing very well. And that -- I think I publicly stated that we will hit $1 billion in free cash flow by the end of 2028, if not sooner. I'm optimistic on the if sooner part, on that $1 billion.

So all in all, OpEx was your question, but I look at the holistic picture with our North Star of free cash flow and free cash flow per share, and I think that we can continue to grow. I think that margin will continue to improve. I think lastly, one of the important parts I mentioned is that free cash flow is higher than EBITDA. We're one of the very few companies that can say that. We're CapEx light. Our investment is in our R&D team, which is fully expensed, is not capitalized.

And we have a deferred tax asset that will eventually write up probably in Q3 or Q4. It's right now on our books on a net of 0. It's going to be about $1.2 billion when we write it up. So we have a deferred tax asset that will help from a cash taxes perspective. So I expect that free cash flow for the next several years will be above adjusted EBITDA. And again, that's our North Star free cash flow and free cash flow per share.

Okay. Last one just on -- given all that, which sounds great, the capital allocation priorities for the business.

Yes. We have just -- I believe it's about $2.4 billion, $2.5 billion of cash on our balance sheet. We have no debt. We're in a great position. It's a very enviable position. I feel honored as a CFO to be in this position. And of course, figuring out the utilization of that cash is a top -- is always a top priority. Right now, we've invested in our share buyback.

We've strategically done acquisitions. We're very selective in our acquisitions, and we'll continue to look at them. There's nothing imminent. We're very selective. We're very thoughtful on acquisitions. But in the meantime, we're going to continue to generate free cash flow. I suspect we'll continue on our share buyback, all else pending from a capital allocation perspective.

Okay. We've got a grand total of 3 minutes left. I'll open it up and see if there are any questions in the audience. And seeing none, I guess we'll leave it -- there is one.

There's a misperception years ago who you were actually competing with. Are you -- just on the time engagement [indiscernible]?

Yes. Great question. Actually, thank you for bringing up some of the performance advertising. It's an area we didn't cover and one I feel very important to address. So the entire industry is both competitors, peers and partners, and that's how we approach it. So there was this idea, I mentioned that the walled garden of Amazon was a pure competitor 2 years ago, maybe 2.5 years ago. Guess what, Amazon is a great partner of ours. Trade Desk was a competitor 3 years ago. They're a great partner with us. YouTube, competitor in the form of ours. DV360 is a DSP, they're partner with us.

All of the content companies, Paramount, HBO, Disney, all of them, they're all partners with us, and we help them drive subscriptions. They also spend money on advertising to drive subscriptions, but we're all competing with ours between the Roku Channel and the partners. So it's a very -- like we feel very good. Our partnership with Amazon is extraordinarily strong. And so from that standpoint, I just -- I feel like we're in a very good spot.

To your point on -- you brought up some of the performance-based advertisers, that's interesting. Now they used to not be a competitor, and I'm going to hold that they are now a competitor because CTV is an excellent area now to focus on performance advertising. We have a product called Ads Manager, which is growing extraordinarily well. It's getting to be a sizable business for us. We just launched it 18 months ago.

That is a self-service ad product where as an SMB, you can come in, pick your budget, pick your KPI, maybe you want site visits, maybe you want conversion, maybe you want a lead gen for calls to a 1-800 number, you pick your performance metric on the self-service, you upload a Gen AI created video or any video. Most of them now are Gen AI related because SMBs didn't know how to produce a video ad. Now we can with Gen AI within seconds. And within 5 to 6 -- you put in a budget within the 5 to 6 clicks, you are up and running a performance-based ad campaign across our OS, our TRC, our partners. We can go off Roku if we need to.

That is a unique and relatively new feature where performance ad budgets, I believe, are going to shift because CTV -- why wouldn't you want to try out CTV if you can get certain performance metrics. And we are seeing that within Ads Manager. We're doing very well from an ads manager perspective. And that -- now that's a whole new TAM, call it, $600 billion of SMBs. That's what they spend. There's $200 billion of true performance-based advertising out there. That TAM, some of that TAM is going to come into CTV, and that's a huge opportunity for Roku.

Great. We'll leave it there. Thank you so much.

Thanks, everyone. Appreciate you coming.

I'm excited to have Dan Jedda with us. I have said before it's first time, long time, first time Roku's been here. Thank you for being here. We appreciate that.

Thanks for having us. We're very excited to be here. It's my first time. So it's great.

Well, I don't usually offer praise, but I have to -- this is my first question, right? So you joined Roku, in May of '23 and 3 years in and your impact on the organization has been tremendous. It really has been -- we've been skeptical of the company you've proved us wrong in terms of the way you operated it. So thanks for being here.

And given all that's changed for the better at Roku over this time frame, can you share now your biggest opportunities and priorities? Like now that you've done what you've done, where do you focus on to improve and what are your priorities?

Yes. Well, first of all, thank you for the nice introduction. Very thoughtful. It's been an amazing 3 years. I've just had my 3-year anniversary. And I'll answer that question, but let me just quickly give me a minute to talk about the migration of call it, over the last 3 years because it really has been transformational like, Roku is a fundamentally different company today than it was 3 years ago, not because of me, because of the whole company, but I've only been there for 3 years. And I want to just -- give me a minute to talk about that transition and then I'll answer that question directly.

So if you go back to the second half of 2023, which is when I started, as I came in, Roku was a very device-centric company, still is with a growing scale of -- at that time, I believe it was around 80 million streaming households. Now we're 100 million streaming households. And so -- the focus on scale was there. There was less of a focus on the monetization of that scale, and that is the pivot that the company has undertaken over the 3 years.

And so I'll give you a couple of examples, like in the advertising business, like Roku was very focused on its top, call it, X 200 big advertisers. It was direct sales force led. It was focused on getting more from the top brands, as many companies were. And then the M&E space, the media and entertainment space is space you're very familiar with, also as a vertical, like that was the focus. And that is a relatively small number of advertisers.

You fast forward today, we're very diversified. We added more ad product. We diversified by integrating with demand-side platforms. In 2023, we had our own demand side platform called OneView at the time. So if an advertiser wanted to come via a DSP, we force them to come through our DSP, which again, was very limited. So we basically said, "Hey, let's open this up. Let's bring in more advertisers, let's skate to where the puck is going, meaning programmatic, the shift to programmatic, like let's be the best at -- on both the programmatic pipes as well as the direct sales led". And so we added more ad products focused on this. We integrated with all the DSPs. We tapped an entirely new market, entirely new TAM through the ads manager focused on SMBs, I'm sure we'll talk about that.

We basically really focused on where this market was going. And from that standpoint, we're fundamentally different now. And then we did the same thing on the subscription side. It was not heavily focused on subscriptions in 2023 as we exited '23 now that we rightsized our cost structure, we said very clearly externally, we are going to focus on subscriptions. We're going to make this a real revenue stream that's going to grow tremendously. We added new subscription product. We focused on premium subscriptions. We brought in a leader of subscriptions to do just this.

And we included in our home screen changes, we put personalization that drove subscriptions. So fundamentally, we're just a very different organization. And I'll just end by saying we reallocated capital to invest in these areas to grow them, not went out and hired a lot more people. We said, listen, we have plenty of capital. We really just reallocated to what we thought was our highest ROI initiatives.

Now to answer your question, we're still focused on all that, increasing diversification of demand, going deeper within demand-side platforms, adding new ad products like on our home screen, looking at our new home screen and how it can drive both engagement and monetization, new subscription product, new countries, we just launched premium subscriptions in Mexico, we'll eventually launch more countries. We're building that now. So basically, we are focused on all these initiatives across the company, and that is where a lot of our allocation of capital goes, which again is just fundamentally different than 3 years ago.

Okay. Another fundamental difference, which I think was really important is improved transparency on revenues, it give us now advertising and subscription revenues. You eliminated it, you made it more easier to understand 606 revisions, why do you make those decisions? And there are other changes you see coming that you're focused on to make it more transparent and easier to understand company from the outside.

Right. First of all, the ad business is complicated enough, like you want to actually make it simple and easy to understand for our investors. And so one of the -- some of the changes -- we talk about this internally a lot, specifically within my org but even across the companies, how do we make it easier for advertisers -- for investors to understand our business. And so one of the reasons we did adjust 606 because it was extraordinarily complicated, and we're able to simplify that.

On the segment reporting side, we've been working on that for about a year, very excited that we rolled that out. And even that, we took to the next level, like we even debated should we just give revenue out. But no, we said no, like we want to give revenue and gross margin out because it's going to help our investors understand not only how we've diversified our revenue streams, but also there's fundamental differences between these 2 now segments.

And so we are constantly asking ourselves how can we give our investors and potential investors the information to understand our company, but also not give out too much competitive information, which I'm very sensitive to as well. So we dropped a lot of data points along the way. We're always talking about what more data points that we can drop so people can understand our business. And the segment reporting is something I was very excited to do. And it was not obvious, but I did feel that people didn't understand how big the subscription business was.

And so we thought it was important to tell everybody. And so rather than just drop a data point on it, we said, "Hey, let's just break this out and let's start reporting on it". And then similarly, on the margin side, I constantly would say, "Hey, ad margins are not going down because we're blending out to 51% to 52%. That's down from 56%." And the common thought was lower CPMs are driving ad margins down. Integrating with DSPs are driving ad margins down.

Despite my telling everyone that's not what's going on, you're having mix within the platform business, ad margins are doing very well. Integration with DSPs does not drive margins down. Lower CPMs for us do not drive margins down. Now we're showing that in the advertising business, of course, we just reported just north of 60%, which is up 450 basis points from a year ago.

Right. Is there anything that you want to tease that potentially is coming down the road in terms of changes in...

The only thing I'd say on this is we optimize very effectively for gross profit dollars and gross margin. Within advertising, we're getting very good. Not all impressions are created equal, not all DSPs are the same. And so we optimize our floor pricing across our inventory. We optimize our floor pricing across demand-side platforms basically maximizing the demand and the gross margins. We fill our highest margin inventory first. We have algorithms built to do this. So we're very good at optimizing for both revenue and gross profit.

Okay. I focus on this because there are so many companies we cover that have taken a disclosure away from us in the past year or 2. So it's -- we love companies actually tell us more and not less. So thank you for doing that. We also love companies that focus on free cash flow. And that's something that you've really honed in on since you've gotten there, right? So you talk a bit about the low capital intensity of your business, you also have an NOL that's benefiting you. How long will that NOL last? And kind of your -- you talked about $1 billion by 2027, '28 if not sooner, but give us your bridges on cash flow and why it's such a strong number for you versus maybe other companies?

Yes. That also was a change that we really focused on is making our absolute North Star free cash flow and free cash flow per share, which we've stated many times over the last 3 years. So we are very focused on free cash flow. So what does that mean? Well, it means that first of all, we are CapEx light, which we're very fortunate to have an accounting that's CapEx. It doesn't mean we don't invest, by the way, our investment is in R&D, which is not -- we don't capitalize R&D, we fully expense R&D.

So we are very CapEx light. We are single-digit millions in CapEx. I don't anticipate that changing anytime soon unless we put in an ERP or something significant, but even then, it would be onetime, it wouldn't be ongoing. So we're very CapEx-light. We are one of the few companies, and this is why I'm okay, focusing on EBITDA versus operating income. We do focus on both, but we are one of the few companies that actually generate more free cash flow than EBITDA because we're so CapEx light. So our conversion of free cash flow -- of EBITDA to free cash flow is well over 100%. We have -- we're very effective at managing working capital, and we're also very effective now at managing dilution. So it is a North Star for us. And you're right, thank you for bringing up the NOLs. We have about $1.2 billion that's been impaired because of accounting purposes on our balance sheet.

We'll write that up now that we're profitable, probably sometime in H2. But the point is we get to utilize a $1.2 billion net operating loss as an asset for us to offset cash taxes. How quickly are we going to use it? As quickly as we can because that just means we're generating a lot of profit. And I think it will be a couple of years, but for a couple of years, we will have EBITDA -- free cash flow above EBITDA. Even once we utilize it, and that will be a great day for us because that just means we are having a lot of profit flow through our business. The only difference between EBITDA and free cash flow would be cash taxes in that case.

And then priorities for cash flow, right? So you've done a little tuck-in acquisitions, don't have much CapEx. So you sit there and you have the benefit of this cash flow coming in, how are you prioritizing where you're going to use it?

Yes. Capital allocation in the form of OpEx and capital allocation in the form of cash is something I spend a lot of time on. What we've been focused on -- and you're right, we've done some tuck-in acquisitions. We're focused on, of course, anything that can help us from a monetization standpoint, from a scale standpoint, we look at -- there's nothing to talk about imminently in the form of acquisitions. We're very disciplined in how we focus on acquisitions. We're only going to do acquisitions that really make sense for us both strategically and from a positive ROI NPV perspective.

But we are also -- we also did -- 2 years ago, we basically changed our vesting of RSUs to be net share settlement. That's where instead of paying cash taxes in stock, we pay them in cash, quasi-stock purchase -- repurchase program. So that offset 1/3 of dilution. And then last year, we had a share buyback, we authorized a share buyback and approved a share buyback. And we've been utilizing that to fully offset dilution. I think Q1 was the first negative dilution in the company's history.

Yes, sequentially.

Yes, sequentially. And so -- sequentially, correct. And so my goal -- I stated this, my near-term goal is to fully offset dilution with cash, as you said -- I said publicly, like I believe we can do $1 billion of free cash flow by 2028, if not sooner. And so when you're generating $1 billion of free cash flow, we can use some of that to offset dilution. We'll continue to do that. I might even go beyond that at some point. We'll wait and see on just what's the opportunity from the cash...

What I also appreciate is that you're old school focusing on GAAP EPS, GAAP EBITDA, right? And so historically, Roku had been a big issuer of SBC, right? So how do you think about the right balance of stock-based comp and why not pivot to more GAAP-based targets, right, and not adjusted EBITDA but there's no GAAP EBITDA definition but moving to include SBC and kind of all the key metrics that I communicated?

Yes. We do that now internally. We treat stock-based comp as a very real expense, is embedded throughout everything we look at from a P&L ROI perspective, we look at stock-based comp. So it's something that we've -- again, coming in, I just thought it was high on a relative basis. It was driving a lot of dilution. We've rightsized -- when we rightsized our cost structure, we rightsized our stock-based comp. We made some other changes to manage our stock-based comp. And so I believe stock-based comp in 2024 was just north of $375 million. We improved it by $25 million in 2025.

Our guidance implies another $25 million improvement in 2026. That's despite adding headcount. So we feel like stock-based comp is now well managed, but it's always considered a real expense. So as we do focus on operating income in addition to EBITDA. We do focus on net income in addition to operating income in addition to EBITDA. So -- and then of course, all this equates to how does free cash flow and free cash flow per share which stock-based dilution that's why we say per share dilution is a part of that. And so every metric that we look at is across all those financial metrics, which again is relatively -- which is a change from, call it, 3 years ago.

Which is -- we're in favor of. So you just touched on it before. I think one of the areas of the company that seems less discussed is the international opportunity. I know it's relatively new. What have you learned as Roku has garnered more scale outside the U.S., right?

Yes. So let me talk a little bit about international. International is a huge opportunity for us, and we're at different stages in different countries. So -- let me just give you a couple of examples of countries like, in Mexico, we have nearly as much scale in Mexico as we do in the U.S. I mean it's very impressive what Roku has built in terms of scale in Mexico. The ad market is nowhere close to where the U.S. ad market is in the shift to digital. So CTV ad market still has a way to go.

But it will go more to digital because all the hours are shifting just like in the U.S., all the hours are shifting to CTV and to digital. So the ad dollars will eventually follow. It's just taking time, but we're in a great position. But where we're starting to monetize very effectively as we wait for -- I mean we are doing well in the ad market. It's just not where I think it should be on a relative basis.

The market -- the ad market needs to catch up to where the hours have gone. But where we are really focusing now is on subscriptions, again, which is relatively new for us to really focus on subscriptions. We've always had the subscription business. Roku Pay has been around for a long time, but we've not had a huge focus on driving the monetization via subscriptions. And we're doing that now in Mexico. We launched premium subscriptions this year, in Mexico, it's doing well. We launched with Apple, for example. And we have other premium subscriptions, and we're adding more all the time in Mexico.

We launched Howdy in Mexico doing very well with a great content offering at a relatively inexpensive price, I believe that the equivalent is around $2.60 in the U.S. So we are driving the subscriptions part while we continue to wait for the ad market to shift, and we're getting better and better end market. M&E has always been there, but the in-stream video has taken some time to move. Transition over to Canada, we have less scale, about half the scale in Canada that we do in Mexico, but the ad market is very -- doing very well. And we've really been focusing on driving advertising and subscriptions in Canada. We don't have premium subscriptions yet in Canada. That will happen. But we do have a robust ad market. So we put feet on the street, people physically located in Canada, we're driving that. The ARPU looks great. It's 4x the ARPU of Mexico with less than half the broadband penetration just because of the ad market and how it's driving. And I think there's incredible opportunity.

The rest of the countries, U.K. and Brazil and the rest of Latin America, we're just still building scale. We are -- there's the U.K. we are starting -- we are monetizing that. We just don't have a lot of scale yet. The rest of Latin America and Brazil, we're building scale. The good news is because we're first -- we're a first mover in many of these Latin American countries. The scale that we're building is just not an expensive CAC, and I love that. We're getting ahead of the game, just like we did in the U.S.

Right. Well, can you -- I get the North America strategy, LatAm, what about like Asia Pac? Is that just too hard because you've -- a lot of incumbents there.

Yes. We constantly look at countries outside of our focus countries. These are the countries that we're launched into. So I don't have much to add. We are looking at it. We look at Europe a lot, we look at Asia. We look for the opportunities. I don't have much more to add on that yet except to say it is on our radar. And that really is about distribution. It's not so much the operating system. That's fairly easy and not a big investment to convert the operating system to be compliant, what we'd want to do in Europe or Asia. It's about distribution and what is the cost going to be? You can't -- you don't want to be a #5 player in this space, and you know this, right? Being a #5 or #4, you need to be #1 or 2 or 3 player to get massive scale as an operating system to really drive the monetization. So we're constantly asking ourselves, like, how do we get significant scale in these countries.

Got it. Okay. Let's turn to advertising. You mentioned this before, too. Can you help us frame what's under the hood of the ad business. You have so many different types of products and now so many ways to go to market. So what are the KPIs that you think are most important that you can share with us? And any kind of metrics against those KPIs?

Yes. The KPIs -- it's a great question. So one, we focus on controllable inputs, first and foremost, not the output. The output is what it is. We have a relentless focus on what we can control. And I'll give you a couple of examples on how we think of that. Like for example, like if you look at just broad brand-based advertising, reach matters. So a KPI is reach within the Roku channel and reach across the platform, focus on both. And we've really started to focus on that. Again, as we entered into 2024, we said, what are the KPIs that are going to drive the monetization of the ad business and the subscription business.

And reach was one of the important metrics that we could control that we wanted to drive. And we've seen tremendous improvement in reach. TRC is the #2 app on the platform. As you might notice it, we used to call it a top 5 app then we called it a top 3 app in the U.S., now we're saying it's the #2 app. So that just tells you how much reach and we look at daily reach of course...

And reach has declined in the linear world tremendously except for broadcasting which -- come in. The reach is no longer available.

Reach has grown significantly for us. Again, not just in the Roku channel, although that's critical for us. But across the platform because we get a share of inventory from others that we can serve our ads on. So we've really focused on reach within the, call it, the brand marketing budgets. You flip all the way down to the SMB market, very different market. You do not really focus on reach, what you're focusing on are traditional KPIs of a number of advertisers that start an account with us all the way down to the conversion to a paid advertiser, the repeat rates of a paid advertiser because these are SMBs.

These are things we control. We control the UI, we control the funnel, we can get improvement in conversion rates. We have other ways of, of course, how we bring advertisers in, there's a CAC involved with marketing et cetera. We'll sign agreements with larger companies, medium-sized agencies to drive volume. But ultimately, we want to control the KPIs within the funnel of conversion. And by the way, performance because it is a performance-driven market is one of the most critical inputs. That's something we control, like the performance of our platform. So we are constantly working on integrations, maybe we'll talk about Ads Manager.

But the KPIs are what we can control to bring more SMBs and get them to stay with us. So those are the KPIs we focus and that is the exact opposite end of the ad market. Now we've talked about the largest 200 brands all the way back down to the SMBs and then everything in between.

Right. So I think a major pivot was embracing third-party DSPs, you again mentioned that upfront. Was the Amazon tie-up or tie-in the most meaningful given the leveraging of Amazon's first-party data. So was that a major unlock from the outside looking in, what do you think?

Yes, it's a great question. Yes, it was a major unlock. I was so excited when we could announce the Amazon deal because for the prior year, we had heard a lot about the walled gardens are going to rule. Everybody else, game over. I cannot tell you how often that was being repeated. And we were certain the industry was wrong on this, that the walled gardens are not going to stay walled that they're going to open themselves up. And if they do that, what is the best way to open yourself up is come to the platform that has the most scale and not by a little, by a lot in the U.S. with our over 50% broadband penetration.

So Amazon was a walled garden. There was others, people said YouTube was a walled garden. You fast forward now DV360 is getting more into CTV. We just signed an agreement with DV360 to adopt their unique identifier of the hashed e-mail. So our first-party data can be matched up with their first-party data. The Amazon deal, which we announced about 9 months ago was utilizing our first-party data with their first-party data. It's a win for Amazon. It's a win for Roku because now they can recognize that it's me, match me and my purchase profile on Amazon. This is all done in anonymized clean room, very safe for Roku. Our data is very safe.

And we ultimately can help Amazon expand their demand side platforms in the meantime, we benefit from the media side and the Roku channel, and we benefit from a platform level as they pay us at the platform level. So it's a huge win for both organizations. That relationship is going incredibly well.

And clients love it too because you can use first-party data from Amazon...

100%.

Not paying a huge toll to a third party?

Correct. They would not come through it if they did not see the performance on their side. So we give Amazon instant scale. They give us a way to monetize our platform, 1P data plus 1P data, a huge win.

So one of the questions that people have the time was how do you make sure that the DSP doesn't undermine your -- your first -- your go-to-market directly relationship we have with the brands or the advertisers. So how do you manage the potential conflicts in channel?

So we have -- first of all, we have ways that we protect our data, first and foremost. So our 1P data is fully protected. I won't get into the details, they're complicated, but this is something we take very seriously. So that's one piece. The second, to your point though, it's not so much of cannibalizing. It's meeting the advertiser on where they want to transact, and Charlie is really good at discussing this.

So essentially, our thought is like we don't want to force an advertiser to come through a specific DSP or directly to us if they don't want to. What we want is we want the most performant media out there. And because we have 100-plus million logged-in users with all the data behind it, we are a very performant platform. So we've solved and will continue to get better even. But we solved this idea. We know who our users are. We have the data behind it.

Then we say the advertiser like, again, some of the top 200, they want to transact through a single DSP. So we're not going to come and say, no, we're going to say, okay, we'll partner with that DSP because we know our media is very performant. And we know the advertiser wants to run on our media. We know we're integrated with the DSP. We've integrated as deeply as the DSP is willing to go with us and we're always looking to go deeper.

So it's not a cannibalistic function at all. It's a meeting the advertiser where they wish to transact. We have seen no indication of cannibalization on Roku by advertiser, by vertical, every which way we've looked at it. There might be cannibalization within the competition of demand-side platforms, and that's out of our control. That is a function of the demand side. That's why we're integrating with all of them, and we want to go as deep as we can with all of them.

Another question came up on the post call is, look, as you add DSPs, is that a onetime bump or that we worry about a comp? Or is this going to be an unlock of a higher revenue stream into the future. So how do you think about maybe the comping of some of these big DSP additions to your system...

I think the -- it's not a onetime step-up. These are all gradual because the way these DSPs work is, they're all focusing on whatever their unique character is. Some of them are focused on top 200 brands. Some of them are focused on the next 200 and some of them are focused even on like app installs, which I would say is the lower CPMs. So they're not onetime bumps, what happens is that you plumb into the integrations and you're constantly optimizing across the DSPs. Also, we're always becoming more performant because we're using our 1P data. We're having new ad product. We're trying to ingest more data. We're getting more signals to become more performant, whether it's the auction, whether it's a one-to-one deal, we're always trying to be the most performant platform.

This all means that as the shift to programmatic happens, and it is happening, whether it's top brands, SMBs and the torso in between as the shift goes to programmatic, we're going to play at every piece of the CPM demand curve. By the way, huge difference than 3 years ago. We were only at the top of the CPM demand curve in in-stream video. Now we play along the whole aspect of the CPM demand.

As someone who's covered linear for a long time and now digital for more than a decade and you guys and Trade Desk, you realize the value of SMBs, right? So talk to us, you've hinted at it. What do SMBs want from you or what they need from you to bring that money because that's the differentiator on Meta and YouTube and Google is just the vast size of that advertiser?

Yes, yes, it's huge. So we've looked at some of the -- some of the TAM on this. And we've stated like there's a market out there that says SMB spends $600 billion on total advertising. The digital piece of that is a subset, call it, $180 billion to $200 billion. I'm not sure exactly how much. But imagine if 10%, 15%, 20% of that can get carved out and moved over into CTV. So you already have -- and you mentioned this, you already have linear shifting to digital. So the total linear plus digital, $90 billion. About $33 billion has shifted to CTV, but that CTV piece is growing double digits even though the total TAM is growing low, low single digits at most. The CTV piece growing double digits, that's $33 billion.

Now you have this entire new TAM that's shifting over into CTV. Why are they shifting -- why didn't they shift over sooner? Two reasons. One, the performance capabilities weren't there because this is a very performance-driven. They're not trying for reach. They have specific KPIs, site visits, conversion, calls to my call center, et cetera. That has been solved, not fully solved, but greatly improved with CTV.

The second reason was it's very difficult to create a 15- or 30-second video. And GenAI has removed that impediment as well. By the way, if you didn't do it before, you had to go to someone and say, "Hey, I need a video that's going to cost $30,000. I don't have $30,000. I want to spend $30,000 on media not on creating a video. GenAI has not only made the creation doable. It's -- it can be done very inexpensively.

So you've got the 2 largest impediments being fully removed. The shift is happening on CTV. We have a product called Ads Manager, which is a self-service, we have some inside sales focused on it. But by and large, it's a self-service click-through where it takes 5 clicks, we're about 5 clicks, where you can create an account, say what you -- how you want your KPIs that you want to advertise, say, where you want to advertise, do you want to do it just on the Roku Channel, do you want to do it across the platform. We let them choose. And then you can upload a video or we will help you create a video, you hit publish, you're off and running.

And so I'll give you an example of where this has been very successful. And it's just going to get better and better and better like we had some recent success with insurance companies of putting a 1-800 number on where we would run a video, the 1-800 number would show up, and they could track who saw the ad and then who actually called because of the way we can API and pixel sites. So that -- their performance was we want to track how many calls we get based on our ads. We can now do that in a very effective way.

We can do conversion data through integrations with Shopify. We can pixel sites and do site visits. If you want to actually measure site visits, we can do that. And it's getting better and better. And I'll end by saying this way. This is -- this product is only going to get better on performance and the ability to create a video. I was just looking at the funnels that we have. We start with a huge funnel of people who start an account to people who actually say what their KPIs are, they say where they want to advertise across from a publisher perspective, the biggest falloff we still have in that funnel is upload or create your video.

So as GenAI improves this, and it will improve it, it's just going to get better and better. And our goal is, as a KPIs, how do we get that conversion higher and higher and higher through having more templates, more integrations with other GenAI companies to help the SMB create the GenAI video.

Got it. I have to pivot to subscriptions. I think and you tease it, we're surprised by how large the business was and also how fast has been growing, right? I think if you sat in the office of MoffettNathanson, we would debate whether or not subscriptions are mature as an industry, but you're growing wildly fast. So what are you doing to basically -- I know it's relatively new sector -- segment for you, but what are you doing to tap into that demand? Because in aggregate, it looks like it's slowing, but for you, it's accelerating.

Yes. So a couple of things going on. First of all, we've always had a subscription business. We have said in the past and this is before premium subscriptions became a real important strategic initiatives as we monetize tens of millions of subscriptions. That's true. It's growing. It's growing very well. The focus -- the pivot that we've done is really focused on premium subscriptions because premium subscriptions are very strategic to us because you can embed the content throughout the user interface.

So if you are a -- if you have what we call direct-to-consumer or D2C subscriptions, you have basically 2 ways to get to the content. You either go through the app tile, maybe you have a button, you can go through the button. And you might show up in personalization, but if you are a premium subscription, you are going to show up throughout the UI. So we ingest the content, we put it throughout the UI. So we're driving ingress into that content partners app throughout the UI, whether it's the personalization row, whether that's the left nav, could be through a sport zone, it could be through other zones that we have. It could be embedded in content tiles that we have to drive traffic to the sites we monetize.

So the ingress is all over the place. It's not just the app or if you have a button, the app plus a button. It's throughout the UI. That's very strategic for our partners. It's very strategic for us. So we're getting more and more partners who come on in premium subscriptions. I'll also say that there's a thought that there are -- there's more consolidation in the subscription space where I'll call it the mega apps are where most subscriptions are consumed. And think of that mostly for yes, Tier 1s, and there will always be Tier 1s who will not do that. But there'll be a lot of Tier 1s and then the whole torso and tail of which there are many. They do not have the ability to show you what their apps are and what their content is. So it's going to be done in these what we call like premium subscriptions or Amazon channels.

And that's what we're focused on. And that business, we're actually gaining share in that business. We're growing in direct-to-consumer as well, but with specifically in premium subscriptions, we are gaining share of the overall channels business because we're focused with new ad product, personalization, driving subscribers into that content throughout the UI.

You also -- you basically bought a company and you created a company. So why did you -- when you think about Frndly and Howdy, which built from scratch, what drove the decisions and how those new assets faring under your management?

Both are doing very well. We're really happy with the Frndly acquisition. We're very happy with Howdy, it surpassed our expectations in terms of growth. And the reason why is, again, because we have the UI, because we have the platform, we feel that we can drive subscriptions. And if there's a subscription that we can own and operate, we will take a look at that. Now Frndly is both on and off Roku. And now Howdy is both on and off Roku. So with Howdy, we felt there was a niche of a low-priced ad-free content offering that many streamers would love to watch.

And so we basically built the product and launched it, and it's doing very well. As soon as we learned a lot on Roku, we launched it off Roku, it's available on Amazon channels doing very well there. And it's also in Mexico. And that's a product where we can launch in many countries, including countries we don't have the platform in. And we believe that there is this offering. Also, we believe that AI content long form, could change the trajectory, could change the business dynamics of SVOD services. And if we're right on that, what a great opportunity to have a low-priced offering that can take on long-form AI-generated content when it's ready, and we can monetize that.

Yes, really disruptive. Gross margins lower than we thought, but there are some reasons why the trend has been against us. So what's going on with gross margins? That's just going to be a structurally lower business in average?

Are you referring to platform gross margins?

Yes, yes.

So platform gross margins. One of the reasons we bifurcated subscriptions and advertising down at the margin level. So we could say very clearly what the margins are on our subscriptions, which is a bit of an annuity stream and then what it is on advertising. And so -- on the subscription side, it's right around 40%, just north of that. Premium subscriptions, which is slightly lower gross margins being the biggest driver is what's driving that down. But it's a lot of incremental revenue. It's a lot of incremental gross profit. Those margins, I think, will be around 40% for the rest of this year.

We also have some high-margin business in our subscription business like D2C. On the ad side, again, this notion that all these activities that we're doing are driving margins down, it was -- despite us saying it all the time, now we show it ad margins at 60%, just north of 60%, up 450 basis points year-on-year. I think it's going to stay there. I think there's an opportunity to potentially grow it. We've got a lot of new ad product. We've got the home screen, which is very high margins that were coming out with the redesign. There's opportunity to drive more higher margin ad product in the home screen. We're getting -- we're very efficient at optimizing all our inventory, the highest inventory that we have. We optimize first. And then, of course, we focus as much on managing the economics of it. So we always optimize for campaign, completion campaign goals. But then after that, we optimize for gross profit dollars.

Okay. I have a minute. I have to ask you about devices, I have 2 questions for you. One is, what do you see as your moat versus others in the space? And then do you worry that some -- especially those with a growing ad businesses, will loss-lead TVs even more in the future.

So yes, the moat is -- first of all, we have a brand that streamers actually love. That is the moat is streamers love the Roku OS. They love the simplicity of it. They love the remote, they love the functionality. It's an amazing product that the team has built. That's one moat. The second moat, which is a less known but equally important is our BOM cost that we have because we have a very low memory footprint relative to everyone else in the U.S. space, our memory footprint is lower, and that was intentionally done by Anthony to basically facilitate an advantage to our players and our OEM partners and our first-party TVs when we're the hardware manufacturers.

So the BOM cost has always been there in a rising memory cost environment of which we are in, the BOM cost gets more and more. So we are seeing more OEMs coming to us saying, "Hey, in addition to having this awesome OS, you provide a BOM cost advantage that no one else can provide to us. Can we do more units with you." So that also is a very effective moat for us. And something that I think the team had the foresight to be very smart. And remember, it's a purpose-built OS not taking other types of OSs and making it available to CTV. We purposely -- Anthony purposely built this operating system for CTV.

Okay. We ran out of time. Dan, thank you so much for being here.

Appreciate the time. Thanks, everyone, for coming.

Thank you.

Thank you.

So we are going to get started. I'm Laura Martin, I'm the senior media analyst at Needham & Company. I'm here to introduce Dan Jedda, who's the Chief Operating Officer and Chief Financial Officer at Roku. Dan oversees the company's global financial operations and strategic growth initiatives. Dan has been instrumental in driving steady margin free cash flow growth. He previously spent 15 years in Amazon, serving as the CFO of digital video, including Amazon Studios, Advertising Music before a brief job as the CFO of Stitch Fix.

Okay. Great. So Dan, first thing I want to ask about leadership. I'm very interested in this notion that generative AI changes everything, and therefore, leaders have to manage sort of both the fear of the incumbent, let me call it, employee base, but also sort of maybe hire differently? And how do you just think about your role as a leader changing in this uncertainty of generative AI tech disruption?

Yes. Well, first of all, thanks for having me. It's my third year...

I love it.

I've been 3 years at Roku, third year at the Needham Conference. So thank you...

I think, you were here within a month of joining.

Probably. Probably. Yes. But I came back, so I appreciate you having me. Thanks, everyone, for coming.

So Gen AI, I think the question is how does AI really impact, how we as leaders think about the operating expense side of it? Maybe -- is that really what we're getting at?

Sure.

So okay. I think you're kind of getting at token cost here, which is really how we look at it. So first of all, like AI for Roku is an absolute tailwind in many aspects. We don't consider it disruptive to our business. We consider it a tailwind. We've got AI embedded in our ad tech. We've got AI embedded in how we do in-stream video. We'll talk about Ads Manager, I'm sure later on.

We believe AI is going to be instrumental in both short- and long-form content, and I think that creates an incredible opportunity for Roku. But to your specific question, yes, it is on my mind in terms of how the AI cost is building up. We are in the process of looking at this ourselves. We're dashboarding everything out. We're looking at who's using AI. We're really pushing people at Roku to use AI, not just in engineering, but across the whole company. I can tell you, from my own team, what I'm seeing in AI, I love it. They're using AI agents to write analytics. We're using AI agents to analyze things. We're using AI agents to help us on our operations side of our business. It's really exciting.

But of course, there's a cost to that, and that is the token cost. So the way I think about it is, I think companies are going to be dashboarding all this out. I think companies like Roku are going to be looking at the ROI of that spend, and they're going to find a way -- they're going to have to find ways to measure that. We're starting to do that now. Our spend is ramping. It's very noticeable. And we're watching it, and we're saying, "hey, what's the ROI of the spend?" And there does need to be an ROI. That ROI could come in efficiency. It could come through not adding as many headcount growth, but it also can come through shipping product faster on the engineering side, which ultimately will lead to higher revenue. Like there's many different aspects of how it will drive positive ROI.

The important thing is you have to measure it and you have to hold the teams accountable for those ROIs. What you can't do is just spend on tokens and hope that it provides some level of efficiency. You have to be able to measure it. And there are ways to do this, and I think companies are starting to understand this more. I know we are. So I'm pretty excited about how that impacts it.

Now what does it mean for OpEx growth? That -- what it won't mean is like net-net, this is going to increase OpEx without increasing efficiency. That won't happen. I'm 100% sure of that. It's either going to increase operational efficiency or it's going to increase revenue depending on where the AI is spent.

And what do you do for like human resources or legal or something? Like how do you measure their productivity? They're not directly linked to revenue. They're not really directly linked to costs?

That's going to be operational efficiency. I'll give you an example. So one of the things we're doing in legal is we're looking at how AI can scan contracts, and look for key issues that would take our lawyers' time to actually read the documents. That's real. That's happening right now. So you don't need as many hours focused on this because the agents can do this for you.

Now you have to be careful in areas of legal, because legal is you need to be tight and you need to be right 100% of the time. Not 99% of the time, you need to be right 100% of the time. So legal is an area where we're starting to experiment in. But it should take less hours to review contracts, especially for the areas that we're focused on in our contract reviews, whether it's a business contract, whether it's a license contract, et cetera. So it's an area that is right to use AI and just require less legal hours. That means we won't have to grow as much in terms of head count for legal as we grow our business.

Yes. No, that makes sense to me. Okay. So you just had your 3-year anniversary as you just said, and what do you think Wall Street most misunderstands today about Roku's business model, monetization potential and strategic position?

Yes. Great question. So I referenced this from when I came on board in May, 3 years ago. I just hit 3 years at Roku. It's been such a fun ride. So first of all, I think that the understanding of how much scale we have at 100 million streaming households, over 100 million. We used to say approaching 100 million, now we get to say over 100 million streaming households. We hit that metric last month, super excited about that. I've been waiting to hit that. It's great.

So we're over 100 million streaming households. And in the U.S., we're over 50% of broadband penetration. That kind of scale is massive in the CTV world. So no one is even close to us in terms of that scale. And while I think people understand that because we preach a lot, I don't think it's well understood what that means and what it allows us to do.

So let me give you some examples, and I'm going to talk about where we were 3 years ago as an advertising company and a subscription company and where we are now. So now I'm going to go into the monetization side of the business. So the scale is there. The team continues to focus on building scale. We're going to continue to grow from 100 million streaming households. But what's really changed over the last 3 years is how we monetize and how we are focused on this massive asset that the company has built, this incredible operating system and how we monetize it.

We have the scale in the U.S. We have scale in other countries. I'm sure we'll talk international. But in the U.S., I'll just talk about the U.S. We have the scale and how we monetize it has changed considerably, and I don't think it's fully understood outside of Roku because -- and I'll give you some examples, like, call it, 3 years ago, we were primarily a direct sales-led company. Like we had a sales force that went on and they sold to the top, call it, 100 to 200 brands. And we had an M&E business. And that was the bulk of the advertising. So the idea was to grow M&E and to grow the top 200 brands...

M&E, define?

Media and entertainment. It's the content partners out there and what they spend to drive their subscriptions, that's primarily and theatrical trailers. That's M&E. So that was the majority of the ad revenue. And you could -- if an advertiser wanted to come through demand-side platform, which I'm sure you'll ask questions on that as well. You could do that, but it had to be through our demand-side platform that we own. It was a product called OneView, and it was via an acquisition that we made that we turned into a demand-side platform. So it was very limited. We were limiting the shift to programmatic. We were limiting ourselves. The advertising base outside of the top brands, we were limiting ourselves.

Fast forward to today, we have completely diversified the advertiser base, the ad products that we use, how we monetize the home screen, like we've diversified across the entire advertising segment, which we now break out. So on the demand-side platforms, like instead of just using -- instead of mandating that you use our demand-side platform, we've integrated with every DSP out there, including our most recent integration with DV360 with Google. We've integrated with Trade Desk, Amazon, World, Yahoo!, DV360 at Google, and we've integrated all on the SSP side as well with all the demand facilitators. That's very different. And we're driving more demand. That's on the DSP side.

And by the way, we're driving far more advertisers now, not just the top brands. We have the whole gamut of advertising -- advertisers from the top brands down to the SMB market, which we now have an ad product focused on SMB. So -- and then on our home screen, we've really started to monetize our home screen in a very thoughtful way. So all that wasn't happening 3 years ago. It's all really happening now, and you're starting to see the benefits of it. We grew our ad business 26% -- I think it's 27% in Q1. We segment that out now.

Similar story on the subscription side. So we had subscriptions 3 years ago. It wasn't a focus. We had -- we continue to have a pay product called Roku Pay, but we weren't driving subscriptions. We just had it. If you signed up through our -- on our platform through a subscription partner, we got a rev share on that. But what we didn't have is a focus on it. We didn't have a leader. We didn't have product focused on it. We didn't have a home screen that really pushed subscriptions. And specifically, premium subscriptions, which is our version of similar...

BritBox or Acorn.

Right. But premium subscriptions is similar to Amazon channels, where the content is embedded throughout the user interface, not just in the app. So we have a premium subscription product where you sign up, and now that content is embedded throughout the user experience. So we've diversified within the subscriptions business. And these -- all this diversification, all this focus have driven a lot of incremental demand our way. Supply, never an issue, plenty of ad supply. We always had plenty of ad supply. Our sell-through rates were very low because of the Roku Channel being the #2 app on our platform.

It was -- we used to say it was a top 5 app, then we'd say it's a top 3 app. Now we've said over the last year, it's the #2 app on our platform. Everybody knows who #1 and #3 is, but we are #2. So you have the Roku Channel having a tremendous amount of supply of ad impressions. Now we're really focused on driving the demand our way. That's why advertising business is growing. And then our subscriptions, a big focus on driving subscriptions, specifically premium subscriptions, and you're seeing that growth. Total subscription business grew 30% in Q1. That's with a friendly comp from Q1 of 2025. But even backing out friendly, it still grew 23% year-on-year...

One of the sentences you said was we're starting to monetize our homepage in a thoughtful way. And just for a way of background to level set everybody up to our level is they used to only do essentially theatrical advertising, but you could also -- if there was a new show on Netflix or something, they might buy an ad unit on that homepage. So when you made the comment that you're starting to monetize your homepage more thoughtfully. I still don't have video on my homepage. I still don't have an ad unit for you guys that's like a house ad unit on the homepage. And I still don't have scrolling, which Verizon had even before they got bought by Walmart. So defend the sentence, we're starting to monetize our homepage more thoughtfully?

You have video on your homepage. Of that, I'm 100% certain. You have video, auto playing video in the right marquee ad unit on your homepage. That is a significant number of impressions. It tells me you're not spending time on your homepage, you're just jump in to your content. I'm 100% sure that you have video on your homepage.

Secondly, the content row at the top, which is a personalized row, that's new. That's driving incremental engagement into hours that we monetize. It's driving incremental subscription sign-ups. And by -- not by a small amount, like it's very intentional, how we personalize that content row at the top.

And then lastly, I'll say this, like we have a new home screen coming out that we've talked about. We've rolled that out to a material percent of our group. It's still not fully rolled out. It's not even close to being fully rolled out. It's, call it, low double-digit percentages have rolled out, as we continue to test and reiterate the new home screen. I've been using it for 2 months, it's amazing. It's even more personalized. And the ad unit is even more prevalent because you start right on the home screen rather than starting on the left map. So you've got even more impressions now being generated for that ad unit that is -- that can be video. It's not always sold video, but there's a video ad unit, an autoplay, video adding unit.

All that is -- and now you mentioned ad units -- other ad units on the home screen. Stay tuned for that. As we roll the new home screen out, I'm very excited. I think there'll be more ad units on the home screen. I think there can be ad units embedded in the content tiles of the home screen. Biddable -- whether they're biddable or not, we'll figure that out. We've got an amazing product team that's focused on us. I'm super excited about it.

So there is even more opportunity in terms of engagement that we monetize, in terms of subscriptions that we monetize coming to the home screen.

Right. Because I mean what I would say is that most of streaming is targeted. And the nice thing about the Roku homepage with your density of like installed base, it could be a reach product. If every single person sees that ad, it is a -- in my opinion, a competitor to linear in terms of its reach.

It could be a reach product, and we have that because 125 million people start the home screen, and they see -- I mean that's like above Super Bowl level reach every single day. So we have that, but we also could have performance-based products. Because again, the whole top of the home screen will be personal -- is personalized. It's personalized now, but the newer home screen is even more personalized. And what you can do is you can put, again, an ad unit in there that's highly endemic to the personalization. So again, think of it, it can be both a broad-based reach unit, but it also can be some type of a targeted performance-based unit as well.

Okay. So when I go to Roku, it says, dad, mom, then my 3 kids names. Is the home screen that page? Or is the home screen once I hit mom or once I hit my 23-year-old daughter?

The home screen -- first of all, home, again, we have logged in user information as a household. We do not have profiles up. So your home screen is where you start. Now again, to be fair...

And how do you personalize it if home has 4 people?

We can personalize it at that level. It's not personalized per se at who's watching at what point in time. But we have a pretty good idea. We know who's watching what when they start and we can personalize it accordingly.

Okay. Because I was going to say it must be a household personalization, like by zip code or by viewing. So the fact I watch BritBox, you think I'm a Brit. So you're giving me personalized teeth care products or something.

Okay All right. Fair enough. How should Roku's -- how should investors think about Roku's long-term margin structure if the business continues shifting towards software, advertising, subscription and home screen monetization?

Yes. So again, we broke out our 2 segments, subscription and advertising. And one of the reasons we wanted to break that out is we wanted to give investors more insight into how the platform revenue built up between subscriptions and advertising. And we wanted to give the margin structure as well. So we segmented it out starting in Q1. I'm very excited about that. We've been working on that for several quarters. And let me just talk about margins of each business, and then I'll tell you how they're going to mix out from a platform side.

So on the subscription side, we did just over 40% margins for Q1. That's down on a year-over-year basis from about 44%, 45% prior Q1. And what we're seeing there is the premium subscriptions just driving a lot of the subscription business. Now we're still growing nonpremium subscription business, but premium subscriptions, which has a slightly lower gross margin is the biggest driver of that. I do think -- and I said it, I do think that we will stay at or above this 40% for the rest of this year. We have other activities within subscriptions that are higher margin that I believe will start to grow, be a higher percent starting in Q2. And I think this 40%, maybe slightly higher, will hold for the rest of this year, still very profitable business for us.

On the ad side, there was this thought, this notion, and as much as I tried to dispel it, there was this thought that, hey, since you're integrating with DSPs or since CPMs are coming down in the industry, that's hurting your advertising gross margin. Well, and I constantly said that's not accurate. There's a mix impact within platform. Advertising is doing well. And now that we've broken out, you see that. So advertising margins were just over 60% in Q1. That was up 450 basis points from Q1 of last year. And I said that we believe that we are going to maintain 60% or just north of 60% for the rest of this year as we continue to focus not just on growing our advertising revenue, which we are doing, but also on optimizing our gross profit in advertising.

So we're seeing good -- and there's a lot of reasons why gross margins will continue to stay at 60%. We've got the home screen, very high gross margin. We're very -- getting very good at optimizing our campaign performance. So we optimize for, of course, campaign, completion campaign metrics, but we also optimize for gross margin within our in-stream video. And we have ways of doing this, not all impressions are created equal from a gross profit perspective, so we can optimize to fill our highest gross margin impressions first, and our lowest gross margin impressions last. Of course, this just makes sense. And so we're getting really good at this optimization.

So I'm pretty happy with where we are in advertising gross margins. I think that there's a chance for them to grow. We'll wait and see how we do. But for the rest of this year, I think that 60% -- just north of 60% is the right target. Now what this all mixes out to is this 51% to 52% platform gross margins, probably closer to 52%, which is what I stated during the call.

Right. Okay. So the 2 things that Wall Street thinks have pricing power in the GenAI world are unique content and unique data, Roku has both. Can you talk about why those become? As we get more synthetic content being created by generative AI, why do those assets become structurally more valuable?

Yes. That's a great question. And we believe that GenAI content, specifically long form and then also within video, call it, 15- 30-second advertising videos, like GenAI content is -- has a chance to be very disruptive in our space, and we're very excited about that. So we think that we will be -- we're actually quite confident that we will be a beneficiary of AI content in the form of long form, we monetize long-form content very well.

Again, if short form comes to CTV, we'll monetize that as well. We actually have some short-form content. We have clips on Saturday Night Live. We have shoulder content on sports, like we have versions of short-form content. It's not massive, but it's there. But even if short-form content does come on our -- on to CTV, we're very good at monetizing hours. We'll monetize that as well. Long form has the opportunity to be very disruptive in areas like for Howdy, which is a low-priced ad-free content offering. So imagine if GenAI in long form impacts Howdy, like we can continue to put a lot of AI -- really good AI long-form content and still charge a relatively low price. And there is a market for that.

Howdy is doing very well. We just launched it in Mexico. We just took it off Roku. It's in Amazon channels. It's doing well in all 3, on Roku, off Roku and in Mexico where we just launched. So there's that opportunity. And then I think the real disruptive can and will be AI for even shorter form content, which is like 30-second and 15-second videos. That's where our Ads Manager product comes in, where GenAI has created the opportunity for small and medium-sized businesses to participate in CTV. That was the reason, one of the 2, in my opinion, primary reasons why SMBs did not advertise on CTV was one, they were too small for a DSP or an agency; and two, they would have to -- they'd have to create video, which can cost $20,000, $30,000, $40,000, $60,000 for an in-stream video.

And the Ads Manager, which is a self-service SMB-focused product has taken both those impediments away. Now it's really easy to generate -- to sign up to have a campaign that's based on performance. And then more as importantly, you can click on the -- you can create videos from a GenAI perspective that will help you do to immediately upload your 15- or 30-second video for in-stream video. So now there's no reason why performance, advertisers and SMBs can't come to CTV and they are coming to CTV.

And so one of the things that this Ads Manager sort of a new product for you, but like Mountain has been doing this performance CTV targeting SMBs for 3 years. Are you benefiting from the fact you're sort of a little late here because it's already been an established market, somebody else had to educate people and create?

Yes. We're not late, and let me tell you why we're not late. So I believe that we've got a big advantage relative to others. Because everyone -- first of all, as a publisher, as a platform level publisher, we're quite large. So we do not have to go and negotiate deeply discounted impressions to go back and sell because we are a publisher, we have impressions. So -- and by the way, we have massive reach across the platform. We don't have to stay on the platform. We could go off the platform. We could, but we don't need to because -- and we can go off TRC because we can do what's called our run of network. We can go off the Roku channels...

You mean the apps?

Yes, and just get inventory that way. So we have massive reach that no one else has. We are in a great position to do this.

What we needed to do and what we have done is built a very easy-to-use self-service sign-up and then make sure that you can upload a GenAI video in an easy way. And then we just have to tell people about it through marketing. And that's what we're doing. So we are -- and by the way, our first-party data allows us to do amazing targeting, get amazing performance. We're integrated with measurement companies. We'll API sites to do site visits or whatever KPI the advertiser wants to get at. We're integrated with Shopify, so we can get conversion data, which in that view, you can get true ROAS or return on ad sales. So there's a lot of opportunity for this SMB market, which is $600 billion according to sources that are like spent by the SMB market in total. Of that, a significant amount is spent on search and social.

And I think those dollars are going to migrate. So you have the tailwind of linear TV moving to CTV and you have a tailwind of search and social or performance-based moving to CTV. So this TAM that we play in is growing very well. So not only is our diversification in ad products growing, but the TAM we play in is growing well. It's a great position to be in.

And one of the things that I would say other companies are talking a lot about is you have to be omnichannel. You can't just be in one sector. Do you just agree with that because you guys are only in CTV?

Yes. I think that -- first of all, like we have ways of -- we're working on this as well. Like, for example, Howdy has a mobile app. Now, TRC does have a mobile app. And there is -- I do agree that omnichannel is a further opportunity, and we'll see where we go with this. But right now, we are seeing the performance and the KPIs play out...

Right, in the CTV.

In the CTV channel. And whether we get that data, whether we buy that data, there are ways to incorporate that perspective into our own CTV. Again, like let's see where this goes, but I don't believe it is a must have.

And by the way, all indications are from all the KPIs I look at, and I look at a lot of them, all indications are, we don't need them because the ads business -- Ads Manager business is doing extraordinarily well.

Okay. Yes. Ads Manager opened up a whole new TAM for you...

100% whole new TAM. And as importantly, an entire set of millions of advertisers that want to try something different. Like who wouldn't want to see a video of their SMB business on TV. They all want to try it, but they also want to make sure it's working. So they want the performance capabilities. Now with products like Ads Manager, those capabilities exist.

Yes. Okay. So after spending 15 years at Amazon, does Roku have a structural advantage over Amazon and other large walled gardens? Or does their scale and sort of breadth of product help them?

Okay. That's a great question. And again, like, the difference between my first 18 months at Roku and my second 18 months at Roku are like night and day because for my first 18 months, I started Roku and I think literally 6 months after I started Roku, Amazon announced their streaming ads in Prime video, which is a major announcement, very bold -- a very bold move, major...

Yes, overnight.

Literally overnight, and opted everybody in and said you're going to have to...

What's opted, command performance...

You're going to -- you're going to have to work to opt out.

Yes, exactly and pay.

So -- and during that time, I heard a lot and I saw a lot written on, hey, it's over the walled gardens have won the CTV ad business. And I could not have disagreed more because I had this -- we had this view on where this would go. One, our first-party data is unmatched.

That's true.

100 million streaming households. You start the experience with Roku on our home screen. We know who you are because you are -- we have 100 million-plus logged-in users, granted streaming households. So our first-party data is unmatched. Secondly, and again, I saw this, but I was kind of like preaching this. Think about it this way, I mentioned that the Roku Channel is the #2 app on our platform. And I know -- and I basically said that we are over half of broadband households and no one is even close to us from that...

Yes.

People -- everyone knows who #1 is, everyone believes they know who #3 is. We're #2. Who's not #1, #2, #3, #4, like these walled gardens. And so even on our platform, like we have massive reach and it would be better for these companies to partner with us rather than go it alone. Despite what everybody thought these are smart companies. And what they're doing is they're partnering with us because they know our first-party data plus their first-party data, our scale plus their scale, we're far better off together. So what does that mean? That means that as Amazon launches a DSP, we're quite certain they were going to do this. They wanted to partner with us. We wanted to partner with them. We signed an agreement on a platform level wide to integrate into Amazon.

DV360, starting a DSP, yes, Google is not -- they're basically -- YouTube will be part of that DSP, but it's not just going to be YouTube. They just partnered with us. We just adopted as one of the first -- I think we were the first to adopt their unique identifier, which is a hash -- I think it's a version of hash e-mail, which is similar to other identifiers. And so now we're up that. So our media will be on top of the overall demand within DV360 because they see the value of integrating with Roku, given our scale and our 1P data. But my point on all this is the walled garden approach is, yes, it might be there in some aspects, but the partnership approach, I think that we've solved that working together is far better than going it alone.

Isn't that just they're trying to become omnichannel, and they started from just a different place. They're coming into your world to become omnichannel?

They believe that more reach is better...

Which I agree with.

1P data, when you match 1P data across massive reach that Roku has is better. Remember, like it's not just the Roku Channel, it's a platform-wide agreement. So the matching that we give, which is all done in an anonymized clean room and safe environments, the 1P data match that we do really does give like Amazon far more reach than they otherwise would get even if they integrated with us just as a publisher. And then where we are integrated as a publisher because TRC, plus remember, we have reach beyond TRC. We get share of inventory from other partners. So we have share -- we have reach across the whole platform that is unmatched. So any DSP, whether it's -- it's not really omnichannel. It's just like we -- the reach and the data together, we're just going to be better. And both companies win in that environment.

Okay. Okay. But it doesn't give them competitive advantage over you because they also have these off CTV assets they're marrying with your CTV asset?

If they want the performance to work well, it does not. They're better off integrating with us and being -- letting the advertisers go across and get scale...

I get that, that's beneficial for them. My question is, are they putting you out of business with your own data because they are now omnichannel?

Our data is very safe and very secured, and we have ways to protect that and so on. So no, it's not a worry.

Okay. But they don't have a better ad mousetrap than you?

Not a worry.

Okay. Okay. Fair enough. So you now have DSP integrations with the Trade Desk, Yahoo, Freewheel, DV360 and Amazon. Can you talk about the impact that those DSP agreements have had on fill rates, CPMs and total Roku margin and revenue growth?

Right. So again, go back 3 years ago, 0 DSP integration. Fast forward now, everyone is integrated. We're trying to go as deeply as we can with all the demand side platforms. As deep as they want to go, we'll go as long as we're protected and we are doing that. So what does that mean? It means we've opened up a lot of incremental demand to flow to us as a publisher, to us as a platform, to Roku as a platform. And we are now getting a diversified area of advertisers, diversified across the spectrum of CPMs. So where -- think about it this way, like different DSPs and different impressions will have different CPMs.

I think this is really important to know. And it's probably not well understood. Like everyone thinks CPMs are coming down, that's bad. Not necessarily, like if we're adding -- if we -- like not every impression is created equal, if we have an impression in news, that's very different than an impression in some of our highly rated content like our original content or our direct license content...

Sports.

Or sports content, like 2 Broke Girls, for example. Those 2 impressions are not created equal. And so we may put a lower floor CPM and run that through the programmatic pipes at a different rate than this impression over here, which is going to have a higher CPM and maybe even different data signals, which will command a higher CPM in the auction.

So lower -- like we play across the entire CPM demand curve. What does that mean? It means that all these integrations, even within DSPs, some DSPs are going to have lower CPMs than others depending on who's using that DSP. A DSP that's big in app -- app download is probably going to have a lower CPM because they're looking at app downloads. That's fine. We'll play in that space. But we're going to set the floor pricing appropriately. Other DSPs or other inventory, we're going to put higher CPMs on, but we are going to be integrated with all the DSPs.

What does it mean? It means we bring incremental demand. Lower CPMs does not equal lower margins. That's another fallacy out there that everyone thinks lower CPMs means lower margins. It does not mean lower margins for us. I also think within the DSPs, I think the take rates are probably going to get more competitive and come down, but that doesn't impact us because the advertiser is paying the data fee to the DSP.

Aren't they all the same? No, because you're saying Amazon pays a lot...

I'm saying that different DSPs will have different take rates. It is how they make their money, right?

And you don't care?

Don't care.

Or do you care because if they get take rate pressure, some of it comes to you...

Well, the better the rate for the advertiser, the more they might spend on advertising, of course. So that is always beneficial for us. But my point is we don't pay these take rates with the DSPs. We may have payments with the supply side, the SSPs, but that's all incremental demand facilitation as well. That's where we're just integrated with an SSP as a publisher. And we're saying, hey, as long as you can hit these metrics, just keep filling...

Yes, these floors, keep filling. Okay.

Yes. Keep filling the inventory. It's all incremental. My point on all this is, again, like that is very different where we are now. So it's been a huge positive to integrate with the DSPs to set the right floor pricing to bring in incremental demand because as I said, because we're the #2 app on Roku, the TRC is. And because we have run-of-network inventory or inventory across the whole platform, supply is not a problem. We have plenty of supply, and we can create more supply relatively inexpensively.

Just by having your ad load go up?

Well, that would be the last thing we want to do. We can steer more people into TRC. We can -- there's lots of things that we can do to increase our supply. But yes, we could go. We have a very low 7-minute ad load right now. It's very low. I don't want to do that because it's just -- that is a slightly negative streamer experience, but we could. We could do that. We don't need to do that. Our fill rates are not close to being sold out. We're still generating more impressions on the supply side. But CPM is coming down, not a bad thing for us. I welcome it.

Okay. Great. No, that's super helpful. Okay. What is Roku's content aggregation strategy as Netflix and other OTT competitors add short-form video vertical videos, clips and AI generated. I know I asked this on the call, and you just mentioned it now you guys do have some short form. Typically, it's like a highlight reel of something that's around like to promote a longer-form content. So I think that my form of the question is more like stand-alone like vertical videos where it's specifically a series or short-form video where it's specifically like a series not an adjacency to something that's sitting long form?

Yes. So we have -- again, we have short form. That does well because we're very smart, but we just don't have a lot of short-form video. I said this...

Because ad loads are too tricky.

Well, no, it's just -- CTV is just hasn't moved to short form. It just isn't there yet. Now if it goes there, if the big -- beyond YouTube if others come, that's great. They're going to want to be part of Roku, and we'll monetize that because again, we have massive reach. We have massive scale. We have -- the OS is in over half of broadband households. If more short form, if CTV were to shift to short form, we will be a beneficiary of that because that's going to lead to more hours and we know how to monetize hours.

So I think more importantly is this concept of where GenAI can improve video and ad video specifically. Within Ads Manager, our sign-up flow, I was just looking at this the other day, our sign-up flow is so impressive on how many people start, they sign up. They say, "I want to do this." They go to the next, they choose their campaign, their KPIs on what they want to target, how they want to target. They choose where they want to advertise across the Roku Channel and other publishers. Then you get down to the GenAI form video. By the way, it's great we create -- we can -- we have tools that do this. We have outsourcing tools that help you create a video on GenAI, but it's still the biggest falloff in the pipeline. And in other words...

So 90% go there...

There is so much opportunity like people take all the time to fill it out and they get down to that piece and it's still the biggest falloff that we see. And we're still doing amazing. There's so much opportunity for GenAI and agentic AI to like create the video from scratch via prompt.

Like instead of asking them, just say, here's 3 videos, you want to choose one of these...

Yes, and then improve from there. I actually want to make this person over here or I want to add some more people into this video or I want to have some more creative...

Or I want it to be a forest, not a desert.

100%. And I think that's going to come, and I think that's going to help in this product even more. Also, if you fast forward even a little bit more like having the AI run it where creative is being created on the fly learning...

Like a dynamic...

Yes, so it's running 1,000 creatives over 1 million impressions and picking the right creative to optimize for the -- whatever KPI they're optimizing for. And by the way, this isn't specific to Ads Manager, but that is going to happen. It's just a question of when. So we are -- GenAI is there. It's working. It just has some ways to go, and it's going to get better.

So when I think about proprietary content, having pricing power, is there some reason we aren't hiring 3 kids from USC film school to just use GenAI tools to make proprietary...

That's happening.

Short form, but on Roku for Roku. Like a 10-minute episodes or...

So again, if it becomes like that's happening, that's going on. It's just early times. And we will play in this space. We will play in this space and we'll see where it goes. I can't say when it's going to happen. I just know it's going to happen, and we will be a beneficiary. We're well aware of this. We're very focused on it. We're...

Or you can follow. I mean it's not urgent to be first. You can just follow.

But we'll lead. We'll be upfront on this. Like this is a big deal for us. Like we will be upfront on this.

Okay. Okay. Let's go to devices. How should investors think about Roku's hardware segment based on device revenue, down 16% with negative 14% gross margins in the first quarter?

Right. So this is always a challenge. I just want to take a step back and explain how our device business works and how unit sales in device works. So the way our accounting works is we recognize revenue when a first-party player or -- which is all our players and a first-party TV where we are the manufacturer of the hardware are sold, we recognize revenue and we recognize gross profit. When we are the OS on our OEM partners like TCL and Hisense, and Philips, et cetera. When we are the software on someone else's hardware, that does not show up as device revenue, even though it's a unit sale for us. Where that shows up in terms of distribution cost is on sales and marketing.

So what you're seeing now in device revenue is you're seeing a lot more -- more volume flowing through our OEM partners. We just signed 2 multiyear agreements with our top OEM partners. We -- our OEM partners are partnering with us very well because we have a BOM cost, a bill of materials cost advantage given our low memory footprint. So in this rising...

It's actually really important. Explain that...

Yes, this rising memory environment is creating a lot of issues for a lot of different industries and the CTV is one of them because it costs -- there's memory involved. Our operating system was built by design to have a lower memory footprint than everyone else's operating systems. And that was with something Anthony felt very strongly on that he built from the start. And it was really smart to do because it's always allowed our BOM cost, our bill of materials cost to be lower than everybody else's out there. So partners would want to work with us. Now you fast forward in a high memory -- memory cost is going up, that BOM cost advantage just grows.

Just let me give you some numbers. We think every TV they make is under 2 gigs of memory cost. We think Amazon and Google are 4 to 6 gigs memory.

So there is a significant advantage to having the Roku OS on your hardware. So what that has meant is more OEMs are coming to us saying, "Hey, we want the Roku, not only is it a great operating system not only is the Roku channel have, not only is it simple to use, not only is the home screen and amazing, but really importantly, it's significantly cheaper and basically reduces the entire cost of the TV for the OEM.

So we are seeing more volume than we originally expected at the start of the year going through our OEMs. So -- and also memory -- the increasing memory cost does impact our own player margin. So you're seeing that go through as well. My point on this is between Q1 and Q2, nothing has changed from our total unit forecast. Nothing has changed on our device investment, what you have is some mix accounting between our 1P and our 3P units.

Okay. Questions from the audience for Roku, Yes, sir?

You mentioned something about taking share from search and social. Can you just expand on what's driving that?

Yes. I can. So search and social is primarily focused, a lot of it on SMB and those SMBs have certain KPIs. They're not just going to run -- they're not running advertising for reach. They may, but they don't. They want to know that they can review site visits or clicks or conversion data. That has always been an impediment of TV because when you're on linear TV, you had no way of actually tracking those KPIs.

Now with CTV, you can actually do that. I'll give you an example. Like if there is a small business who has 5 restaurants or auto dealerships in the Austin area, and they want to run a very specific geo targeted ad and track site visits. How many people visited the auto site, you cannot do that on linear TV. Now on CTV, you can do that. You come in through Ads Manager. You do like 5 clicks. You geo-target it, you say go, you upload a video, which we can help create, you hit go publish and you are off targeting that geo-targeted space via APIs. We can track site visits. We're integrated with measurement companies. So we can track that KPI that, that advertiser wanted to see, and they see does it perform? What's really important is it has to perform. And that's on us as a publisher to make sure it performs and we're really good at this.

So it will perform. If it doesn't perform right away, we'll get it to perform. My point on all this is that impediment, it was that tracking those KPIs and the ability to create a video, which would have been, again, $10,000, $30,000, $40,000, they don't know how to do it. They have to hire someone to do it. Now it's done through GenAI. You've got the 2 biggest roadblocks, performance-related KPIs and GenAI created video now gone. It's bringing more of these SMB advertisers over into CTV.

Okay.

Can you expand on that performance related to [indiscernible] performance and how you're planning ROAS [indiscernible]?

Yes. Yes, it's a great question. So we'll never -- it's not there like last click attribution is there. Like I'm not suggesting that we now have last click attribution and you can track everything specific. I think we'll get there at some point. I have thoughts on this. I don't want to get into that because we're not even -- I don't think anyone is close to like last click attribution. But we are there on things like, again, tracking site visits. We're integrated with many companies that help track measurements. And like Shopify, we're integrated with Shopify. So if you have an SMB with Shopify, we can through integrations with Shopify track conversion data. That we can get ROAS on as long as the advertiser allows us to do that.

We're integrated with measurement companies like incremental, which will do causal based lift analysis for the advertisers. So you can literally get via data feeds, you can understand what the impact of the ads were. And there's other KPIs. So again, I mentioned site visits. There's other KPIs. By the way, here's a great one that's actually done really well. Insurance, putting an insurance number on a CTV video and being able to track how many people saw that video that also called the number. It's lean gen in that particular case. But it's working. Insurance companies love that because they can track the cost per every lead. This is not possible in linear TV, not even in CTV many years ago. It's possible now. It's a great product, working very well for us.

Okay. I'm going to call it there. Thank you.

Thanks, everyone.

Hello, and thank you for standing by. Welcome to Roku's First Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to Conrad Grodd, Vice President, Investor Relations. You may begin.

Good afternoon. Welcome to Roku's First Quarter 2026 Earnings Call. Joining us on today's call are Anthony Wood, Roku's Founder and CEO; Dan Jedda, our CFO and COO; Charlie Collier, President, Roku Media; and Mustafa Ozgen, President, Devices.

On this call, we'll make forward-looking statements, which are subject to risks and uncertainties. Please refer to our shareholder letter and periodic SEC filings for risk factors that could cause our actual results to differ materially from these forward-looking statements. We'll also present GAAP and non-GAAP financial measures. Reconciliations of non-GAAP measures to the most comparable GAAP financial measures are provided in our shareholder letter. Unless otherwise stated, all comparisons will be against our results for the comparable 2025 period.

With that, Operator, our first question, please.

[Operator Instructions] Our first question comes from the line of Brent Navon with Bank of America.

Maybe just to start, can you explain some of the drivers for the strong 1Q results? And maybe help us bridge that to your second quarter and full year guidance, especially given all the momentum you have and political in the second half? And then just as a follow-up question, maybe can you also discuss the impact of memory prices are having on the Devices segment and maybe how you're thinking about total Devices segment?

Brent, this is Anthony. Thanks for your question. Let me, 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 performing connected TV ad platform. And then subscription revenue grew 30%, driven by Premium Subscriptions sign-ups. And obviously, we're expanding our Tier 1 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 take your -- answer your exact question.

Thanks, Anthony, and thanks for the question. Brent, let me actually just add on to what Anthony said, then I'll ask -- answer your question, and then I'll turn it back to Anthony on the second part of your question. But just quickly, as Anthony mentioned, Q1 was an outstanding quarter for us. Platform revenue grew 28% coming in ahead of our outlook, benefiting from the Olympics and Super Bowl, which contributed to an increase in subscriptions and M&E spend. EBITDA margins more than doubled year-on-year to nearly 12%, and our $148 million of free cash flow for the quarter was our second highest free cash flow quarter on record and near -- margins of -- free cash flow margins of nearly 16%. So a very, very strong quarter for us. We're very excited about it.

To your specific question regarding the bridge from Q1 to Q2 and to full year, let me just say a few things. Please keep in mind that regarding our Q1 versus our Q2 guide, first, we started to lap Frndly, the Frndly acquisition in Q2. So excluding Frndly in Q1, subscription revenue growth was 23%.

Second, Q1 had the easiest comp with Advertising growing 12% year-over-year in Q1 of last year. That growth stepped up to 19% in Q2 of last year, and we're comping this higher growth rate for the rest of the year in Advertising once you back out political in 2025.

And third, as I just mentioned, Q1 benefited from the Olympics and the Super Bowl. All that said, we expect Q2 Platform to grow at a strong growth rate of 20% year-over-year, and I expect subscriptions and Advertising both to be around this level of growth rate.

For the full year, we increased our Platform revenue guidance by over $100 million or approximately 3 points of growth to nearly 21%, and we're increasing our EBITDA and EBITDA margins. And I fully expect free cash flow to again be above adjusted EBITDA for the full year.

All that said, we have much stronger visibility into Q2. I said this last quarter into Q1. We just have much stronger visibility into Q2 versus H2, just given the macro environment. And so as we gain better visibility into political and into other initiatives, we'll provide updated guidance for H2. So we're just being a little conservative on our H2 outlook. Anthony, do you want to start for the second question?

Yes. So your second question was about memory prices in our Devices -- in our Devices segment. So I guess, first, I just want to highlight that the Roku TV operating system requires significantly less memory and storage than all our competing platforms. I mean we spent a lot of effort building a highly customized OS design specifically for television. One of the main things we focused on was bill of materials costs. One of the ways we achieve lower bill of materials cost is just 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 although memory prices are going up, actually and obviously, that's something in our first-party business, we need to manage, and Dan will talk about that. I'll ask Dan to talk about that in a second. But most of our business is actually third-party products. And 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 so that attracts TV OEMs and retail partners. And that's 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 is generally great for our business because of our bill of materials cost advantage, which allows us to just have a lower cost than all the 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?

Yes. I'll just like -- let me just start on this question by saying what's most important to know is that we remain confident in our ability to keep expanding EBITDA margins in 2026 and beyond. And that's because we have confidence in growing our Platform revenue double digits while also managing our device investment across both gross profit and operating expenses. So I think it's -- you asked about device investment and the device segment. Let me just step back for a minute. First, and I just want you to remember that device revenue is generated from the sale of our players in, one, Pay-TV. It does not include revenue from the sale of our third-party Roku-made TVs by our OEM partners, and that is the largest portion of our overall device unit volume.

Second, we look at total device investment across both device gross profit and distribution costs, which sit in sales and marketing. And so despite our expectations for elevated memory costs in the second half of this year, the amount of our overall device investment and unit sales factored into our full year outlook hasn't changed for the year. It hasn't changed from our last quarter. So our prior outlook already accounted for the increasing memory prices, and we maintain the strategic flexibility to optimize the mix of units across players, first-party TVs and third-party TVs.

So just overall, like no one knows what will happen to memory prices beyond this year. And we really don't know how the market will react, the CTV market will react to higher memory prices. But even if memory prices remain elevated beyond this year, we're confident that our strong platform revenue growth and our device and operational flexibility provide us to -- put us in a position to continue to expand our EBITDA margins.

Our next question comes from the line of Sean Diffley with Morgan Stanley.

I was hoping you could talk about what you're seeing with your third-party DSP strategy and Amazon, in particular. I think you extended the partnership with them earlier this year. So I was hoping you could elaborate on what you're seeing there.

Sean, Charlie will take your question.

Thanks, Anthony. Sean, I appreciate the question. I'll talk a little bit about Amazon. But just sort of stepping back, all of our DSP partnerships are important to us, and they all serve different customers and customer segments. And so really, the most important thing to know as you ask us about our DSP is that our strategy is to be open and interoperable and deeply integrated with every major DSP. So that when clients want to transact, we meet them wherever they choose to transact. So that's -- whether it's on the Amazon DSP or we just announced an extension of our DV360 deal with Google. We are going to be everywhere they wish to transact. And then on top of that, strategically, medium term, our goal is to be the most performant CTV ad platform in the industry. So specifically to how we're doing, I won't break out Amazon. But first quarter was evidence that our third-party DSP strategies are working.

The majority of our video delivery is now through third-party programmatic partners, Sean, and we are growing quickly. So these take time to ramp. We feel very good about how Amazon is doing and how our other partnerships are doing. But I think you're seeing the results in the first quarter and certainly in our compounded share of programmatic revenue.

So combined, Amazon, DSP, Trade Desk, Yahoo!, FreeWheel, all of them they -- advertisers can now access our premium inventory through virtually every major buying platform. And again, our job is to drive outcomes and performance for marketing partners, and we're really bullish as our position in the market as the open and interoperable partner, specifically in a marketplace with so many walled gardens.

Our next question comes from the line of Justin Patterson with KeyBanc.

Great. Congratulations on the 100 million household milestone in the Laguna Beach special. Conrad looked pretty excited about the [ wearing that hat ] at the NASDAQ. Two quick ones if I can.

First, I was hoping to hear about how you're thinking about the role of Roku Originals today? And then second, there's been a lot of companies seeing meaningful productivity improvements from GenAI tools. I'm curious how you're thinking about the pace of product innovation. What that might mean for improvements to discovery features and recommendations? And what guardrails you have against the rising token costs?

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

Thanks, Anthony. Well, Justin, first of all, I want to talk more about Conrad's hat. That was a great hat, and we're really happy with Laguna Beach. He looked great.

But let me talk a little bit about content and I'll dive into Originals like Laguna. Our overall strategy in the content ecosystem is really differentiated, and it's been honed over the years. Our Originals programming strategy actually hasn't changed. It's a targeted and powerful part of our offering. But even still, it remains a relatively small part of the overall content budget. So sort of stepping back, the strategy we've been saying in the upfront to our advertisers is that Roku has the hits and the habits. And the hits are ours. Thank you for mentioning it, Laguna Beach, which became our largest unscripted series ever. That's the 20th reunion Laguna Beach special, so we have our hits and everyone else is on the platform.

And then there are the habits which are really important because that's comprised of the massive daily viewing that makes up so much of U.S. TV viewing. So with the 100 million households, which is why we were ringing the bell, and nearly half of streaming happening on our platform, our scale as a programmer is meaningful to every type of partner.

So specifically at your Originals question, we do Originals in 4 pillars. We complement everyone's hits and we build the lead into their hits. We also program against sports because it's such an important vertical. And of course, we serve as the lead-in to everyone's major sporting events. We then program seasonal. So you'll see us do custom holiday movies with sponsors and holiday movies and World Cup specials around World Cup, as you might imagine, around seasonal events.

And then you'll also see us do UI programming. From the Wicked launch when that movie was released on demand. We had original programming in our UI. And we brought Demi Lovato to do a concert on a Roku City rooftop. And just recently, we launched a UI original, which is Roku City Dash, an interactive game. So we have Originals that complement what we do very well. And again, the majority of our spending is actually against building the habits, which is our daily reach because we see our user -- or our viewer, I should say, 25 days a month.

So I'll turn it over to Anthony for the back part of your question, but just sort of end on saying more people are going to watch the biggest TV events, and I'm talking the Olympics and the Super Bowl right down to their biggest entertainment hits, they'll watch those on Roku more here than any other platform. And we love helping our partners succeed and then we love it when we build original programming as well that takes advantage of that. Anthony?

And your question about AI. Well, let me just maybe just talk -- I'll answer your specific question but just talk generally about how we think about AI. So I mean at the highest level, AI is like a very big opportunity for Roku. It's a powerful tailwind for our business. We're integrating across our entire technology stack.

In the products, in our platform, we use AI across the platform to improve discovery and increase engagement, improve advertising performance, unlocking monetization opportunities. I mean we've used AI in the Platform since the beginning, but what's been happening over the last year or 2 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. So we're using on the Platform, which is really helping the Platform just be more effective for the dealer end monetization.

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 definitely enhancing the productivity of each of the engineers.

And then of course, content AI, I believe, I mean, it's already happening, is going to lower the cost of content creation, both for entertainment content and for ads. And that will 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 performing connected TV app platform, which is a big goal for us to be the most performing connected TV ad platform and making great progress on that. We're really leaning into performance across a bunch of different aspects, everything from integrating AI, but also the team, the kinds of people we hire.

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. So that product is built entirely on generative AI, including the creation of the videos.

And then, of course, I guess 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 it's AI -- it's strengthening our platform, it's improving monetization and it's enhancing the performance of our business.

In terms of controlling costs, I mean, we're still watching it carefully. And it's just something we'll balance. AI on the efficiency side will improve productivity, and that will show up in other ways in OpEx. So I think there are definitely ways to manage the costs. But at this point, it's very manageable. And we're just watching it carefully.

Our next question comes from the line of Vasily with Cannonball Research.

Dan, I have a question for you. The question is about the subscription revenue and how we should be thinking about forecasting it. You gave us 5 quarters now. So are there any factors that we should keep in mind when we are looking at the growth -- quarter-on-quarter growth throughout the year? Are there any seasonal factors? Are there some bumps from adding Tier 1 app into the Roku Channel? So anything that could help us frame that trajectory would be helpful.

Yes. Thanks for the question, Vasily. Well, there are some -- there is some seasonality to subscriptions, like, for example, during sporting seasons, during NFL, there'll be a big jump up in subscriptions, number of subscriptions. There are, of course, things like price increases that are positive for our partners and, therefore, positive for us. But the reality is the most important factor is, first of all, we monetize tens of millions of subscriptions. So the seasonality isn't going to move the needle from a quarter-to-quarter perspective. It exists, but we are so big in this area. It doesn't move the needle.

What is helpful -- what is impactful for us from a revenue side is the launch of not just Tier 1, but even our Tier 2 and Tier 3 Premium Subscriptions partners which we're doing very well on because that brings subscription revenue, incremental subscribers and therefore, incremental subscription revenue as we continue to launch new partners. And as Anthony said earlier on, we launched Apple. We recently launched Peacock, we'll have more launches in the future.

We also launched Premium Subscriptions in Mexico. We'll also launch more countries in the future. So we think that the growth rate that we're seeing in subscriptions, which is being driven mostly in part by adding more Tier 1, Tier 2, Tier 3 Premium Subscriptions partners.

We're also adding new features and new subscription products, and that will help over time. So the growth rate that we see here is indicative of just the success that we're seeing in Premium Subscriptions and our direct-to-consumer subscriptions that we're having. But I think this growth rate is sustainable just given all we've got going, adding more Tier 1s, Tier 2s and adding new features in our subscriptions segment.

And can you give us an example maybe of Tier 1 versus Tier 2 app? Like how do you classify that?

We don't, there's not a specific definition. So as we mentioned before, we view like the larger content partners as these so-called Tier 1s. We don't break it up, and we'll mention some of the larger launches, for example, Peacock. For example, Apple, Paramount+ is a Premium Subscriptions partner. We launched Apple in Mexico. So again, like think about the largest content as Tier 1s. But again, like there is also a relatively long torso and tail in this business, and again, we monetize tens of millions of subscriptions across our overall subscription business. And all of them are growing in a very good fashion for us. Premium Subscriptions is just growing faster.

Our next question comes from the line of Michael Nathanson with MoffettNathanson.

Great. And I guess, first, thanks for giving us the added disclosure. It's really helpful and it's all appreciated. On that line, if you look at gross margin on advertising, it's really picked up nicely. This is probably an all-time high gross margin, I have to assume. Can you talk a bit about what's driving that, and sustainability to maybe even go higher from here?

And then for Anthony, I'd love to dig into the first-party versus third-party OEMs. You talk a bit about, are there any differences to you on either monetization, performance? And why wouldn't you lean more to third party if it's just more efficient to do it that way?

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

Right. So advertising gross margin, to your point, at just over 60% was very strong for us in Q1. It was up over 400 basis points on a year-over-year basis from Q1 of last year. We feel very good about our advertising gross margins. We're seeing a lot of -- we're very focused on not just growing revenue but improving our gross margins. We have a lot of, let's just say, tools at our disposal to help improve overall gross margins.

We have higher ad products coming to market. Think of the home screen monetization like adding video in our home screen has been very positive for us. We're also very efficient on how we deliver our campaigns from a gross margin standpoint. So we have a lot of ways that we focus on overall gross margin and maximize the gross margin of the business in addition to in the revenue.

To your question on sustainability, I do believe that this level is sustainable for the rest of this year and after. I think it could potentially even come up. We'll see. We've got a lot of optimizations that we're always working on. We've got a lot of new ad product that we're working on to help gross margins. But we're focused on, again, driving both the overall advertising revenue as well as the GP of the business. And again, 60% sustain -- I believe it's going to sit at this level, maybe even come up for the rest of this year and thereafter as well.

And then to answer your question about first party versus third party, just to level set on what those terms mean. So 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 to the market ourselves. And then we also make first-party TVs. So these are TVs. Again, we do everything. We build, sell, market and these are distributed. These are sold under the Roku brand as well as the Hiro brand, which is one of our first-party brands that we use, it's our own brand. And then third-party means working with other OEMs like TCL, Hisense, but there's many, many others.

And in terms of monetization, they're pretty similar. I mean, there's not, I don't think there's any real difference by first party versus third party, but there's slight differences by channel. Depending on the retail outlet, you have different types of customers that shop there that can result in slightly different monetization. I wouldn't -- I don't think it's huge. And then also things like TV size affects monetization a little bit, bigger TVs have slightly higher monetization. But players and TVs might have slightly different monetization, but it's not, none of these things are particularly large. So we don't -- it's probably not worth focusing on it.

The -- why wouldn't we lean into third-party more? We lean into third-party lot. It's -- our partners are very important to us. We -- the vast -- the majority of TVs sold are third-party TVs. The majority of Roku TV sold are third-party TVs.

And why we have first-party and third-party TVs? Because it's a very complicated distribution system to sell. When you sell the number of TVs it takes to be over half of all broadband households. It means things like, I don't know the exact number. There's probably over 1,000 different models that we certify each year across first party, third party, different countries, different regions, different retailers. And so the retail distribution channels for television is complicated. And different retailers want to differentiate by having different brands, different products, different models and different price points and so different features. And so the ability to offer a variety of third-party products as well as first-party products just gives us maximum flexibility in how we go into the channel and maximize distribution, and it just gives us options. So that's why we do it.

So for example, Hiro is currently, I think, exclusive to Target, which helps us get distribution in Target. So that's just a simple example, but there's lots of reasons we do it.

Our next question comes from the line of Rich Greenfield with LightShed Partners.

I got a couple. One, you guys have been definitely expanding your tests and trials of a new home screen. It looks like you're basically putting half the screen is now content boxes and you're pushing apps down to sort of the lower half of the screen and really bringing content forward and making it a persistent video box on the right side. I'm curious, how soon do you think this rolls out more broadly? Two, related to that what are you seeing early in terms of its impact on subscription uptake or advertising? Any types of impact on sort of the business side would be great to understand.

And then two, just because there's talk out of antenna that Howdy hit 1 million subscribers. And whether or not that's true, it's very clear that Howdy has been far bigger than I think anyone listening to this call probably expected. And I'm curious, Anthony, how big can Howdy be? Do you need to have original programming? Just sort of the future of Howdy would be great to hear your perspective on.

Okay. Thanks, Rich. Thanks for the questions. It's great to hear from you. Let's see. So on the home screen, yes. So we've been testing the new home screen for a while, it's a big change. It's going to -- every Roku customer in the world will see that -- will get the new home screen. It's not particularly optional. So -- when it rolls out. So you want to make sure that customers are happy that there's not going to be any complaints that in fact, they're going to like it more than the old home screen. And it's easy to get most of the customers to like it more, but it's a little bit harder to get almost all the customers like it more. So that's one of the things we've been focused on.

We've been focusing on making sure it improves monetization, subscriptions and ads. That it helps us improve those businesses, improve engagement. So those are the things we've been focusing on. The home screen is a super important asset to us. It's in households that have over 125 million people every day -- sorry, in households with over 125 million people, and they start their TV viewing experience with our home screen every day. It's very iconic.

I mean the other thing we're being focused on is not losing our sort of iconic look. Most connected TV platforms all kind of look the same. Our home screen does look unique and it's more delightful. So we don't want to lose that. And it's in testing, but it's in a fairly large number of homes, and it's going to be rolling out to everyone soon, and we'll be launching soon.

And the results we're seeing in the testing are -- we're definitely seeing more engagement. We're definitely seeing improved good viewer satisfaction. We're seeing increased monetization I mean you mentioned in your note -- you mentioned in your question, you have some screenshots and you noted a few things. Like one of the things, for example, about the new home screen is that the marquee ad is visible when you first launched the home screen, whereas with the current home screen, you have to scroll to the right to see the marquee ad. That change alone is driving more click-throughs, increased click-through rates. So that's making the ad unit more visible, more valuable. And then making content more prominent is something that consumers want and also drives engagement. It allows us to promote subscriptions, allows us to promote ad content.

Also on the app tiles, we're making the app tiles be a little bit more user-friendly, like viewer-friendly, so a little bit more likely to see the app they want near the top. So there's just a few of the changes. There's lots and lots of detailed changes, all designed to improve viewer satisfaction and monetization. So it's -- the testing was good. It's going to be a good change for us.

Let's see. And then you asked about Howdy. Yes, I can't really confirm third-party numbers. But just to remind everyone that doesn't know, Howdy is an owned and operated streaming service. Our main owned and operated streaming service is the Roku Channel, which is free ad-supported content. It's the #2 app on our platform. It's like over 6% of all streaming viewing in the U.S. now. And then Howdy is not as big as the Roku Channel because it's a lot newer, but it is doing extremely well, and it's a subscription service, and there's no ads, so it's sort of the opposite of the Roku Channel. And it's an SVOD service, it's ad-free and it's $3 a month. And so it's very affordable.

And I guess I would say that it's positioned in the market. It's going after a segment of the market that's not currently served except by Howdy, which is streaming services have been raising their prices. They've been increasing their ad loads. And so a low-cost affordable streaming service is something that didn't really exist in the market. So that's a segment of the market we're going after, and that's the segment we intend to stay in, and I think it's a very large segment.

The content will just keep getting better. We'll just keep improving the quality of the content. As we keep getting more and more viewers that will allow us to invest more and more in content, and that is a positive cycle that we'll just keep riding. And I think it can be very large. I mean I think it can be a very large part of the market.

Do you ever see original programming?

We don't have plans right now for original programming. Original programming requires -- is expensive, requires a lot of -- a more expensive service generally. But that doesn't mean that I don't think that as we continue to improve the quality of the content, as the number of viewers gets bigger, that we'll have -- I think we'll likely have originals someday.

I don't know when that day will be when -- I mean we have Originals today, I should say. I should take a step back. We do have Originals today. We have Roku Originals, but they're not the blockbuster Originals you're probably thinking of. They tend to be things like Laguna Beach, which is doing really well, but it's unscripted. We don't have a lot of scripted content in our originals today. So when you said Originals, I was taking it to mean like a blockbuster type original.

So those are going to come, I think, but that's not happening right now. Right now, we're just focused on improving the quality of the content, promoting it in our UI, promoting it off our platform. We just recently launched on Amazon Prime. We just launched in Mexico. Those are all doing really well.

Our next question comes from the line of Peter Supino with Wolfe Research.

A question on your DSP relationships. If you can discuss the growth contributions that you're seeing in context of this great acceleration of ad sales. I'm wondering if you could rank order the growth contributions from Trade Desk, Amazon and others. And then I believe it's true that your relationship with DV360 is somewhat different than your relationship with Amazon. So as that becomes a contributor, should it have a different impact?

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

Yes. Thank you. Peter, I answered this a little bit in an earlier question, and I started, I think, by saying that each of these relationships is different and important. And I always start with the customer. The customers want to transact and have different goals. They want to transact in different ways and they have different goals. So I think a lot about strategy first, how do we serve the customer. And we do so, as I said before, being open and interoperable, being deeply integrated with every major DSP and then meeting the clients everywhere they want to transact. And we're doing that. And then on top of that, our goal is obviously to be the most performant CTV platform.

So to dive into your specific question about DV360 expansion, we did expand, and it is slightly different. In fact, all of our DSP relationships are different. We signed up with Campaign Manager 360, which is important for a couple of reasons, actually 3 reasons. First is Roku is the first streamer to participate in this publisher match, and I love that Roku is an early mover. So that's new for us.

Secondly, it enables holistic management of YouTube for the first time, which really means, Peter, that advertisers can activate Google's first-party data and their own first-party data, meaning the advertiser's first-party data, on Roku media inside DV360. And these are audiences that previously only worked on YouTube in isolation. So that's a really big deal. And then the third part of why DV360 is important is because Campaign Manager 360 measures Roku Media regardless of where the advertisers buy lands, which means that, it will provide proof of Roku's outstanding performance up and down the marketing funnel. And that's great for us because as we seek to be known as the most performant CTV platform, this is just another spoke in the wheel that will prove how performant we are, not just in our own media, but as we travel across all sorts of advertising platforms.

Our next question comes from the line of John Hodulik with UBS.

Great. Maybe can we talk about the subscription revenue gross margin? It looks like sort of different to what you're seeing in the advertising side, you're seeing -- you saw some pressure over the last few quarters on the gross margin side there. What's driving that? Is it mix shift? Or just any help there or outlook on the margin there would be great.

And then I see that non-M&E ad spend on the Home Screen streams reached 30%. Can you talk about where you think that number can go? And what are some of the categories where you're having success selling inventory on the home page?

Dan will take that.

Yes. Thanks for the question, John. So on subscriptions, yes, subscriptions were just north of 40%, our subscriptions gross margin. That is down. It is mix that's driving that. We have different activities, different subscription activities within there that mix out to lower, but higher revenue growth, but slightly lower gross margins. So we are seeing that in Q1.

I do expect it to stay at this 41% to 42% level for the rest of this year. We also have some other higher-margin activities that we think will grow in Q2 and for the rest of the year. So Premium Subscriptions is driving that down a little bit, but I expect it to level off here at this level. And again, like there's -- we have a lot of activities going on in subscriptions that will actually help gross margin. But all in all, I think this is -- we're at that level where we're going to sustain it for the rest of this year in this 41% to 42%. That will, along with the advertising margin I talked about of being at just north of 60%. I think will take Platform revenue out to be closer to the high end of the 51% to 52% range that we have in overall platform. But I don't expect us to go down from there. I expect us to maintain this level, if not come up a little bit.

To your question on non-M&E, and I'll let Charlie jump in if he wants, but on the home screen is growing significantly on non-M&E. That is a tailwind for us, like adding video to the home screen has been very impactful and very important for us. And so we are seeing more diversification on the home screen for our video ad unit.

I think Anthony mentioned earlier, that the new home screen, which collapses the left nav, has that ad unit front and center right from the beginning, which will also be a positive in terms of more impressions to even sell on that ad unit. And so this diversification matters a lot because we are -- we can expand the availability of that ad unit, which would be a positive for us in both revenue and gross margin. So we're very happy with that specific area of the home screen. There's also other areas of the home screen to monetize, but that one is particularly unique and it has the ability to both help our advertising revenue and our advertising gross margin.

I don't know, Charlie, if you have anything else.

Yes. Well, John, non-M&E brands represented nearly 30% of the Roku Experience advertising revenue in first quarter. That's a big deal. That's an all-time high for us. And as Dan said, it's deliberate. We've been working for years on demand diversification. So seeing that number was really meaningful. And also just as a great balance to our M&E strategy overall because, now we're not reliant on any 1 category for these, to fill these outstanding units. So as I look at M&E now, when the M&E market is healthy, as Dan said, there's a tailwind for Roku. And when it's soft, the rest of Roku's book now carries us. So that's a major difference between this year and years prior.

Our next question comes from the line of Laura Martin with Needham.

I have two. The first, Anthony, so you're aggregating the most expensive types of content, film and TV. And we're hearing from Netflix that they're going to add some lower-cost content maybe some of the highest quality YouTube influencers. Can you talk about your vision for how you see aggregation here and how you expect to drive engagement long term, which may take different kinds of lower-cost content? So that's my first.

And then my second is on Devices. So we have device revenue down 16% with a negative 14% margin. And it seems to me that it matters whether that is the actual sticks that we're seeing a negative comp in, or whether it's just your televisions aren't getting -- your physical Roku-branded televisions aren't getting as much adoption or you just got kicked out of Walmart because they bought VIZIO and now they're taking away your shelf space, which doesn't feel recurring to me? So could you maybe go granularly into what is driving the downdraft in, on the unit side on the device line that would help me.

Laura, thanks. Let's see. On content, I think you -- we talked about the Netflix announcement. They just announced they're going to do clips. We do have -- so we do have that kind of content on Roku in a lot of different places. I mean, first of all, we're a distribution platform. We obviously have our owned and operated services. We're also a distribution platform primarily for third-party services. We carry YouTube. It's very popular. It has all the low-cost content.

And then in our own services, we distribute clips from things like Saturday Night Live to movie trailers to sports highlights for multiple leagues. So we do have sort of the best of the clips strategy in our owned and operated services. We aren't currently trying to compete with YouTube. We carry YouTube, and it's a great product. So that's kind of that's how we do clips.

I do think content costs. I mean with Howdy, we are focused on offering a low-cost service. That means we are on the lookout for both high-quality, more expensive content as well as high quality, less expensive content. So things like content that's lower cost because it incorporates AI production, those sort of things. So we are -- whether it's unscripted. So we are definitely focused on a broad array of content, including lower-cost content. So that's -- I think that's your question on content.

And then on devices, I'll let Dan take that question.

Yes. I think your question is what's driving revenue down and margins on devices. I just want to say, first of all, a couple of things going on. The ASPs and streaming players continue to come down. That also has higher memory costs associated to it. So that does impact overall margins. I think it's important to note that from an overall unit perspective, like we are on track to where we expected to be for total units across all of our devices.

And I just want to be clear, like we're not kicked out of Walmart. We still sell a lot of units at Walmart. We sell a lot of third-party units at Walmart. We sell a lot of first-party TV. As a matter of fact, first-party TVs are growing quite well on a year-over-year basis. So to be clear, like it's not a volume issue per se. It's simply from an ASP perspective and the higher memory pricing that we're seeing specifically in the back half of the year that we talked about in our guidance.

And then I think you asked about Walmart, maybe in our Devices distribution generally. Let me just ask Mustafa to talk for a little bit about that.

Yes. This is Mustafa speaking. I mean we feel good about our progress in terms of diversifying our distribution, and we are also on track with our overall device unit sales target for the year. As Anthony mentioned earlier, we recently surpassed 100 million streaming households worldwide. So we are -- this is a major milestone for us, but it also highlights our scale and momentum that we have. In the U.S., we are, again, in more than half of the broadband households. So customers love our products.

We build really great products. We offer delightful experience, and retailers want to sell this type of good product, and they carry our products across their shelves. And again, as Dan mentioned, we continue to have a great relationship with Walmart. Again, our products really fit well for Walmart customer base. The shoppers love our products. And at the same time, we are successfully broadening and diversifying our retail distribution. We grew our presence at Target. Anthony mentioned earlier, the Hiro brand TVs. It's really helping with our partnership at target.

Best Buy, we're growing. Amazon, we're growing. Regional retailers, we're growing, and we expect to add more retailers in the second half of the year as well. And at the same time, we're actively expanding and diversifying our TV OEM licensing agreements, including with our long-term partners, TCL and Hisense, Again, Anthony mentioned the increase in memory cost across the industry is helping us quite a bit. We're becoming more attractive to OEMs and retailers. So -- and we're going to see the impact of these updated partnerships in the second half of the year sales of our products.

So overall, really, we're well positioned. We built streaming sticks, first-party TVs, third-party TVs. This portfolio gives us flexibility, depending on the market conditions. Cost conditions, we can lean into one product over the other one. So it's overall, we feel really comfortable in our -- with our distribution strategy.

And the number of Roku TVs unit sold may go up or down from quarter-to-quarter, but overall, we expect to continue to grow our scale.

Ladies and gentlemen, due to the interest of time, our final question will come from the line of David Joyce with Seaport Research Partners.

As you continue to deepen your integrations with DSPs and maybe add a few more, what could that do to the cadence of the advertising gross margin? I know you did talk about overall where you think it could be in a bit, but I was just wondering what those impacts might be over the next few quarters.

Thanks, David. Dan will take your question.

Yes, the way we integrate with the demand side platforms, they're not -- they're an impact to the volume of impressions that we get, depending on where the advertiser wishes to transact. Charlie talked very -- in detail about how we integrate with the DSPs. There's not a margin impact. So how we integrate across the different DSPs really don't have a margin impact with the one caveat being Amazon, where it's at the platform level, which will be positive. But the remaining DSPs where we integrate and adopt their identifier like a hashed e-mail, et cetera.

It's not going to impact our margins either way. What will impact margins are how we fulfill, which we're getting, which we're very good at, the ad units that we have on the home screen et cetera, and how we just complete the campaigns internally, which, again, we're very good at optimizing for that. That's not a function of how the demand comes in. It's a function of how we fill the demand on our side with our platform, which, again, we're getting, we're just getting better and better at.

Thank you. Ladies and gentlemen, at this time, I would like to turn the call back over to Anthony for closing remarks.

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.

That concludes today's conference call. Thank you for your participation. You may now disconnect.

Okay. All right. Welcome, everyone. Thanks for coming to our immediate post-launch session with Roku. I'm excited to introduce Dan Jedda, who's the CFO of Roku, Dan, welcome.

Thank you. Happy to be here. Appreciate you having us.

Maybe just to start off on your recently reported results and gave guidance. 2025 was obviously a great year for the company. Platform revenue grew 18%. As you look back at the fourth quarter and the full year, what were the key initiatives that really went right to drive that performance for the company.

Right. So let me go back 2 years and just set that stage. So as we exited 2023, we rightsized our cost structure. We spent basically the second half of 2023, rightsizing our cost structure. We felt very good about that exiting 2023. And in 2024, in our Q4 '23 results that we discussed in February, we made it very clear that we are really going to pivot our attention towards the platform monetization of Roku, and specifically in both areas of how we monetize, meaning subscriptions and advertising.

And what happened throughout 2024 and really in the H2 of 2024, and then we saw a full year benefit in 2025 is just the execution of all the initiatives that we undertook to really focus on the monetization of the platform. I'm sure we'll get into a lot of those initiatives during this chat. But it really was important for us, now that we had built a massive scale in the U.S. and in our focused countries outside the U.S. of 50% -- over 50% broadband penetration, approaching 100 million streaming households that we turn our attention to monetizing that scale. I mean it was very expensive for us to build the scale. It costs a lot of money to get distribution. We had done that, and we continue to do that.

But the pivot was really on driving more demand in advertising, driving more subscriptions, and we undertook a whole lot of initiatives to really double down in those areas. And you saw the result of that in multiple fronts in 2025. Again, I'm sure we'll get into a lot of them, but there was a lot that -- there's a lot that's going right in all these initiatives that we can talk about further. But we feel very good about our results in 2025. And as importantly, we entered 2026 in a very good position.

Okay. And on the call, you guided to over 21% platform revenue in the first quarter and about 18% for the full year. Is this just conservatism? Or are there other factors that we should consider about the growth rate for the full year relative to 1Q?

Right. So yes, in Q1, we were just over 21%. I believe it's 21.5%. For full year, we guided to 18% in 2025. We did just under 18%. So we guided for that basically a similar growth rate, slightly higher growth rate for 2026. Let me talk about Q1, and then I'll talk about full year.

So a couple of things happening in Q1. First of all, Q1 of '25 was our lowest -- our easiest comp, our lowest growth rate for 2025, we progressed on growth rate throughout 2025 sequentially with higher year-over-year growth rates in Qs 2, 3 and 4. So it's a relatively easy comp in Q1 based on Q1 of 2025. But mostly, it was due to the higher growth rates due to the Frndly acquisition, which we closed in mid-Q2 of 2025. So Q1 still has that year-over-year comp of Frndly tag to it. So you've got a slightly easier comp. You've got Frndly for the full year of 2025, no Frndly in Q1 -- sorry, 2026, no Frndly in Q1 of '25, that's for Q1. It's a very healthy growth rate even if you back out Frndly. For full year, we guided to 18%.

And what we said on the call was we wanted to wait for H2 to understand political a little bit more. There's obviously a big political season coming up in 2026. It's a midterm year. I suspect it will be similar to a general election year. That's what all indications are telling us so far. But we just said like we want a little bit more time before we -- and more insight into H2 for 2026. So yes, the H2 of 2026 is conservative from that standpoint.

Okay. Great. Let's talk about margins. So you guided to mid-single-digit OpEx growth. That's driving significant EBITDA margin expansion. But at the same time, you're still investing in key initiatives. How are you balancing the financial discipline with the need to invest and stay ahead of the competition? And where are there still major opportunities to drive operating leverage in the business?

Right. So we ended 2025 at just under 9% margins. It's roughly a 250 basis point improvement in EBITDA margins in 2025. We guided to -- our 2026 guide implies an even faster margin expansion. I believe it's 267 basis points for our guide for 2026. So we're getting great leverage.

What we're seeing is, first of all, our Platform business continues to grow double digits, the guide of 18%. We've guided to OpEx margins of mid-single digits, as you noted, we've guided to Platform margins of roughly flat on a year-over-year basis. So all that leads to EBITDA margin expansion, it leads to operating margin expansion, it leads to free cash flow margin expansion, all positive.

So what we're seeing on how we invest is we're still investing. We're investing in owned-and-operated subscriptions. We're investing in ad product. We're investing in bringing more demand to our Platform. We're investing in bringing more ad demand. We're invested in bringing more ad supply to Platform, like we are absolutely investing in the monetization initiatives, we're still investing in growing scale, which is very important for us.

But we're very disciplined at looking at our investments, and we're focusing on targeting the highest ROI investments in whatever initiatives we undertake. And that may mean externally adding headcount, but it may mean that we pivot headcount internally from certain areas into higher investment areas. So it's not as if we're not hiring. We are adding headcount, we're hiring, but it's very targeted. For example, like in AI-related areas, especially in advertising and subscriptions, we will hire. There's other areas where we're focused on efficiency and automation, so we don't have to hire. All this is very -- it's a very conscious effort to ensure we're investing, but we're investing in the highest ROI initiatives.

We're running very fast where we have to, where things are a land rush. But in areas that are more about scaling, we're not -- we're focused more on automation, efficiency, AI for efficiency purposes. And all this leads to where we believe that in a sustained way, we can continue to grow our platform double digits while maintaining that mid-single-digit OpEx growth. Now again, like that is a significant investment still, like we have over $2 billion of OpEx. And so growing $2 billion at mid-single digits is still a lot of investment, but it's very targeted to the highest ROI initiatives.

Platform revenue grew 18% last year. Can you just talk about what drove that growth? And maybe talk about the growth of subscriptions and advertising.

Right. So yes, Platform revenue grew, 18% last year. We -- just under -- we guided to 18% this year. We don't break out advertising and subscriptions. We've given data points on this in the past. I said on the Q4 call that I want to give our investors more data points on this. And so basically, on a go-forward basis, starting with our Q1 results, we will break out Platform -- our Platform segment into two different businesses. We're going to break it out into advertising and subscription.

So that's something we've been working on for a while. I'm very excited about it. We're going to give historicals, of course. We're going to give the growth rates. We're going to give the margin structure of our Platform business in the form of two segments, call it, subscriptions and advertising. So that's something that's new to us and something I'm very excited about. Again, we've been working on this for a while. So we will start this in our Q1 results.

Now to answer your question specifically, on the 18% for 2025 and how we grew subscriptions and advertising. Subscriptions grew 25% in 2025, and that was -- but we have to remember that there was a Frndly comp in there. So that's inclusive of not having Frndly in 2024. The advertising business in 2025 grew 13%, but that's comping political of 2024. If you back out political, it's 19% year-over-year growth rate. So very strong advertising growth rate in 2025.

So if you were to back out Frndly, if you were to back out advertising in both areas, they're both -- they're roughly very similar in terms of growth rate, both growing very well. The advertising business is growing much faster than the CTV ad market, which is a positive, I would expect that to continue.

Great. That new disclosure would be really helpful.

Yes. We're very excited about it. We think it's going to help our investors. We'll talk more -- we'll give more data points on this, but it's something, like I said, we're very excited to you.

Great. You've guided to Platform gross margins of 51% to 52% this year. As the mix shift -- as you mix shift towards subscriptions and programmatic advertising, what are the primary puts and takes that are going to influence gross margins going forward? And what gives you the confidence to project double-digit operating profit margins in the near term -- long-term, excuse me.

Right. So we've targeted that -- we've leveled out at 51% to 52% gross margin. We ended closer to the 52% in 2025. We're trending well for that to be -- continue at 51% to 52%. Now since I broke out -- since I told you, we're going to break out subscriptions and advertising, let me talk a little bit about the margins on each and give you some data points on that. Again, we'll talk more about this in Q1.

So I've often said that it is mix that is driving the margin structure depending on what's growing faster within all our different activities. They have different margin structures. We have everything from 80% margin activities to 30% to 40% margin activities depending on what's driving it. And so our subscription margins are just north of 40%. They're doing well, and I suspect that will continue in that range. Our advertising business is just north of 60%. Subscription has trended down slightly. Advertising has been remarkably resilient. Again, you'll see this when we do historicals. And I would expect that to continue to be resilient just because of all the initiatives that we have, not only to drive demand, but the optimizations that we have to drive margins. We don't focus just on platform revenue. We focus on cost of goods sold as well, and we're able to utilize our platform to maximize our advertising margins.

So I feel really good about the margin structure of both businesses, though, depending on the growth rates of each, they will mix out to that 51% to 52%, I think it will be closer to 52% than 51% because advertising is doing so well.

To answer your question specifically on programmatic, I've addressed this in this past. There's this thought that the shift to programmatic leads to lower advertising margins or a reduction in CPMs leads to lower advertising margins, that's not true. I've said this time and time again. Just because someone shifts to programmatic doesn't necessarily mean it's lower margins. We have multiple different margin structures. We have a Home Screen that is very high margin that's doing very well. We put video in our Home Screen what used to be a static display ad. We have now added video to it. It's a very high-margin ad unit. Like I said, we focused on optimizations within video advertising, so we can optimize for the highest margin ad sales first and then go down from there depending on how much demand we have and the campaign performance goals.

So if CPMs continue to trend down, and we're not seeing that, but if they did, it wouldn't impact our ad margins. It wouldn't impact our ad revenue. If the shift continues to programmatic, and I think it will, I'm sure we'll talk about that. I don't believe that will impact our ad margins. We have incredibly resilient and margins. They've actually trended up slightly over the last several quarters and feel very good about them.

Great. Maybe you could talk about Premium Subscriptions and how those have been trending?

Right. Premium Subscriptions are trending very well. It is the driver of our overall subscription business. So the difference between Premium Subscriptions and what I would say, direct-to-consumer subscriptions, our Premium Subscriptions are embedded throughout The Roku Channel and throughout the user interface, which we control and we own. Whereas a direct-to-consumer subscription is where you go into the app and you sign up. We monetize both. The difference is this Premium Subscriptions can have a much better user experience and be embedded throughout the UI that we have throughout TRC, which just means there's multiple ingress points into the partner app.

So it's something we are investing in. It's something which is growing exceptionally well. We have multiple Tier 1s in Premium Subscriptions. We announced HBO in late last year. We're seeing the benefit of that in 2026. We just announced Apple TV as a Premium Subscriptions, that is a Tier 1 partner. We'll announce more Tier 1s in the future. I feel very good about the pipeline of our partners that want to come on to Premium Subscriptions.

And we also launched Premium Subscriptions outside the U.S. We launched them in Mexico, and we won't stop there. We'll eventually launch in other countries as well. And Premium Subscriptions is something our partners want to do. It will lead to incremental sign-ups. And it's something that we think is a better customer experience as well because of how we can use it to personalize our Home Screen and our user interface.

So again, Premium Subscriptions is one of the many initiatives we have in our subscription business, that's driving that 25% growth I talked about for 2025. And again, I would expect Premium Subscriptions to continue to be very strong in 2026 and going forward.

Okay. The acquisition of Frndly and the launch of Howdy, they seem to signal an expansion into owned-and-operated subscription services. You believe you can accelerate their growth by leveraging the power of the platform. What's the broader vision here? Is the goal to have a larger portfolio of O&O services? And where are you in fully integrating these services into the broader business?

Right. So I mentioned two types of subscriptions, the direct-to-consumer and the Premium Subscriptions. Owned-and-operated subscriptions are a third. So we have three ways that we look at subscriptions. They're all doing very well. Our owned-and-operated subscriptions, meaning Howdy and Frndly are doing exceptionally well because, again, similar to Premium Subscriptions, we can use the power of our platform to market those subscriptions.

And so if you look at -- like let's take Howdy, for example, there's two relatively high-cost areas for an SVOD subscription. It's content and marketing. Well, that marketing is not really an obstacle for us. Marketing is very expensive on platforms to drive subscriptions. It's not for us because, again, we control the UI, we control the Home Screen. We control the entire platform. So we can utilize that as our marketing to drive subscriptions into Howdy. And because our marketing is relatively inexpensive, it's in form of opportunity cost only, and because we can utilize that, we can launch a product that has really good content, but not a high price point. And we think that is an underserved area of the market. We think there are many streamers out there who want to have an ad-free low-cost SVOD service with good quality content, and that's what Howdy is. It's doing very well on our platform. We've talked about taking it off Roku. We will do that. We've talked about taking it outside of the U.S., we will do that in the relative near term. And it's working very well.

Frndly is similar. Frndly is a virtual MVPD bundle that has TV on it, has Live TV on it with over 50 channels. It is relatively low cost. Again, marketing is a big expense for a company like Frndly, an SVOD service like Frndly, and that's what we can do very well. So Frndly also is on our platform throughout the entire UI showing up in multiple cases. We're driving subscriptions to Frndly. Frndly also is off Roku. So you see more and more services going off Roku. That's a strategy of ours. Even though we have broad scale, we have over half of broadband households, we feel that we can take these assets and be successful with them off Roku as well.

And so both are doing very well. They're both very strategic for us. Like I said, with Howdy, we'll bring it outside the U.S., we'll bring it off Roku soon. Frndly already is off Roku and it's just part of our overall subscription strategies. And again, a big driver or a driver of that 25% year-over-year growth rate.

Let's talk some more about the revenue growth drivers. I'd like to get your perspective on the health of the overall ad market, in particular, CTV in the past, you've noted that while the broader industry has had pressures, Roku's ads business has done remarkably well and growing faster than the overall U.S. OTT and digital ad markets. You also mentioned seeing positive pricing trends in your most recent upfronts. I think that was a change from the prior year. As we look ahead, what are the key trends you're seeing from advertisers? You're seeing budgets continue to shift from linear to CTV, and are you seeing an acceleration there? If you could comment on those topics, that would be great.

We're absolutely seeing budget shift from linear to CTV. But let me take a step back and let me talk about the overall market because there's always this thought that there is a lot of supply in the CTV market as more and more platforms and streaming partners have ads and grow their ad business. And that is true. There is more supply.

There's a reason for that. It's because all the demand is shifting over to the CTV market. And let me just put some numbers because I actually think this is very important is to be in a market that's growing is an absolute benefit and privilege, which I love. And we're in a market that continuously grows, mainly the CTV market. So let me put this into context, and I'll reference some external data.

So roughly, the overall ad market, linear plus CTV in the U.S. is around $90 billion, maybe slightly north of that, depending on which a company that puts out the data, it's roughly $90 billion. Of that $90 billion, about 1/3 has moved over to the CTV space. So what you have -- and by the way, many years ago, that was all linear for all intents and purposes. Now you've got 1/3 of that budget moving over, and that's growing double digits. What a great position, what a great market to be in, is the one that's growing double digits, that's, call it, a $33-ish billion market and growing, whereas the linear is now $60 billion and shrinking.

Now the hours have already -- a lot of those hours have already shifted over from linear to digital. A lot of thought was like, hey, there's this -- the concept of sports is going to keep eyeballs and linear, and that was true. But now all sports has shifted to digital. You can't -- every single sport essentially that was linear only is now linear and digital concurrently. And there are many sports and which will become even more prevalent that are digital only. If you think about football. I, like to use the NFL as a guy. They go back 8, 9 years ago, it was all linear. Now it's all linear plus digital with about 8% being digital only, the only way to watch the game is on digital.

So you've got the sports is still there for linear, but you have the eyeballs that have shifted will continue to shift. It's like 2/3 of the hours have shifted, only 1/3 of the budget, that's going to correct itself over time. So you're going to have the CTV market continuing to grow at double digits. On top of that, because of the way you can do performance advertising on CTV, you have the performance budgets who are starting to move over into CTV. And that's an entirely new market and a new tailwind into the CTV market.

Now the performance market, depending on how you define performance with search and social, it's $100 billion to $150 billion. I like to think about it as the SMB market, that SMB market spends about $600 billion on all forms of advertising in a given year based on external data. But again, the true performant piece of that is, call it, $100 billion to $150 billion depending on what you include in that. That market is also shifting over into CTV because CTV now can be performant. It is not just the top 200 brand advertisers that are focused on massive reach.

You have a performance-based ad products, which we can talk about like our Ads Manager, which are getting those SMBs to come over via self-service and be able to do what they've always wanted to do, which is to put a video on TV, CTV and then measure the performance similar to how they can measure the performance in some of their performance channels. So you have two tailwinds coming into the CTV market.

You do have shifts to programmatic going on. I think that's a positive. And so ultimately, who I think is going to win in this CTV market that's growing are the products that are ultimately the most performant, which is something we talk a lot about. We want to be the most performant platform for the ad market out there. And that is something that we can do because we know our customers, everybody on Roku is logged in. We know them all. We have amazing first-party data. We can integrate other data. We ingest other third-party data into our platform to understand it. And we can -- we're building and have built many performance-based ad products that take advantage of not just the shift to programmatic, but the fact that there's these performance-based budgets coming into the CTV space. It's a very exciting time to be part of the CTV space because, again, it's growing. Not many markets are as sizable as CTV and growing double digits. And again, my expectation is we will grow faster than the overall CTV market.

It's a great walk through. Maybe you could just talk a bit about -- you've pivoted from a closed OneView-centric approach, this open interoperable strategy. You've integrated with all the major DSPs or you are integrating with them. Amazon, which you noted is in the early innings, is a particular interest. What have you seen in the early days of the partnership that really informs your view of how it will contribute in '26 and beyond?

Right. So that's a great question. It's one -- like I said, let me take a step back and go back 3 years ago. At 3 years ago, if you wanted to run via a DSP on the Roku platform, you essentially had to come in through the Roku DSP, which, as you correctly stated, was OneView. It was a company that was purchased several years earlier. And so we had this notion that, hey, like let's be a DSP. So any advertiser wants to run on a DSP, that's fine, but you have to run on our DSP. Well, that was very limiting, because there are other DSPs out there, which advertisers were already running on and/or agencies were already integrated with.

And so in 2023, as we looked at our supply of ad inventory, which because of The Roku Channel, which is the #2 app on the platform, is growing so fast because, again, the power of the UI, we realized like, hey, we don't have a supply problem. And quite frankly, it's not that difficult for us to create more supply in terms of ad inventory. We have a demand problem. We don't have enough demand coming in. And so we -- again, as part of the late 2023 and into 2024 initiatives, we said, let's not close advertisers off by saying, you have to come in through our DSP. Let's open it up to all demand-side platforms, and SSPs for that matter.

And so what we did is -- and again, it takes time to get these contracts out and integrate them and build the plumbing and then optimize. What we said is like we want to meet the advertiser wherever they want to transact. If you want to transact directly with Roku, we'll do that, if you want to transact through a DSP, we'll do that as well. Anybody who's transacting through SSPs like we'll do that as well. So we opened up our platform and said, let's integrate with all these fees. But that wasn't -- that was never the plan to just do that. We wanted to integrate deeply, like this really was a change in strategy for us. We wanted to go as deep as the DSP wanted to go. And every DSP is different depending on how they look at their own performance.

Amazon is going to be different than Trade Desk, which would be different than World, which would be different than DV360, which would be different than Yahoo!. And so we said, "Hey, let's go as deep as we can with all the DSPs at Trade Desk, it's meant adopting UID 2.0 with Amazon, it was a different level of integration, and we will go deeper with all of them, and we'll continue to optimize it. So what that had the result -- what that resulted in is more demand coming into our platform, of course, that demand has to perform, which it is. We brought more demand into the platform. We also added more ad products to drive more demand. We continue to add more ad product that will drive more demand. So as this shift goes again to programmatic, we are in a very good position because we are integrated with all the DSPs.

Now again, that shift to programmatic, that DSP integration doesn't mean margin degradation. That was something I tried to really make known early on because the thought was, well, if you're integrating with DSPs, your margins will go down. No, that's not how it works. Because you're integrated with DSPs as a publisher and as a platform, our margins don't necessarily go down, for a lot of different reasons, which I won't get into. And again, you'll see when we report our Q1 that the advertising margin has been incredibly resilient over the last many quarters, and I would expect it to continue to be on a go-forward basis.

Same with CPMs, because you're going into DSPs, it doesn't mean CPMs decline. And what we said on our Q4 call was that we did not see CPMs in our latest upfront continuing the decline that we had seen in previous upfronts. That is true. There might be a shift in guaranteed versus non-guaranteed, which may shift CPM to some extent because the guaranteed versus non-guaranteed have different performance metrics, but neither are going to necessarily either make margins higher or lower because we can optimize across the platform for a consistent advertising gross margin.

Roku Ads Manager seems to be a key long-term driver going after the SMB market that you mentioned. Your team noted 90% of advertisers on the platform were new to Roku. How big of an opportunity do you think this is over the next 3 to 5 years?

Yes. I think that it is a significant opportunity. I mean, between Ads Manager and our subscription business and the shift to programmatic, like those three areas are very significant for us. And I think Ads Manager is probably could be on top of that, although the others are significant as well. And the reason being is, as I said, is unlike 5 or 7 or 8 years ago, we've removed the largest barriers to -- for having an SMB advertise on CTV, the two barriers were, one was performance. Can CTV be as performant as the performance markets that they were already spending dollars on? And two, there was just an obstacle to creating a quality video ad.

Well, GenAI removed the latter article -- the latter obstacle. The creating a video ad is now instantaneously through GenAI. We have a product on this. We integrate with others. You can use our product, you don't have to. You can upload your own video, which, again, there are multiple companies who do this. And I think that's just going to get better and better. That's here. That's now. A GenAI video is now. So that obstacle is now gone. The second obstacle of being performant is also gone or at least is eroding because you can get many of the KPIs that you want in your performance advertising channels on CTV now.

How do we do that? Well, multiple ways. You can pick your KPIs as you come on the self-service model. So call it anywhere from 4 to 8 clicks and within minutes, you can pick your KPI, you can upload or create your video and you can be advertising with where you want to advertising, whether it's geo-targeted, whether it's I want to maximize site visits. I want conversion data. I want overall reach. I want to be on multiple publisher platform -- publisher content types. We do all of that through the UI interface. So how do we do this? Well, we do it via APIs. We do it through pixeling. We do it through third-party measurement companies. We do it through integrations with companies like Shopify. So there's multiple ways that we can now measure the performance. And that performance is getting better and better, which, again, I believe will continuously keep the performance budgets shifting into CTV. It's a very exciting time for the SMBs to be able to do that.

So we can do everything from site visits to causal-based lift analysis. Like I said, to conversion data, depending on the SMB. And I would say right now, it's more of the M than the S, but I have no doubt that it's going to migrate down to even the small business. Because remember, like $600 billion is spent by SMEs in total advertising. Why would you not want to carve out a chunk of that on TV, on a performance metric, so you can get your video out in front of millions and millions of people and see if it performs as well as some of your performance measurement that you have in your other channels. So I think it's a huge opportunity.

And imagine like take the $100 billion to $150 billion, even if 10% of that were to get carved off and move over into CTV. That is significant. I do believe there'll be multiple winners in that. But Roku, not only do we have the self-serve product is we have the platform and all the publisher agreements to be able to buy across an entire platform. And we've got the scale, we've got the agreements lined up. And now we have the self-service interface. We have marketing tag to this. We have inside sales tag to it. Like we're basically getting everyone, we're getting these SMBs aware that we have this performance ad product, which is trending very well.

The new Home Screen design is one of the major initiatives for this year. You've said it will drive both engagement and monetization. Can you give us more detail on the new ad units or the monetization levers that the design will unlock? And how should we think about the timing of the rollout and the financial impact? And then lastly, what are some of the major learnings from the testing that you've conducted so far?

Right. So we're being very methodical. Obviously, this is a big initiative for us. So for a long time, the Home Screen was relatively static, and that was very intentional. Roku customers love the simplicity of the Home Screen. So one, like that is a tenant like we want the Home Screen to be simple for our users, and that will continue to be.

We did make some changes a couple of, call it, 18 months ago, where we put a content row at the top, it's an ML-based content, well highly personalized, which is driving a lot of monetization. It's driving more engagement. It's driving more monetization. We also made some changes on the left nav. We added video to the ad unit on the right of the Home Screen. We've done homepage takeovers now for advertising. All this is a way to say, we've been working on the Home Screen to drive more engagement and very importantly, to drive more monetization. It's one of the inputs that we have where we realized we were under-monetizing this incredible asset that we own, meaning the Home Screen and the UI.

The redesign is something that we're very excited about. It's much more broad. It's much more methodical. We're still in the -- we're still testing it. We've tested multiple variations. We're still learning. We will slowly roll it out, meaning that the variations on it will roll out over time because we want to, call it, the boil, the frog approach, shareable analogy. But we want to be methodical about how we roll this out over time. I do believe -- or I know that this will lead to more engagement. It will lead to more monetization. But we're not focused on like flipping a switch like instant monetization. We're focusing on long term over the long-term monetization.

And we're building in a way that can -- it can incorporate multiple changes, which is -- so it's not just V1 I'm excited about. Like I'm looking at V2 and V3 and how we evolve the home screen over many years because, again, it's such a unique and competitive advantage for us and a huge asset that we have.

Now to answer your question, are we -- we're looking at the left nav, we're looking at the layout, we're looking at the way the grid is laid out, like I'm not going to give it away because we're still fine-tuning it. I will say that I'm confident that the new Home Screen will focus both on engagement and monetization because if it didn't, we wouldn't roll it out and we are going to roll it out.

So we really like what we see. We're seeing good user feedback in this testing. It's not quite ready yet. Again, we're doing some more testing, some more fine-tuning. It's going to be an overtime approach, but it won't be a long time before it comes up. We don't have a date yet, but it will happen.

Okay. Let's move to international. You've achieved scale in markets like Mexico and Canada, and now you're focusing on monetization while still building scale in other markets like Brazil. What does the pathway to monetization look like abroad? Are there any key takeaways from the more mature international markets that give you confidence in your ability to monetize that next wave of countries?

Yes. I've talked about this before. We're at different levels of the monetization initiative on our international locations, and I'll give you some examples. But again, international is starting to pick up. It's starting to grow as we would expect it to grow, just given that we have scale in many countries. So for example, in Mexico, where we have incredible scale, it actually rivals the U.S. in terms of scale. But the ad market in Mexico just isn't as -- it hasn't moved over as quickly as the ad market has in the U.S.

So even how slowly CTV has moved from linear, Mexico is even slower and is nowhere near the penetration in terms of its movement from linear to digital, in terms of advertising. Although we're starting to see that now, and we're starting to see more ad monetization in Mexico. But what we can really monetize via scale is our subscription business, which again, is a very important focus for us. So we are seeing subscriptions start to do very well in Mexico. It's one of the reasons why we launched Premium Subscriptions in Mexico. Again, we will launch Howdy in Mexico in the near term.

So we are very focused on subscriptions as right now, advertising is coming. That's Mexico. Pivot over to Canada, where we have less scale in Mexico, still incredible scale. We're the #1 CTV seller in Canada. We have incredible scale, but that ad business is doing very well. So we are focused not only on subscription -- not only on advertising, we're focused on both advertising and subscriptions in Canada because that market from an advertising perspective, is quite mature. So that's an area which is actually really doing well in advertising. It's starting to do well in subscriptions. We'll continue to invest in subscriptions in Canada.

Brazil, where we're really in the heart of building scale is not being monetized a lot. We still monetize it. We have some M&E. We'll announce new initiatives in Brazil because it does -- scale is really starting to take form in Brazil. But again, we have to get that scale first. So that's an initiative to -- that's a country where it's just further behind from the monetization initiatives. All this is to say international is a key focus for us. I believe it's going to continue to grow and grow well. We're building scale in these countries. We'll continue to build that scale and the monetization will follow just like it did in the U.S.

Okay. I want to touch on the question of Walmart acquiring VIZIO, other major players investing in their own OSs. How is your view of TV distribution evolved? What does the launch of Hiro in 4Q mean for your distribution strategy in '26? And why is doubling down on developing your own TV the right decision?

Yes. Let me talk a little bit about our overall distribution strategy, which is absolutely working. But let me give you some details on this. So about 2 years ago, Walmart purchased VIZIO and put VIZIO OS front and center, and they're continuing to migrate their own TV to VIZIO OS. You can see that as you walk into Walmart. That will continue. But -- and we've known about this, of course. We've known about this for some time. And our goal always has been to focus on diversifying distribution.

So we have hundreds of millions of dollars that we spend on distribution. And one of our key roles is how do we optimize that spend for the lowest CAC or cost per acquired customer possible. And so our entire distribution strategy has been really focused on continuing to be at Walmart, which we will, but just also looking at other areas of distribution. So you mentioned we launched a first-party TV called Hiro at Target doing very well. We launched Pioneer with Roku OS at Best Buy doing very well. Our distribution strategy and our share at Amazon continues to grow, not just with first-party TVs and players, but also our third-party OEMs. We're in regional distribution centers now, which are performing very well for us and continuing to add Roku streaming households.

And then on our OEM side, we've struck new OEM agreements with many OEM partners. We announced two of our largest TCL and Hisense. And let me tell you why that's important. One of the reasons why our OEM partners want to partner with us, is not only is our brand so well recognized from the customer perspective because we're asked for by name, Roku TVs are asked for by name. But our BOM costs, our component costs or bill of materials cost is one of the lowest BOM costs in all the OS plays.

And why is that? It's because the Roku OS is a purpose-built TV OS, which operates on the lowest cost memory footprint of any OS. That was very strategic in how Roku built its OS early on and where that is important now is in the rising memory cost environment, of which is definitely happening, the OEMs want to work with Roku more now than ever because of the BOM cost they get. So not only do we have hundreds of millions of dollars of investment that were focused on distribution, including retailers and OEMs. Now the OEMs have a lower BOM cost. So taken together, they are very incented to work with Roku and sell Roku because it's a win for them. It's obviously a win for us.

So we have this diversification strategy across all the distributors. We're doing well with our OEMs. Like I said, we just signed two new agreements. We're adding SKUs with our OEM partners. And then on top of that, we have our player business, which we sell millions of players that can turn any smart TV into a Roku TV. And again, that's doing very well. We actually have a $15 player right now where you plug into any smart TV and instantly you have a Roku TV. And for us like it really does it from a monetization and a streamer experience perspective, it doesn't matter if you have a player, if you have a first-party TV or you have a third-party OEM to Roku TV, they all monetize the same. They get the same experience, and we're agnostic on all that.

So all that diversification, all the distribution strategies with the OEMs are continuing to sell at Walmart. We believe and we've stated very clearly, I've changed from approaching 100 million to nearly 100 million streaming households. We will surpass that milestone at some time in the near future. We feel very good about our distribution strategy.

I'll make this the last question. I'll give you a choice. You can either talk about AI, and how does Roku use it to create durable competitive advantage rather than just something that everyone uses and just levels of playing field? Or talk about capital allocation and your plans there?

Well, I think AI is very strategic. So capital allocation, like we're very free cash flow positive. We're buying back stock. We're offsetting dilution. Free cash flow will be higher than EBITDA, which not too many companies say, like free cash flow is doing extraordinarily well. So -- and I've made it very clear that -- or I actually even said that we plan to be at $1 billion of free cash flow by 2028. I often don't talk about past beyond the current year. But I feel very confident that we can be $1 billion of free cash flow by '28, if not sooner.

But let me -- in the last minute or 2, let me talk about AI because it's very strategic. AI is an absolute tailwind for us. It's not a risk or a headwind. So forget -- I mean, first of all, we are using AI for operational efficiency. I can see it in my team. We all have AI goals. We're not adding head count in my team. We're adding automation. We're adding AI. We're using agents to do analytical work. All that is happening, and it's happening not just in my group, of course, but across all of Roku.

But where AI is really important as I already mentioned SMB with Ads Manager and using GenAI to create video. That's to create a short-form video. AI will ultimately be impactful in long-form and short-form content. Howdy and other partners of us will be the beneficiary of that. We'll have more hours of engagement on our platform. We monetize engagement. That's a positive for us.

Within advertising, as I mentioned, that our goal is to become the most performant OS, the performant operating system platform out there for advertising. How do you do that? You do that with AI. So AI embedded through all of our advertising tech is where we're moving towards that we're building that right now. So AI will be a tailwind for the ad business. It will be a tailwind for content. It will be a tailwind for operational efficiency, and we see the benefit across all the different areas for Roku. So it's a huge positive for us and something that we absolutely embrace and we think is going to be significant, especially as everything moves to programmatic in the ad world.

Okay. That's a great place to end. So thanks, Dan...

Thanks for having me. I enjoyed it. Thanks for coming, everyone.

All right. We're going to get started here. For important disclosures, please see the Morgan Stanley research disclosure website at morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative.

And with that, I am very pleased to welcome Anthony Wood, Founder and CEO of Roku. Thank you so much for coming back to the conference.

Thanks for having me. I appreciate it.

All right. So you looked -- you reported a couple of weeks ago, and you talked about a 2026 outlook that gave investors, I think, a little bit of a peek into what you see as a potential growth opportunity going forward. As we look out to this year, what do you think are the 2 or 3 biggest strategic priorities for you, for the company? And what do you think will be most different about your business if all goes well and you execute on your plan?

Yes. So our priorities are really to focus on our main businesses. So our main businesses are advertising and subscriptions. And then I would say the third priority would be our home screen. So I'll just talk a little bit about each of those. So advertising is doing really well for us. It's been a very positive business. It's growing nicely.

And in advertising, we're focused on being the most performant connected TV platform, so continuing to invest in integrating generative AI throughout our platform to drive even more performance on our platform, integrating with DSPs. So a big strategy for us on the ad front is to integrate and deepen our integration with all major DSPs. So we did Trade Desk a couple of years ago. We recently announced a relationship with Amazon that's working out well for us and them. So integrating with DSPs.

And then using -- creating new businesses around advertising. So we have a product we've launched recently called Roku Ads Manager, which is essentially a way -- a self-serve platform that targets small- and medium-sized businesses, which is a huge market, $600 billion market that are a set of advertisers don't traditionally advertise on the big screen on TV. So that's advertising. That's a big area to continue to grow that business. And then subscriptions is another big business for us.

And we have 3 kinds of subscriptions. We have direct-to-consumer app-based subscriptions. We have what we call premium subscriptions, which is more of a wholesale type model, and that's growing extremely fast, that we had our biggest premium subscription net adds quarter last quarter ever. And then the third subscription business for us is owned and operated subscriptions. So we have 3 different streaming services we own and operate. Two of them are subscription businesses, Howdy and Frndly. So all in, we bill tens of millions of subscriptions a month, and that's also a business that's doing well for us.

And then the third area that we're focused on is just getting better use out of our home screen. So it's probably our most important asset is the fact that when people turn on their TV to find something to watch, they start with the Roku home screen. And so we have been testing a bunch of different variety or different alternatives to our home screen, working on a next-generation home screen for a couple of years now. And those tests have been going really well. We're seeing great results in terms of user sentiment, monetization, engagement, and we hope to roll out a new home screen. Well, we're going to roll it out this year. This is the plan.

So those are the 3 areas. And I would say just if you look at results, platform revenue was up 18% year-over-year last year, and our outlook for this year is also 18%. Last year was the first -- 2025 was a great year for us. We were profitable last year. We're continuing to grow free cash flow, and that's a big priority for us is to continue to grow free cash flow. In fact, we think we'll pass $1 billion in free cash flow in 2028, if not sooner. So those are our -- I'd say those are our key priorities.

That's great. I want to dive deeper into all of those. But I think at a higher level, I wanted to ask about AI. Obviously, this is a big topic across our entire conference circuit over the past few days. And you've spoken a couple of times even this year about being a beneficiary of AI-generated content. I think about AI personally at an industry level as a contrast in my mind between the ability to really reduce the content production costs for many of your partners. I think you've spoken about that.

But then on the other hand, potentially a risk that more empowered user-generated content takes greater share of monetization away from some of those partners. Can you maybe just talk about Roku's position in that framework and whether you see yourself being a beneficiary in either circumstance?

Yes. I mean AI is a huge opportunity for us. I'm super excited about it. It's certainly a massive tailwind. It's not disrupting our business. If you think about -- one way to think about our business is we are a platform for viewers to watch television. Our job as a platform is to drive engagement and then we monetize that engagement. That's our business in a nutshell. And AI across all aspects of that business model is positive for us.

So for example, just taking content, for example, AI is going to reduce the cost of content production. That will drive more engagement. We monetize engagement. So that -- at the high level, that's a great trend for us. If you look at our business segments, like advertising, for example, or business areas like advertising, we are actively -- I mean it's always been based on AI, but we're actively integrating generative AI into our ad tech stack to drive higher performance and better outcomes for our advertisers. We're very focused on being the most performant ad platform, connected TV ad platform, and AI is a big part of making that happen.

In advertising, AI is creating -- like I mentioned Roku Ads Manager, which is focused on small- and medium-sized businesses that couldn't exist without AI. AI allows like a one button click to create a high-quality professional video ad, which if you're a small business, you can't afford to pay someone to produce a video ad. So AI produces high-quality video ads and AI is used in all the targeting and measurement for that technology stack. So that's going to be -- I mean that's going to be a large business for us, and that's entirely based on AI.

So -- and then subscriptions, another big business for us. We're integrating AI. AI is being used to improve the recommendations, making our home screen more personalized, improving recommendations. That's driving more engagement, that's driving more subscription sign-ups. So yes, I mean AI, I think, just generally is very positive for us.

So on that first engagement point, to the extent that AI is empowering greater cost reduction and the ability for consumers to watch more content, do you think you're positioned to monetize that as successfully if we're kind of seeing share shift away from some of the more premium scripted players towards user-generated content as one example?

I mean YouTube is the #1 app on our platform. The Roku Channel is #2, and we monetize all the apps on our platform. So like just generally, more engagement is good for us, lower cost content. I mean, The Roku Channel is free content. So lower cost is good for that business model. And Howdy, which is hopefully, we'll get to later, but that's a new streaming service that's owned and operated, launched by Roku, and that is positioned in the market at $3 ad-free. That's the kind of service that lower cost content, better quality content could really help. So yes, I think lower cost -- for our business model, lower cost content is going to be good.

Makes sense. All right. Let's dive deeper into advertising as an opportunity. CTV has come a long way in terms of migrating ad dollars from linear. I think there's still a gap between the engagement levels that we're seeing on streaming relative to the actual ad dollars that are moving over. In your view, what are some of the gating factors that might be potentially being unlocked over the next few years? And how should we think about what really drives the pace of that further closing of that gap?

Yes. So I think in terms of connected TV advertising, number one, the main -- one of the primary drivers is just scale. So we have 90 million -- well over 90 million active households that's over half -- in the U.S. alone, over half of broadband households like that's massive scale. So that's a key driver of our ad business. And then engagement is really very important. And so we're -- by engagement, we're the #1 by a wide margin, #1 in U.S., Canada, Mexico connected streaming platforms.

And then you take The Roku Channel, I mentioned before, it's the #2 app on our platform. It's just over 6% -- just over 6% of all streaming hours in the U.S. is The Roku Channel. And that's up from just over 4% a year ago. So it's growing nicely. That creates a lot of ad inventory. We have a lot of ad inventory. And that's just The Roku Channel. I mean we have ad inventory across our entire platform and across streaming apps on our platform, but also, of course, in our UI, proprietary ad units from -- on the home screen and home screen takeovers, so a whole variety, we're building out more ad units across our platform.

So those are key drivers. And then I would say just we are incredibly focused on being the most performant connected TV platform. That's a big advantage. I think all advertising, even television advertising, even brand advertising is moving to more performance-based modes. And so that's a big focus of ours.

And then I would say, finally, just we make it easy for customers to buy ads if they want to -- however they want to buy an ad. So if an advertiser can buy through an insertion order, they can buy through a DSP or they can use our self-serve platform. So all of those things together are really driving strong growth in our ad business.

So as we think about the fact that increasingly, a lot more of the larger scaled streaming players are moving into ad monetization. How do we think about Roku's moat from a defensive perspective in terms of still being that must-buy premium source of content? You talked about the scale and the performance nature of your business. Is that really kind of the biggest focus on being able to keep share of CTV as the overall industry kind of grows in dollars?

Yes. I mean we're generally growing faster than the CTV ad market as a whole, and it's because of our scale and performance and also proprietary ad units. So yes, I mean I really think like as Roku is in over half of U.S. broadband households, that makes us a must-buy platform if you want to reach at scale, a lot of U.S. consumers. And then the -- there is a massive industry refocusing around performance, and we're -- we've been working on that for years. So that's a big driver.

And then I guess, also just -- we have ad products across the entire demand curve. So everything from high CPMs to low CPM. So for example, we've got proprietary ad units in our home screen in our UI. We have a sports zone sports experience, which you can sponsor. So we have -- you can take over the entire home screen and brand it for a weekend. Those kinds of ad units are in high demand, and they usually come bundled with other ad products. So that's the driver of that business.

But then we have a lot of first-party data that drives -- also is one of the factors that drives performance on our platform that -- those are higher-priced units. And then all the way down to units that don't come with data, not a lot of signals and those are much lower cost. So being able to offer that entire range of price points is also a big advantage.

Got you. You mentioned the DSP partnerships at the beginning. Over the last few years, I think you successfully partnered with all of them or at least most of the major ones, including Amazon most recently. How should we think about how those relationships may change or deepen over time?

Well, we're continuing to add the DSPs. I mean we have all the major ones, but we're still adding DSPs. Also measurement partners are important partners for us. And I think the deepening happens both by deeper technical integration as well as potentially data and then also just business ties. As we get experience working with the DSPs, we do sales calls together. We deepen our business relationship as well as our technical relationships. So those are just relationships that we continue to deepen both on a technical and just a business relationship level.

On the data licensing piece of it, is that an opportunity that you see -- I think that was a pretty integral part of the Amazon deal. Is that something that you are seeing the early signs of success from? And is there an opportunity to kind of look for opportunities to go bigger on that front?

Yes. So let me just take that in 2 parts. So first of all, I don't think we've actually announced the exact details of the Amazon deal, but at least as far as I can -- I don't believe there was any data exchange. I mean it's -- The Trade Desk, we did the deal with The Trade Desk a couple of years ago. That was a -- to support UID. And the Amazon deal is similar to that. There is some identity matching, which is kind of what you get with UID as well that we did for Amazon.

But no, the way I think about our data is that our first-party data is extremely important asset, very valuable. We have a lot of data. And we primarily use it to drive our own business. So whether it's our ad business, many -- most -- almost all of our ad targeting is influenced by our data. So it's very integral to our ad business, but also it's integral to the personalization of the home screen, recommendations and the personalization. So all of those things drive engagement.

Like do we decide to recommend HBO Max or Apple TV+, like that's all based on data and that helps maximize subscription sign-ups. If a viewer is like more likely to watch ad content based on our data, we'll recommend ad-supported content and drive more ad revenue. So data is used to drive our entire business, and that's the primary way we use our data. And that's how we use our data. But that said, I mean we're always looking for ways to monetize our data more. But today, that's how we do it.

Okay. Understood. On the Roku Ads Manager piece of the puzzle, you've highlighted a big opportunity from the SMB market. What are the gating factors in terms of driving greater adoption amongst that cohort in terms of educating them about the product and the value that you're providing and being able to drive incremental adoption? How big of an opportunity do you see this in terms of a contribution to growth over the next few years?

Well, so just to describe what Roku Ads Manager is just again, just briefly, and then I'll answer the question. So Roku Ads Manager is a self-serve platform that allows advertisers, small- and medium-sized businesses, performance advertisers, any advertiser, but those are the targets to go online and to upload their ad or create an ad and then specify where do they want to, what target, what do they want to target? Who do they want to target their ad? Do they want to target a ZIP code? Do they want to target pizza lovers? They want to target audio people want to buy cars.

And then also then to put in how they want to measure the outcome. Like do they want to measure like they want to measure website visits, they want to measure sales. So it's like this complete loop on targeting and measurement. And then it's also got APIs. So we've just recently announced the Roku Ads APIs that allow advertisers to integrate directly with the Roku Ads Manager.

And there's a lot of sources of demand for it. I mean it's growing extremely well. We promote it. So we have a sales team. We have marketing. So that's one way. We have a large marketing platform. Our TV is in a lot of households. But also, there's just a lot of demand from those advertisers. They -- many of them have wanted to advertise on TV, but couldn't before. And also especially performance advertisers are looking -- many of them have capped out how successful they can be on the existing social media platforms and they're looking for other platforms or they're looking for diversification from those platforms. So that's also driving demand.

So -- and then -- so all that together is we're seeing good growth, like strong growth on that business and how big it can be. I mean it's a $600 billion a year market. So it's going to be a big -- I mean I'm excited because it's -- the traditional TV ad business is a big business. That's depending how you measure it like $60 billion or $70 billion a year. But -- and that's in the process of moving over to connected TV, and that's driving growth for us. And we're -- I think we're growing faster than the market. So that's all good. But that's a lot smaller than $600 billion. So I think it's -- and it's a good way to diversify out of that core advertising business, and it's also a big new opportunity.

Yes. Another area that seems to be migrating more towards CTV is political ad spend. And we have the midterms coming up. I think last cycle, you were a beneficiary and generated some pretty healthy revenues from political spending. Can you just talk about how Roku has positioned itself to maximize on the opportunity that's coming up? And what are you doing differently this time relative to last time?

Yes. Well, I was just -- I had my one-on-one with our Head of our Media Business yesterday, and he was excited because in Texas, there's going to be a runoff, which means that there will be more political ads in Texas. So like -- so we have a lot of different vertical segments in our ad business. Political is one of them. It's a business that we're good at.

Like I would say the last cycle in '24 was where we really start to take it seriously and get better at it. We put in place a dedicated sales team for political. We started putting in the features and the product that you really need -- that political advertisers need to do the kind of targeting that they want to do. And then so we're taking advantage of all those learnings, and we're building on that. So it's a good business, and it's one of our verticals and it's doing well.

What about sports? I think this is a big year for that with the Olympics and the World Cup coming front and center. How has Roku positioned itself to monetize on that front?

Yes. So there's a variety of ways we monetize sports. So -- and I would say we do it well. So one of them is we have a sports experience or an area in the UI where viewers can go to find sports content because one of the problems in the streaming world with sports is that it's highly fragmented. The leagues have [ pieced ] up their rights and they've sold them to all the different streaming services. And so viewers have no idea, like how do I watch the game that I want to watch, what services is it on, what time is it on.

So we have a sports experience where we make -- we solve that problem for them. Like you can go there, you can find out what games are on, you can see the scores, you can find out how to watch your team when they watch your team. So that's a popular part of our user experience.

And then -- and then so that drives engagement, drives engagement in sports content that we monetize. We monetize either by -- through subscriptions or advertising. So for example, I think in the last quarter, subscriptions driven sports-based subscription sign-ups coming from -- originating from the sports experience were up 75%. So that is a very popular way for viewers to discover sports-based content and often they'll end up signing up from that experience, and then we get paid for that.

So -- and then there's sponsorships in that as well. So the sports experience is a key part of our monetization of sports. And then -- but also for tentpole sports like the Winter Olympics, we did this or for the upcoming World Cup, we'll build complete custom experiences, and we'll integrate them directly into it, into our home screen. And we'll work with whoever has the rights for that for the -- in the case of the Winter Olympics, NBC, we will work with them directly, build an experience with them, integrating into our home screen. And then viewers love it, like they get a great experience around the Olympics. And then in this case, NBC really likes it. It drives more viewing of the Olympics. And so we monetize that as well.

Yes. I think we do need an aggregator for all the fragmentation that's happening in that space. Shifting a little bit more towards the platform and the subscription business. You talked about home screen being a prominent third strategic focus of yours this year. You made pretty meaningful progress, I think, last year in terms of driving greater monetization potential and changing what we're kind of seeing when we first enter that interface. What are the immediate priorities or opportunities that you see that will continue to kind of evolve that from a consumer perspective, like what we're interacting with?

Sorry, on subscriptions?

Home screen.

Home screen. Yes. So I think I mentioned that like the home screen is probably our biggest asset. It's what drives -- is what we use to drive engagement across our platform. And it's -- we put a lot of effort into our home screen. And we're currently testing a whole bunch of different varieties of updates to our home screen. Those testing is going well. We we're seeing very positive user sentiment. We're seeing positive monetization increases, positive engagement increases. So -- and hope to launch the new home screen this year. So -- and that will drive more subscriptions, that will drive more advertising engagement.

Is the redesign focused around being able to open that up further for an advertising to be able to monetize more successfully? And from a consumer perspective, like how should we think about how things change?

For the home screen?

Yes.

Well, I guess when I think about -- so first of all, it's a project I'm involved in directly, like the home screen is so important that I spend a lot of time just like I'm involved in that. And for me, the fundamental principles, number one is like don't screw up our home screen. Like we've got a great home screen and it's iconic, like it's different than everyone else's. It's super simple. I mean one of the things that makes Roku popular is it's very easy to use, and a lot of that comes from our simple home screen.

So that's the first goal is how do we make it work better for viewers, work better for advertisers, work better for content owners, but also keep its distinctive look and maintain simplicity. So that's -- but that said, yes, what we're trying to do is we're trying to increase -- there's more ad units in the home screen. There's more ways. There's more entry points to send viewers to different apps or different pieces of content. There's -- it's better organized. It's got better personalization. So those are some of the things that we're doing.

It's historically, I think, been a source of predominantly what we call M&E spend in terms of your media partners advertising with the home screen banner page next to the apps. I think that's evolved over the last few years. And it sounds like even then from an M&E perspective, we've seen some greater stability on the spending front from your partners in terms of that historically being a little bit more of a headwind to your growth. Can you just talk a little bit about the dynamic there and how M&E has started to stabilize and what we're seeing there in terms of the drivers?

Yes. So M&E, like you said, is media and entertainment is sort of our endemic. We started out with just endemic advertising. It was the first ad business we were in. These days, it's not just endemic advertisers, it's also brand advertisers. We'll see car ads, for example, on our home screen, not just entertainment-based ads.

But that -- so yes, first of all, that has been -- there was a -- it was a drag on our business. It is stabilizing. So that's good news for us, and we're seeing continued stabilization there. And I would say some of the things driving our M&E business these days, one is theatrical. So that's a new area that we've added to our M&E business is doing really well. So movies released in the theaters.

And another big one -- another big trend in the industry is -- especially as streaming services have got more into ads is to add live events. And so there's live events are proliferating and proliferating across the industry, across the streaming services. And when you have a live event, like you need to let people know like it's on right now. And so that's live is actually a great emerging business for us in terms of M&E.

So M&E is also just something we're really good at. This is where we started. We're in half of U.S. broadband households. If you have a streaming service and you want to promote it, drive subscription, drive engagement, it's a great way to do that.

Is potential industry consolidation, given all the news that's been happening with Warner Bros., a source of headwind potentially on how much your media partners are willing to spend there?

I mean we'll see what happens. But I just think, generally, my belief is that with the scale we have with -- I think it's almost 40% of all streaming in the U.S. happens on our platform, over half of broadband households. Like if you are a streaming service and you want to promote your service, we are a very efficient and very effective way to do that. And that, plus the fact that we're -- like I said, M&E is no longer just M&E. We still call M&E, but it's also brand advertisers as well and even performance advertisers. So -- and then we're creating new areas, like I said, like theatricals and live, those are all driving the business.

Makes sense. On the premium subscription strategy, you've continued to add more partners there to the roster. How should we think about how some of your partners are viewing the benefits of that from a retention or churn perspective relative to maybe the incremental cost or economics that they might be sharing with you?

Yes. So just to recap the 3 kinds of subscriptions we have. We have the direct-to-consumer subscriptions, which are like your traditional app. We have the premium subscriptions, which I'll -- is what your question was about, and I'll describe. And then we have our owned and operated service subscriptions like Howdy and Frndly.

And on premium subscriptions, I think -- so first of all, it's doing, like I said, extremely well. It's a big growth driver for us. It was -- we had our biggest net adds quarter last quarter ever for premium subscriptions. And the drivers are basically, one, we're focusing on it, like it's -- we've got dedicated teams, someone that reports directly to me is responsible for premium subscriptions. So it's just getting focused. We're adding more features. So for example, we added the content row to the home screen. We can put subscriptions in the content row that drives subscription sign-ups.

But I think the biggest thing that's most exciting about premium subscriptions is there's a shift going on in the industry, like first, it was -- the industry just -- everyone launched their own app. But these days, what the industry is realizing is it's very expensive to launch your own app to sign up all the subscribers to maintain engagement to manage churn, to build the technology. And so for -- actually, for almost every service, it's much more economical to be part of premium subscriptions than it is to create their own app. And so that's just driving more and more interest in premium subscriptions.

And I think ultimately, what we're going to see is other than a very small number of top apps, everyone will be in premium subscriptions. Like that will be the way, that will be the most economical and best way to drive value for a streaming service. And so that's why, for example, we just announced that Apple TVs has just joined premium subscriptions along with HBO, Paramount. And then we have -- we're going to be announcing other major subscription partners this year as well. So I think -- I don't think people actually realize the transition that's going to happen in the industry as everyone switches from apps to premium subscriptions.

How does your owned and operated services fit into that? You announced Howdy as being accessible off-platform recently. Can you just talk about the decision in terms of the direct revenue opportunity that you might be able to access relative to the ecosystem benefits that you possibly could still be unlocking from keeping Howdy within your broader platform economics?

Yes. So Howdy today -- well, Howdy is Roku's streaming service that we launched not long ago. It's $3 a month ad-free television, and doing well. It's -- but -- and it's something that I'm personally very excited about. Like I'm involved -- I mentioned I was involved in like the home screen. I'm also directly involved in Howdy, I meet weekly on that.

And I personally think it's going to be a huge business for us, like it's -- and to become the scale business, I think it can be, it needs to be everywhere all major streaming services are. Not just so it needs to be international in different countries, it needs to be off-platform, it needs to be everywhere. So that's our goal. We started where it's easy for us to start, which is on our platform as a premium subscription. And -- but we're going to expand from there.

Okay. Great. Before I run out of time, I did want to ask about devices and your device share. Certainly, I think that is the top of funnel in terms of keeping your platform monetization opportunity healthy. And there have been incremental questions both on the rising memory prices in the industry and whether that affects TV sales and then also separately, competition in terms of the rising push from some other manufacturers. Walmart as one example, with VIZIO pushing more aggressively in terms of trying to gain share of the OS market. Maybe kind of talk about both of those and your positioning on how to keep the smart TV households still hooked on Roku, help keeping that platform top of funnel healthy.

Sure. In 52 seconds. So well, first of all, memory prices, like a huge issue for the industry in general, like memory prices are skyrocketing because all memory capacity is going into AI data centers. So -- but for Roku, actually, I mean it's got some -- there's some OpEx issues, which I'll talk about.

But overall, it's highly beneficial to Roku. Like one of the things that we did -- one of the reasons that we're -- probably the main reason we're the #1 streaming platform is because we're the only company that built an operating system designed specifically for television. And everyone else uses like a phone operating system or HTML.

And in television, TV is a brutally cost-competitive business, like cost really matters. And we -- so from the beginning, we focused on building a software operating system that use less expensive hardware. So our BOM cost is lower than anyone else's BOM cost. It costs less -- our bill of materials, it costs less to build a Roku TV than any other device or streaming player. And we also use a lot less memory than every one of our competitors. And so as the memory prices go up, our cost advantage goes up.

And I think it's going to drive a lot of incremental sales for us this year and probably next year as well because our -- the cost is becoming pretty material. So that's the memory. Now there is some issues around -- we also sell TVs -- we sell lots of TVs and streaming players. They have memory in them, and so those costs will go up. I think some of that will get passed on as price increases, but some of it, because we're extremely good at monetization, we've got a lot of room in our P&L to absorb that. So that's in our outlook.

In terms of increased competition, just quickly, we're extremely well positioned in the market. We are -- Walmart is moving a lot of their house brand inventory to VIZIO OS, and that is causing us to diversify and broaden our distribution strategy. But I think the key point is that we literally spend hundreds of millions of dollars a year on incentives for distribution, both with retailers and with OEMs. And we have a lot of flexibility how to spend that, how we can spend that. And that is -- and we are effectively broadening our distribution because of that.

And for example, we recently updated our OEM deals with our 2 biggest OEMs, TCL and Hisense. We launched Hiro branded TVs at Target recently. We launched Pioneer with Pioneer branded TVs at Best Buy. So we're effectively expanding our distribution. And then we just have a lot of assets as well. Like we have a lot -- we have half of the U.S. broadband households. Those users love their Roku devices. They go in and ask for them by name.

So we're still -- I think what we'll see is like sales might bounce around quarter-to-quarter, but I think you'll see the results of our distribution expansion kick in, in the second half of the year. And I'm still very confident we're going to continue to expand the number of streaming households, and we're still on track to pass over 100 million streaming households this year.

Great. With that, we're over time. Thank you so much for being here.

Thank you. Thanks.

Hello, and thank you for standing by. Welcome to Roku Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Conrad Grodd, Vice President of Investor Relations. Sir, you may begin.

Good afternoon. Welcome to Roku's Fourth Quarter and Year-end 2025 Earnings Call. Joining us on today's call are Anthony Wood, Roku's Founder and CEO; Dan Jedda, our CFO and COO; Charlie Collier, President Roku Media; and Mustafa Ozgen, President Devices. On this call, we'll make forward-looking statements, which are subject to risks and uncertainties. Please refer to our shareholder letter and periodic SEC filings for risk factors that could cause our actual results to differ materially from these forward-looking statements. We'll also present GAAP and non-GAAP financial measures. Reconciliations of non-GAAP measures to the most comparable GAAP financial measures are provided in our share letter. Unless otherwise stated, all comparisons will be against our results for the comparable 2024 period. With that, operator, our first question, please.

[Operator Instructions] Our first question comes from the line of Shyam Patil with Susquehanna.

Congrats on the strong 2025 and 2026 outlook. I have a couple of questions. The first one, can you help us bridge the 1Q revenue outlook of over 21% growth to the full year outlook of about 18% growth? And then I have a follow-up question.

Shyam, this is Anthony. I'll kick this off and then turn it over to Dan, who can talk more about the outlook. So let me just start by taking a minute to reflect on our execution over the past several years. In 2023, our priority was to rightsize our cost structure and reach adjusted EBITDA breakeven in 2024, and we achieved that goal a full year ahead of schedule. And this early progress positions us to invest further in our platform monetization initiatives. As a result, in advertising, we deepened integration with leading demand-side platforms and scaled our measurement and performance capabilities, in subscriptions, Q4 was our biggest quarter ever for premium subscription net adds.

We expect to add more Tier 1 partners and roll out bundles this year, and we plan to expand how to beyond Roku and take it to additional platforms. So these initiatives are paying off for us. We grew platform revenue 18% in 2025, and we accomplished all of this while growing our streaming households, both in the U.S. and globally. Looking ahead to 2026 and beyond, we're confident in our ability to sustain double-digit platform revenue growth while continuing to grow profitability. So with that introduction, let me turn it over to Dan.

Thanks, Anthony, and thanks for the question. Let me just add a little bit to what Anthony said. Exactly 2 years ago, when we were entering 2024, we said that now that we rightsized our cost structure, we would relentlessly focus on growing our platform revenue improving our monetization and driving profitability, including free cash flow. In Q4, we grew platform revenue over 18%, surpassing $1.2 billion. We achieved adjusted EBITDA of $169 million and net income of $80 million, all were records for us. For full year, we also grew our platform revenue 18% and achieved adjusted EBITDA of $421 million, which represents a margin expansion of 255 basis points, and we generated free cash flow of $484 million. also a record for us and over 100% year-over-year growth. With our strong free cash flow, we purchased $150 million of Roku stock through our share buyback program and achieved near 0% dilution for Q4.

And the lowest dilution we have ever reported. This year, our outlook for platform revenue growth is more than 21% in Q1 and 18% for full year as we continue to execute on our monetization initiatives. Our full year adjusted EBITDA guidance of $635 million represents over 50% year-over-year growth and margin expansion of 267 basis points to 11.6%. We I expect that free cash flow will again be above adjusted EBITDA as we remain CapEx light. And it's also worth noting that we have over $1 billion of a deferred tax asset which will keep our cash taxes low for many years. I see our free cash flow continuing to be strong and outpacing EBITDA beyond this year.

In fact, I see a path to over $1 billion in free cash flow by the end of 2028, if not sooner, which will be a significant milestone for us. We have incredibly strong momentum going into 2026, and our focus is on sustaining growth. So to get your question specifically on Q1 versus full year. A few factors are shaping our Q1 outlook. First, Q1 last year was our easiest comp at just under 17% year-over-year. Second, Q1 of this year includes the full benefit of Friendly. As you recall, we closed that acquisition in Q2 of last year. And I guess, finally, we have stronger visibility into Q1 versus the second half of the year. So as we gain better visibility into political and into H2, we'll provide updated guidance.

That was really helpful. I did have a quick follow-up. Can you comment on your retail distribution strategy for 26 given that Walmart is switching is now to VIZIO's operating system.

Shyam, this is Anthony again. Yes, let me take that. So as Walmart focuses more on VIZIO OS for their house brand, we're focused on broadening and diversifying our retail distribution. We remain extremely well positioned in the market with hundreds of millions of dollars a year of investment in distribution, we have flexibility in how we invest this budget and we'll continue to optimize this investment across both our retail and our OEM partners. We're already widely distributed, obviously, including at Walmart, and I'll share a few examples of how we're expanding our distribution. At Best Buy, we expanded with the addition of Pioneer Roku TVs, which we recently launched. At Target, we expanded with Hero Roku TVs, and they're doing extremely well. at regional and national retailers like Amazon, we have expanded our presence.

And in addition to retailers, TV OEMs are key strategic partners for us. And we have expanded our licensing and distribution agreements with 2 of our largest and longest term Roku TV partners, TCL and Hisense, as well as several others. We also have first-party TVs. And for our first-party TVs, we expect sales to increase after shifting our TV production to Mexico, which will help us lower our cost. And then, of course, we expect streaming players to continue to be a meaningful contributor to overall Roku OS distribution. So those are some of the things we're doing in 2026. This work has started but we expect to see the impact predominantly in the second half of the year as these cycles take time to scale.

So in addition to this work that I just outlined, I want to take a second and just talk about some of the strategic assets that we have to create a strong foundational competitive advantage for Roku that are really important. One is, of course, the Roku brand. It's a brand that consumers love and ask for by name and has resulted in Roku resulted in Roku being used in over half of U.S. broadband households. Nearly half of all TV streaming in the U.S. happens on the Roku platform. And importantly, we're best-in-class on monetization, which gives us a lot of flexibility to invest in building scale and distribution. We're also globally scaled, and we have a success -- we have successful Roku TV partnerships with dozens of TV partners, factories and retailers.

And then one of the main ways we've achieved our success is with the Roku OS, which is a purpose-built operating system designed specifically for TV. It's the only purpose-built OS for TV. It has a lot of intrinsic advantages One of those is the lowest BOM cost in the industry. And 1 of the reasons for that is we have the lowest memory footprint in the industry. And as everyone knows, memory prices are going up right now. And so as memory prices continue to go up, that's a cost advantage that accrues to us and keeps growing as memory prices increase. So the number of Roku TV units sold, it may go up or down from quarter-to-quarter, but overall, we expect to continue to grow our scale of streaming households in the U.S. and globally, and we're on track to surpass 100 million streaming households this year.

Our next question comes from the line of Cory Carpenter with JPMorgan.

So generative video, the advancements have really caught investors' attention of late. We saw stance yesterday, Google Gemini, both recent examples. I think 1 interpretation from this rehearing is that it's likely to significantly increase the amount of content available perhaps shift time spent more to short-form videos. So Anthony, the question for you really is I thought it would be helpful to hear how do you think AI could impact the streaming landscape? And what do you think it means for Roku?

Sure. Yes. I mean, personally, I'm super excited about AI and how it's going to impact content specifically. I think to answer your -- let me -- I'll answer your question directly, and then let me talk about some of the kind of bigger ways that we think about AI generally. So just in terms of content, it's very clear to me that AI is going to reduce the cost of content significantly over time. and as content -- and including long-form content. And as long-form content costs come down, that's going to grow engagement on our platform, and we monetize engagement. That's basically our business model is monetizing engagement. So I view it as all very positive for our business. But if I just take it to a level up and think about how do we think about AI generally and its impact on our business.

Let me start by saying that I think AI is a significant opportunity for Roku. We view it as a powerful tailwind to our business. It's not a disruptor for us, and we're integrating it across our entire technology stack. We're applying AI across our platform to improve discovery, increase engagement, and unlock major new monetization opportunities. So let me just talk about a few of those. On the viewer experience, AI helps personalize and simplify how people find what to watch, which increases engagement. For example, on our content row, we're improving recommendations and introducing new features that surface trending content. On our content details page, we're using AI to generate why to watch summaries to go beyond just plot overviews.

We've updated Roku Voice recently, now viewers going to ask more conversational entertainment-based questions and get contextual answers directly on their TV screen. So that's just some examples in the viewer experience. but I would say also equally important for us is on the advertising side, if not more important. AI is a major driver of opportunity in the advertising side of our business. AI helps us build the most performant connected TV ad platform. AI is opening the entire new market of small- and medium-sized businesses, which we're addressing with Ad Manager. I mean that's an entire new segment in the ad business that was not accessible to TV platforms before, but is now because of AI. AI allows products like ad manager to exist.

And AI tools make it easier for advertisers to create high-quality video ads, the easier is to create video ads, the more -- the larger the number of advertisers that can advertise on a TV platform. And then AIS automating workflows that were previously manual, such as reviewing and adapting ad formats. And then finally, we're using AI internally across the company to drive operational efficiency and productivity. So overall, AI strengthens our platform, it improves monetization and it enhances the performance of our business overall.

Our next question comes from the line of Michael Morris with Guggenheim Securities.

I wanted to ask about how the third-party ad demand partnership that you have with Amazon is impacting the business so far and how you expect it to progress throughout the year? Is it additive to growth yet? Or has it cannibalized revenue in any way as it has come online? And then if I could just briefly on the platform gross margin, you provided the 51% to 52% range for 26, which is very helpful. What are you expecting for the first quarter? And how much variability do you expect in this quarter-to-quarter throughout the year.

Michael, Charlie will take your first question on third-party ad demand partnerships.

Great. Thanks, Ant. Michael, look, just stepping back for a second. Our strategy has been to be open and interoperable and be deeply integrated with all the DSPs so really that we can meet clients anywhere they want to transact. So the Amazon partnership was natural in that context. And really, overall, we strive to be the most performant CTV ad platform in the industry. So I'd say to your question of impact this year, it's early innings. Amazon is working hard to bring new clients over to its DSP. And the combination of our TV OS footprints make for an impressive offering.

To put it in context, over the last year, we've added dozens of ad tech partners, Michael, from the Yahoo! DSP to AppLovin and world Magnite. And then once they're onboarded, just like with Amazon, we begin deepening our relationships with each of them, and they start to ramp, and that will continue, and that's the case for all of them. So our goal with all these partnerships is to drive greater outcomes and greater performance for our marketing partners. And we're bullish about our position, not just as the open interoperable partner in marketplace with so many walled gardens, but the ability of this to grow as we deepen the integration.

Dan, do you want to.

Yes. Let me just add that in terms of how it will affect the business this year. I'll add to that, and then I'll answer your gross margin question. As Charlie said, like the ramp of Amazon DSP will take time. Obviously, we're fully integrated. We are ramping. We are on. It's going as expected. And I think like across all the we feel very good about how we're performing on that specific to Amazon. As the Amazon DSP grows and becomes and is successful, which we think it will be, we'll be successful along with it. It does take time for these to ramp though. And we don't obviously break it out. But again, it's tracking as we'd expect, and we expect it to be more of a contribution over time. With respect to platform gross margins, the guide was 51% to 52%. For the full year of 2025, we did end at 52%.

I'll say that I don't expect a lot of variability from quarter-to-quarter. It does depend to some extent on the mix of our different activities in the platform business. We saw some stabilization in M&A in Q4, which was great, which helped margins. We're tracking that stability is happening in Q1 as well. We'll see how M&A goes forward. we're liking what we see there. But specifically, I don't expect a lot of variability. I will say, again, we have a lot of mix -- different activities growing at different rates, and it's not lost on me and us that we don't give -- we don't break out a lot of detail. One thing we are working on is some more detail on our different activities and giving you a bit more color into the margin profile and the different activities in platform. And I hope to share some more data on that next quarter. It's something we're working on.

Our next question comes from the line of Jason Helfstein with Oppenheimer.

So in the prepared remarks, you kind of alluded to the success you're seeing with the international viewership and how it's early days of monetization I guess is there a way to, as we think about like what the opportunity is relative to like the platform business today back in the early days of Netflix, we would be like, oh, international, x times potentially bigger than the U.S. opportunity. And then I guess just if you want to take a step back, I guess, like where does that fit in with where you think the kind of biggest opportunity is in the business so comparing, let's say, the international revenue opportunity, advertising to other opportunities that you're looking at right now?

Jason, Dan will take that question.

Yes. So we've talked about international in our focus countries, and we're at different stages depending on the country. So let me just give you some examples of this. So for example, -- in Canada and in Mexico, we actually have scale and we're starting to monetize that more -- in Mexico, we have incredible scale, and we're really starting to focus on the monetization side of that -- of our strategy. In Brazil, where the ad market isn't quite there yet, we're still building scale. That's a little bit a little bit further off in terms of focus on the monetization. So we're very focused on building scale and making great progress into Brazil and the rest of Latin America.

We're making progress on the U.K. But the monetization is really starting to take hold in Mexico and Canada for slightly different reasons. In Canada, the market is very good from a digital perspective, our ARPU is actually quite strong in Canada. We're growing our streaming households and our ARPU along with it. And so we like what we see there. In Mexico, the ad market hasn't shifted to digital like it has in the U.S., although we expect that to happen over time. So we have incredible scale in Mexico.

It actually rivals the U.S. in terms of scale in Mexico, which is great. we're really starting to focus on monetization of subscriptions and advertising across all our international locations. So for example, we launched premium subscriptions in Mexico recently and we'll likely launch more countries over time. So we're very focused not just on advertising, but on leveraging our amazing subscription business in our international countries, and we like what we see there. That is also an opportunity. And over time, I do believe that international will become a larger percent of our overall platform revenue, but it's still pretty early on. So there's a lot of room to grow in these international locations.

And how would you rank that relative to like the opportunities you're looking at now that for growth? Like is this.

You mean relative to the U.S.?

Relative to U.S. or just other things you're looking at?

Here, the international is an incredible opportunity for us to grow. I mean, like I said, subscriptions alone is a big opportunity. The Roku Channel is doing very well in our international locations. We're doing more -- we're having engagement is growing very well. In Brazil, where we have scale, we recently launched a fast, which is doing very well. So I think it's a big opportunity. The question is how did the digital ad markets migrate over and that is a country-by-country specific situation, but subscriptions, including, for example, Audi can grow really well in these locations, and that's a really big opportunity for us.

Our next question comes from the line of Steven Cahall with Wells Fargo.

Dan, just following up on the platform guide in the first quarter. I don't know how much kind of political or friendly is in both the current Q1 and the prior Q1, but it seems like there is a little bit of a deceleration in kind of same-store sales in platform from Q4 to Q1 and the comp is slightly easier. Just wanted to know if that's conservatism. Is there some natural deceleration because you've gotten to such big scale or am I doing the math wrong there? And then also, if we just think about your revenue and platform outlook for 2026, just curious how you're thinking about the contribution of political dollars in there I think you did about $90 million in '24. That kind of came out of nowhere. So wondering what you're thinking for 2016.

Yes. Yes. Thanks for the question, Steven. To the point, first of all, Q1 doesn't have a lot of political in it in general. So I wouldn't say that's an impact for Q1, although it will be impactful in H2. Yes, friendly is impactful for Q1, and that does add a couple of points. With respect to Q1 versus H2 or Q1 versus the full year, to the answer I gave in my first question, we just have a lot more visibility into Q1. And so we're waiting to see how political shapes up, how the spending shapes up. I do believe that if the market is similar in the midterms, versus the general like we will do well in that market. Charlie and team have built out a very good, strong political sales funnel. We're very good at targeting. We're a great platform of which to advertise on. So again, it's just a question of having more visibility right now in Q1 versus H2 and how political will transpire. And we'll update you as we go forward. So yes, I would agree with the comment that the back half is a little bit more conservative, just given how much visibility we have into Q1.

Our next question comes from the line of Laura Martin with Needham.

Congratulations on really great numbers. I want to follow up on one of the AI questions asked earlier. So Netflix is telling us that they are going to put short-form video and user-generated content on their platform because they think engagement is what they are solving for Anthony, you just said something similar in an earlier question, that engagement is there like North Star. However, I think one of the reasons you get so many really high-quality brand advertisers is that your top of funnel premium-only video. So how do you think from a judgment point of view of balancing driving engagement, which would mean vertical video and adding user-generated content even short form compared with protecting your ad environment so that you continue to get high-quality advertisers. That's my first question.

Yes, let me -- I'll give you my opinion, and then I'll turn to see if Charlie has anything to add. We do have short-form content on our platform. We're always experimenting with different kinds of short form and how to place in our UI. There's lots of ways we drive engagement on our platform, mostly around our user interface and the personalization of the experience, but it also around the content that's on the platform. I think that -- I mean as a platform, we're a big screen TV platform primarily, and that does mean generally long-form content. That's generally what gets consumed. So although we do have some shorter form video, and I'm sure that will grow. Our focus really is on long-form video. That's what people generally look for when they turn on their TV. And I mean, I strongly believe that as content costs come down, that's going to -- anything -- when you lower the cost of something, people consume more of it. And so we'll see more engagement of long-form video, and that's a big opportunity for us as a platform. In terms of advertisers, let me -- I'll ask Charlie to take that question.

Sure. Laura, it's a good question. One thing I think we have a few real advantages. One is our fast channel environment has been really powerful. And so for example, Mr. Beast launched its own fast channel and it premiered on Roku. And because of our scale, of course, that did really well, and we got to see the type of viewers who consume that content. And that last point is really one of our advantages. We really do understand the cohorts of viewers and one of the things we've been able to do is curate content around different interests. And I think as we get more in the short term, when we do, as Anthony said, we do it against specific cohorts and really try to super serve audiences that we understand.

We are known for premium content. And in the foreseeable future, it's going to be the majority of what we do and do well. But I very much like the ability of our platform to sort of figure out what the viewer wants to watch and how. Some of the examples of that beyond just the content creators you might be thinking about or even in places like our sports zone, where we'll do shoulder content. They'll go in to watch the game. They'll get short-form clips, they'll get short-form commentary and other information. And we do that with the leagues. So there's all sorts of ways you can do it, and Roku is really good at putting it in context.

Super helpful. My second question is on upfront versus SMB. This is a similar judgment question, which is A lot of the letters talking about your investments in as manager and your focus on SMBs because it is a large market. But what we hear from MOUNTAIN, which is 100% performance TV, is that those types of advertisers are really focused on performance like within 3 days, like super short-term performance. And my wife election is you guys do more than $1 billion in upfront guarantee, which is like in the quarter of your total revenue so as you think about investing in this bottom of funnel, making yourself a full-funnel CTV option for advertising. Over time, do you think you're going to pivot from like towards the more performance-oriented, which I would think would have lower margins than tape, but correct me if you think I'm wrong on that thinking.

Sure. Laura, it's Charlie again. I think it's sort of different horses for different courses. So let me tell you what I mean by that. Yes, we do a lot of guaranteed business at the top of the funnel with enterprise clients. And they -- by the way, and I believe they're performing too. They measure perhaps different things than, as you said, conversion in a few days. But the shift to performance marketing and the opening of our platform to small- and medium-sized businesses, it's absolutely a tailwind, but we can manage it in a very different way. We've talked a lot in past calls about how unique our situation is as a platform, which is that we can price up and down the pricing curve and the demand curve. And I think in that context, you'll see us manage very well the opportunity to both perform and to serve the high-end clients.

One way to break this out for you the way we price our inventory, you'll have specific units and opportunities at the high end of the pricing curve, our sponsorships, our Roku originals, our sports, our home screen units or any time we do a deep digital integration. That comes with a price tag because of exactly what those are. And then on the other end of the business, and this might be some of the business that you're picturing when you ask the question, you've got some advertisers who have different needs who are priced at a much lower price point but they certainly don't get inventory with the same quality signal. They don't get certainly any of the unique units or sponsorships that I was talking about on the other end.

So look, we are we are the largest CTV footprint, and we have really ways to expand our inventory thoughtfully as we grow. And so I think our ability to price up and down the demand curve allows us to not just do well in the current CTV landscape. But as we push to be the most performant CTV platform and welcome in small- and medium-sized businesses. They will spend $600 billion on advertising this year in small and medium-sized businesses. And if the enterprise trend is any indication, you combine the visual impact of television with the performance of digital and Roku Ad Manager, I think, is uniquely positioned to lead in that transition, and we'll price it properly at both ends of the curve.

This is Ant. Let me just add. I'll just add a few comments. I think just generally, we're hearing from all of our advertisers, both traditional high top-of-the-funnel brand advertisers all the way to lower funnel advertisers, which we have a whole range that they're all focused on performance. And it's a key strategy for us. to be the most performant connected TV platform in the industry. And we're putting a lot of effort into that, and we're integrating a lot of generative AI technology to help us achieve that. and it's going well.

And you can see, I mean, in early days, but the Roku Ad as manager is doing extremely well, and we're seeing strong growth. And so that strategy is working for us. So there -- the whole advertising business is moving to performance. Different advertisers have different definitions of how they're measuring performance and what they're looking for. It's not all the same. It's like a traditional social media advertiser type performance, but it is moving more and more into performance. Results are being measured. And and we're seeing -- it's working. Like we're seeing those advertisers start to move over.

Yes. I think I'll just add on one more thing Laura, to your point. I do think it's important to understand that I agree with everything Charlie and Anthony said, but your comment on the pivot towards lower margin, more performant ads they're not lower margin for us. We are very -- is not where like a performance-based ad that is focused on a site visit that's focused on a road that's focused on a click they're not lower margin for us in this area. So you should not think that as we focus on the SMBs that it drags down margins, it does not.

Our next question comes from the line of Rob Sanderson with Loop Capital.

I wanted to ask a little bit about just expanding your advertising opportunity on the home screen outside of M&E and into much larger advertising landscape. I'm sure there's lots of interesting things you can do here. But any color on the types of ad formats you might be thinking about? Is it something that we're likely to learn more about through 2026. And then just thoughts on go-to-market. These would be completely unique and probably require some education of advertisers, maybe not something your third-party demand partners could help you with. Is that something that you think you'd have to take on a direct basis? Or anything you can share on go-to-market.

Rob, Charlie will take that question.

Yes, sure. Well, it's happening already, Rob. It's a great question, and we've expanded well beyond M&E over the last couple of years. Actually, I think if you saw the home screen or you're looking at the home screen right now, Roku City, which is our beloved interactive world that is living inside your television. Right now, if you look at it, it's got the Olympics on it. and some of our sponsors actually, I think, most of which are not M&A at all. We also added video to the home screen inside of our Marquee unit, which is a big unit on the right-hand side of the screen. And that is really performing well for all sorts of categories beyond M&A. So we are testing several variations of home screen design and we're obviously proving that it drives more engagement and viewer satisfaction, which is -- but you're going to see us do a lot of it. And as to your question about whether it's programmatic, to date, it is not. There are lots of reasons we got a question earlier about upfront versus SMB. Obviously, with our enterprise clients and our or advertising agencies, they are very focused on these unique units and these performance units and you'll see more of it moving forward.

Rob, this is Anthony again. I'll just -- in terms of new ad units, we've mentioned before that we have a new home stream design that we're working on. It's 1 of our major initiatives. It's in testing right now, and we're testing several different variations of the home screen is going well. We're driving more engagement and viewer satisfaction. We believe it will increase monetization over time, whether that's getting viewers to sign up for subscriptions or watch more ad supported content and we hope to roll it out sometime this year. But the new -- I'll just say that the new home screen has got a lot of improvements. One of the changes is we're testing new types of ad units. And we're also looking hard at how we can and we're testing different ways to increase impressions of current ad units and also increased click-through of current ad units as well.

Our next question comes from the line of Vikram with Baird.

I wanted to ask about the Audi launch as well as the friendly acquisition. Could you talk more about how each of those integrations is going so far? And what are your plans for those businesses in 2026?

Vikram, this is Anthony. Both of those are going well. We haven't broken out numbers, but the -- like I'm extremely happy with how have launch is going, subscribers are continuing to grow nicely. And I'll just say that for those who don't know, friendly, they're part of Roku's portfolio of owned and operated services, which started with the Roku Channel and adding friendly is a strategic expansion into subscription that's going to add incremental revenue. We're using the power of our platform, our user experience to drive engagement in both of those. We're seeing increased engagement on both of them. I mean, we're definitely increasing engagement and sign-ups for friendly since we took over that service. And of course, that platform is how we're launching and growing the Audi business. We have plans friendly is already available on platforms outside of broken. We have plans to launch audio platforms off of Roku as well. So I mean, I'm I'm very excited about both of them. And how do you -- in particular, I think, has the opportunity -- the potential over time to become a very large service for us.

Our next question comes from the line of Matt Condon with Citizens Bank.

I just wanted to ask, is Netflix is pending the acquisition of Warner Bros., and this is changing potentially the broader streaming landscape can you just talk about if they become more guarded about how to distribute their content, how this could potentially impact Roku both on the advertising side and the subscription side and then maybe just a quick follow-up, Dan, just mid-single-digit OpEx growth going forward. Is that the right way to continue to think about this? And if revenue growth comes in above expectations, how do you just think about reinvesting some of that growth back into the business.

Matt, this is Anthony. I'll just say in the U.S., as we've said before, we're in more than half of broadband households and half of all TV streaming happens on the Roku platform. I mean that's a lot of scale. This makes us an essential partner to every content owner and streaming service, and we don't anticipate that changing regardless of how the industry consolidates or how that consolidation plays out. In any scenario, the streaming sector remains extremely robust, is continuing to grow quite nicely, and we remain well positioned to help our streaming and content partners drive engagement, find viewers and sign up customers. And I'll let Dan take the question on.

Yes. Thanks for the question, Matt. With respect to OpEx, we remain focused on execution and operational discipline ensuring we invest where we see the highest returns. We grew our in 2025, a little bit lower than I expected, which is fine because we're investing well in these -- all these initiatives that we've laid out here, both in the shareholder letter and what we've talked about on this Q&A. I do expect our OpEx to grow in that mid-single digits. As we've said many times, we expect our platform revenue to grow double digits I think I gave some pretty concise guidance on gross margin, where we don't expect any major decel in gross margin. In fact, we expect it to stay in this 51% to 52%, and that will translate into improved EBITDA margins over time.

It's also one of the reasons why I feel like we're on a good path to achieving in free cash flow by 2028. So -- and all of this is to say we are absolutely investing. We're adding headcount, mostly on the engineering side to invest in these incredible initiatives that we have in front of us. So a lot of good things happening. I think it's also 1 thing I will say that's helping our OpEx growth is. Our SBC continues to come down. We've done a lot of work in SBC and that is actually trending going backwards. From 2025 into 2026, our guide contemplate that. And that's one of the things that's helping our OpEx stay in that mid-single-digit range.

Our next question comes from the line of Tom Champion with Piper Sandler.

We can see from your discussion around '26 expectations, pretty solid top line revenue guidance. But I think you've been sort of indicating that you see a path for a very solid multiyear CAGR in revenue growth and you've talked about some of the near-term drivers. But I'm just wondering if you could talk a little bit about maybe more intermediate or longer-term dynamics in the business that would give you confidence in sort of a solid growth trajectory beyond this year in 2016. Any thoughts would be welcome. And then maybe for Dan, just clarification, is it $250 million that remains on the buyback.

This is Anthony. I'll start and then turn it over to Dan. In terms of what's driving our growth, our 2 big businesses are advertising and subscriptions, and they're both doing nicely. So on the advertising side, we've talked about deepening our relationship with third-party DSPs and partners. There's still room to continue to do that. There's still a lot of ad dollars that is in the traditional linear ecosystem that's still moving the streaming we're taking, I would say, more than our fair share of those dollars. So we're continuing to see growth there. where have initiatives in place like our new home screen that we're launching, which I think will grow which I believe will grow monetization over time based on the testing results I'm seeing so -- and then on subscriptions, one of the big trends in the industry that we're seeing is aggregation of streaming services.

I think increasingly over time, it's only going to be a small number of services that can maintain a profitable app and that a much more profitable way to distribute the streaming service will be through something like Roku's premium subscriptions, and that's one of the reasons we're seeing every major streaming service other than the top you sign up to be a participant in premium subscriptions because it's just good economics. It drives more subscribers on a more economical basis. And I think that -- so I think premium subscriptions are going to be a big growth driver and a big secular trend in the industry for quite some time. Things like Ad Manager are opening up huge new ad markets for us to just were not available to TVs before.

Those new markets are now accessible because of AI, essentially AI that can create video very quickly or instantaneously at very low cost and then provide the targeting and then provide the granular self-serve capabilities that opened up to a large number of advertisers. So those are some of the areas we're working on. And there's other activities and research projects that we have in place that we haven't disclosed yet. So there's just a lot of opportunity in the streaming space. And there's a lot of ways to continue to grow monetization on our platform as well as, obviously, we're going to continue to grow the scale of our platform, both outside the U.S. and inside the U.S. I don't know, Dan, did you have anything?

Yes. I'll answer the second part of your question. We purchased $50 million in Q3 and $100 million in Q4. So yes, there's $250 million remaining on the buyback. I will say like as we noted in the shareholder letter, we see her offsetting dilution for FY '26, and we have very strong free cash flow as our guide contemplates of the $635 million of adjusted EBITDA. And my comments with respect to , we believe free cash flow will be above adjusted EBITDA for the year.

Our next question comes from the line of Robert Coolbrith with Evercore.

Just wanted to go back to Ad Manager maybe for another follow-up. Can you talk about maybe the performance orientation or some of the ways that the product is different from 1 view? Or did you use 1 view as a base and try to sort of make more performance into the platform. Just anything you could tell us about the starting point for a manager and how you're attempting to serve the needs of performance-based advertisers. And then secondly there, if you could talk a little bit more about maybe the go-to-market for how you identify maybe high-value SMB prospects, how you reach out to them, how you onboard them or get them into the funnel and then onboard them into the platform. Anything more you could tell us about that would be really helpful.

Robert, this is Anthony. I'll take the first part and then turn it over to Charlie for the second part. I'll just say -- well, first of all, 1 view was technology platform, but it was also a business strategy. And I would say the business strategy is what's changed. So the new technology is still integrated throughout our platform and pieces of it are in Roku Ad Manager, for example as well as a lot of homegrown technology as well. Our ad stack wasn't just 1 view, but that was a piece of it. But 1 view was really a strategy around us making that essentially our exclusive DSP on our platform.

And that changed a few years ago to like we're not going to have 1 DSP on our platform. We're going to work with all the large that are out there that customers are using and want to continue using. So that's when we completely switched our strategy to working with third-party partners. That's when we started deeper integration with Trade Desk with Amazon with all the other partners that are out there that we work at third-party platforms. So that was really a strategy change, I would say. And that strategy change has been extremely effective, like that's working well for us. And I don't know, Charlie, do you want to take the second part or add to that?

Well, it's a very different sales funnel, obviously, then going to the agencies and clients the way we do with enterprise. I'll say from my career, it is such a joy to be able to serve top of the funnel, middle of the funnel and bottom of the funnel. And it is really the bottom of the funnel that we're working on with the ad manager product. Driving it all to your point about outcomes, driving it all is really just trying to improved performance. And Anthony said earlier in the call, that's spot on, really people define performance in very different ways. And so we've announced a bunch of partnerships, for example, iSpot AppsFlyer incremental and each of them in 1 way or another is about measurement performance. And so I won't go deep into how we identify the high-value SMB prospects except to say we've created a very different sales force and sales approach.

We do a lot of lead gen, we market into this group. And then the best advertising for this is actually the performance itself because unlike our enterprise clients who come in with budgets, when this works, people will leave it on and continue to come back to ads manager for more. So in the letter and actually in the recording right before the call, you heard about a client with specific objectives who came in, saw the return on ad spend. And then not only do they continue to come back, but we see a lot of performance lead to other advertisers in the category doing the same so really, in many ways, it's the purest form of advertising because you invest, you -- we tweak and optimize results and outcomes and then improve performance and then we become new partners. And so I'm very excited about the ramp of this, and I think we can move from going hundreds to thousands to tens of thousands of advertisers.

This is Anthony again. I'll just say one other point, which is that although ad manager is doing well for us, it's not exclusive. Like we are working with other third-party partners that are targeting the same target customers, the same TV Scientific, for example, is just one. But I do think that there are some significant competitive advantages to building our own self-serve platform in terms of integrating it more deeply into our platform that will result in better performance. And so I think that one of the reasons we're doing it ourselves is we think we can build a better product by integrating ourselves into our platform.

Ladies and gentlemen, due to the interest of time. I would now like to turn the call back to CEO, Anthony Wood for closing remarks.

I'd just like to thank our employees, customers and advertisers and content partners, and thank you for listening.

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.

All right. We can get started. Please note that important disclosures appear as a handout available in the registration area and on the Morgan Stanley public website. With that, I'm Thomas Yeh, media and entertainment analyst at Morgan Stanley. It is my sincere pleasure to welcome Dan Jedda, CFO of Roku. Dan, thanks so much for being here.

Thanks for having us. We're excited to be here.

Great. So at a high level, I just wanted to start off with talking about the fundamental growth drivers of the company from here as you see it. You're exiting this year seeing acceleration in the core platform revenue growth to roughly 20%. Can you just help us unpack the drivers between content distribution, advertising opportunities that support your confidence in being able to sustain that double-digit growth rate into next year?

Yes. The 20% you quote is a number that we've said ex political, ex Frndly. Frndly is our new acquisition. So when you back out Frndly for this year, when you back out political for last year, that's a 20% growth rate number. And to answer your question specifically, there -- both our subscription activities or our content distribution activities and our advertising activities are both growing at roughly at very close to that 20% mark, which is exceptional that we see. Within advertising, we have multiple activities that are growing well. When you think about the new ad products that we've launched, when you think about the integrations that we've done, I'm sure you'll ask a question on the integration with DSPs that we've done to bring more demand on our platform. Yes, they're growing 20%.

On the subscription side, which is really an initiative we've started investing heavily in as we exited 2023, we said it very clearly as we exited 2023 is we are going to invest in subscriptions because we see it as an additional revenue stream. We see it as a core strategy of owning the operating system or owning the platform. You're now -- we're now seeing the benefits of investing in that. That takes a little bit longer to roll out in terms of new initiatives and new products, and we're seeing that. So we have our subscription business growing. We have our advertising activities growing very well. They're both growing right at that 20% level. We've said that we expect double-digit platform revenue growth to continue. And that is -- again, we expect that double digit to be on both the subscription side and on the advertising activities, especially as we roll out new products on both lines of business.

Great. I wanted to touch on that subscription piece for sure. But starting with the advertising side, CTV as a broader industry is clearly a fast-growing area of the advertising market as a whole. And we're seeing a lot of streaming companies who started ad-free now move aggressively towards advertising monetization as well. So how does that growing inventory and competition impact Roku's ability to retain its share of that broader CTV opportunity?

Yes. It's not surprising that you've seen this big shift into the CTV advertising market. The reason being is it is a big TAM. And when you have a big TAM like that, you're going to have more competition come into the space. So when you think about the overall total TV advertising market, linear plus digital, it's around $90 billion depending on which third-party publication you read, but it's roughly around $90 billion. The digital, the CTV component of that is roughly $30 billion and growing. The linear component of that is roughly $60 billion and having negative growth rates. So you're seeing this shift, significant shift from linear into digital. You're also seeing the eyeballs and the hours shift from linear into digital. So -- and by the way, that shift has been much quicker than the ad dollars.

The ad dollars are catching up to where the hours and the eyeballs are. So this shift is going to continue. You're going to continue to see growth into the CTV space. And with that, you'll have more supply, more ad impressions, more companies doing AVOD. That is not new. We fully expected that. The benefit that we have is we are at the platform level. So we are in greater than 50% of broadband households in the U.S. We have significant scale outside the U.S. and in the countries we operate as well. But the ad market is very -- is maturing in the U.S., especially in CTV. We have the scale. So as more inventory comes in, as more demand comes in, the TAM increases, we have more ad products coming to market. We have more focus on performance, where I think is where this market is going in the programmatic side, on the performance side, we are uniquely positioned to benefit from that shift.

And then I'll just say there's one more area that's adding to this CTV market, and that's the shift from search and social, which is primarily performance driven. You're seeing that shift into the CTV market because of new ad products that are coming in that are highly performant. And again, I'm sure we'll touch on that later on. But the secular tailwinds into the market are significant. And not only are we going to grow because the market is going to grow, Roku will grow because of the innovative platform that we had, the ability to monetize the platform. So I would fully expect that our percentage share of this growing market to improve over time as well.

Okay. Interesting. Well, on that programmatic point, a lot of these large-scale players are focused on balancing some of these new programmatic initiatives that they're launching with also growing their direct CTV ad channels. And I just wanted to get your thoughts on how you see that broader trend of programmatic ad buying for CTV dollars evolving and how that impacts you?

Yes. I think this shift will continue. It's already been a pretty big shift into programmatic. So -- and why is it shifting to programmatic is the right question. There are multitudes of reasons. There are -- there is a piece of the market that will be very upper funnel focused, brand focused and reach focused. Some of that will shift to programmatic as well because it's easier to measure. But I do believe that the lion's share of this market has and will continue to shift to programmatic because of the performant nature of the programmatic process. And again, I think Roku is uniquely positioned to benefit from the shift to programmatic.

One of the most important initiatives we had was when we opened up to integrate with all demand-side platforms, it was several years ago, 2.5 years ago, we were very focused on our own demand side platform, our own DSP product called OneView. And we did -- we figured out early on that, that was very limiting in the demand that it can bring to us. So -- and we have plenty of supply because the Roku Channel and our run of network is just -- is already at scale.

So we shifted to open up to all DSPs, basically trying to meet the advertiser to wherever they wanted to transact. If they wanted to transact through a DSP, they can do that. They want to buy direct, they can do that. They want to transact along the CPM curve, we can meet them wherever they want to advertise. That has been extraordinarily successful in bringing new demand to Roku on the advertising side. So we are a beneficiary of this shift to programmatic.

And ultimately, I believe programmatic will be very efficient. You talked about incoming supply with AVOD. Along with that will be incoming demand. It will be a highly efficient market. I think the auction market will be incredibly liquid. It already is, will be even more liquid. And I think the ones that -- the companies that will benefit most are the ones that are highly performant, and that's where we believe we've got an advantage because not only do we have scale with over half of broadband households is we have -- everyone on Roku is logged in, so we know who they are, and we can benefit from our first-party data in becoming the most performant platform out there, which, again, I think, plays very well to the shift to programmatic.

Got it. One of the most significant third-party DSP integrations you've done recently is with Amazon. I think that's a big focus. Can you maybe just give us a sense of the early read-throughs on changes to the ad buying behavior post this integration and what areas of the integration you see as maybe providing more enhanced values for the advertisers?

Yes. We're very excited about our integration with Amazon. We've just launched that integration at the end of Q3, start of Q4, very early on. It's performing as we expected. There is -- the Amazon deal is a little unique in that it is platform-wide. So many of our DSP deals -- agreements are Roku as a publisher, TRC plus our inventory share across the platform. The benefit of the Amazon DSP is it's that, plus it is a platform-wide agreement where we use our first-party data along with their first-party data to improve the performance on the Amazon DSP. And of course, we are able to monetize that relationship, that agreement. So it's a little unique. It's very unique in that aspect of it, and we're very excited about.

And there will likely be, I suspect, shifts within demand-side platforms based on how they perform. But again, from a Roku perspective, we are agnostic on the DSP because we've integrated with all of them from Amazon to Trade Desk to Wurl to Yahoo!, et cetera. And we'll go deeper on all of them depending on the DSP and how deep they want to go in terms of integration. But we're very excited about across all the DSPs. And again, if an advertiser wants to transact on a certain DSP, we will transact with them on that because we're integrated with them and because, again, we have a unique platform level area to recognize our streamers and use that as a way to become more performant.

Do these deeper integrations potentially allow for the broader CTV industry to accelerate its opportunity in terms of the shift into that overall area and the spend?

They absolutely do because, again, when you're running through the DSPs, you can become more performant in nature, you can measure performance better. Again, there are many advertisers who just want to hit reach, and that can also happen. That can be through DSP. It doesn't need to be through DSP. But you can just get for broad reach, which is the upper funnel. But again, I think the market is going to move to mid-funnel and potentially lower funnel because of the performant nature. So you can truly measure advertising that way.

We saw some of that shift post Liberation Day when there was a shift from the guaranteed side to the non-guaranteed side, meaning advertisers wanted some flexibility given the uncertainty of the market. And we didn't see any shift overall, but we did see some shift from what was guaranteed to, hey, we just want more flexibility, and we're going to run a lot of that flexibility through the programmatic pipes. But again, like that is where the advertiser wish to transact. That's fine with us. We'll transact with them wherever they want to be.

Yes. I wanted to ask about the broader health of the advertising market in general. You've spoken to that point about shorter-term non-guaranteed campaigns. It seems like the advertiser increasingly wants greater flexibility. Is that a new normal? Or do you expect a shift back maybe to how -- depending on how macro trends evolve?

I think that could be the new normal because the pricing is such that this market might not differentiate pricing in any material way between guaranteed and non-guaranteed. I think that's what will matter in this perspective. I have this view that very similar to performance-based advertising that the liquidity in the market and especially in the auctions will dictate a very efficient price unless it's ultra-premium. I do think ultra-premium will have its -- will continue to have a big chunk of this market, and we play in that space.

When you think of our home screen, when you think of Roku City, when you think of some of our sponsorships and our zones on the left nav of our home screen, those are ultra-premium ad placements, and we treat them as such because of the massive reach of our home screen. So again, we have that and we have an ultra-premium. We have -- along the programmatic side, we have standard CPMs all the way down to lower CPMs. So for example, app installs generally play in the low -- they have a much lower CPM than certain campaigns that are not focused on it that have other metrics in mind or other KPIs. We have that whole gamut across our platform that we will participate in and do participate in. So from that standpoint, I'm not really focused on is the market shifting. I'm not focused is the -- are the CPMs coming down. That doesn't impact us like it might impact others because we have a tremendous amount of supply on our platform with TRC and then, of course, across our entire platform on run a network inventory.

And quite frankly, if we ever were to run out of inventory, which would be a great problem to have, it's not that expensive for us to create more ad inventory because we control the UI, we control the platform. And we can do that in an inexpensive way. Other content partners, they might have to like spend a lot of marketing to get a new subscriber or even spend more on content, significantly more on content if they run out of inventory. We don't have that same situation. We can nudge people in certain ways based on our UI. So we can create more inventory in a relatively inexpensive way.

Got it. On that point, I guess, heading into '26, I do think that there's a view that there's a lot more sports and political advertising coming to CTV and there are continued migrations that kind of lift that broader opportunity set. Compared to prior cycles, what has Roku done in the last year or 2 that really helps improve your position in terms of capturing some of that incremental dollars?

Well, again, it really goes -- so it's interesting, like you hear that one of the reasons why linear hasn't shifted as much to digital or has not matched the hours is because of areas like sports, which are still significant. And it's a good point. I think that is changing. I think the shift is accelerating because I think sports are now as prevalent on digital as they were on linear. And I'd love to use the NFL as an example. I know we're in London, and I should be talking about soccer football, but I'm just going to use the NFL because I'm more familiar with it in terms of its shift.

So 5 years ago, all NFL was shown on linear. There was very little on digital, maybe some tricast where it was a combination of linear and digital. But the bulk of it was on linear and I would say, exclusively on linear. And then over time, that shifted to where the NFL had some digital, some linear. And now fast forward to today, I believe every game is available on digital and many games, double-digit percent of the NFL is only available on digital. So you see the shift of sports happening.

We're -- again, we'll benefit from that, from the ad dollars shifting from linear to CTV. On top of it, like we have the opportunity as a platform to help subscribers find out where to get their sports. We have a sport zone on the left nav. We have areas like Olympic zone when the Olympics are, we'll have a World Cup zone or a World Cup nav that will help our streamers find the matches that they want to see. All this is positive from a user experience. We're able to monetize it through sponsorships. We're able to monetize it through the subscriptions that get purchased on Roku. So there are multiple factors like all this shift helps us.

Got it. I mean another area that you've talked a lot about in the past is the Roku Ads Manager and the self-serve opportunity. I wanted to touch on that as well. How -- can you maybe just help us get a sense of how big it currently is in terms of contribution? How much realistically it could be contributing over the next few years? And what steps are you taking to really stimulate the advertiser demand on that front? What kind of indicators are you looking for?

Yes. Ads Manager has been a phenomenal success for us. Let me just back up and talk about the TAM of that. So Ads Manager is our ad product focused on self-service, the SMB market, which has been accustomed to highly performant search and social advertising that now is shifting into CTV advertising. And you could say, well, why is the shift happening? Why hasn't happened before? Is this going to happen or not? Yes, there is going to be a piece of this market that has shifted and will continue to shift for two main reasons.

One, the self-service nature and the performance nature of CTV can now mimic the performant nature of search and social. If you have a KPI like conversion, site visits, certain targeted geo-targeted reach or geo-targeted audiences, like all this is now possible on CTV. It's a highly performant way to advertise now because of the way it can be measured. The second impediment to the shift to CTV was that you had to generate -- an SMB is not necessarily interested in generating an expensive video to sell their brand or sell their site or whatever they're trying to sell. Gen AI has completely changed that. You can now generate a CTV video, a commercial, if you will, in seconds for next to nothing. It's just not expensive to do. So the two impediments of why SMB wasn't on CTV is now gone. And that's not something that's going to happen. That has happened. The impediments are gone.

The self-service nature is very simple. Like you can sign up with several clicks, put in KPIs like conversion or you can put in KPIs like site visits, you can add to cart. There's all the KPIs or many of the KPIs you can get on search and social, you can now get on CTV. And then you're off and running. Like you can say, create a video for me or you can upload your own video, you can have Gen AI, create a video and you are up and running in minutes with a budget that you set with KPIs that you set that you can measure. That's a very exciting tailwind to the CTV ad market that I think could be and will be significant over time.

We have a product on that called Ads Manager doing very well. It's exactly what you want to see in a new and innovative product launch. I look at it -- one of the ways I look at it is on an ARR basis. And it's exactly what you want to see that, every month, you see a sequential improvement in the metrics, whether it's revenue, advertisers, repeat rates, et cetera. It's exactly what you want to see. So I do believe that over time, that will be a significant contributor because this TAM is just too big. SMB advertisers are looking for new channels to advertise their small or medium-sized business.

And I guess the impediment beyond this is you just got to tell them about it. So we're investing in marketing. You have to tell the SMBs, hey, come try this out because we're pretty convinced once they try it out, they're going to keep advertising with us. So one of our -- we're investing in R&D on the user -- on the -- I'm sorry, on the SMB experience to make sure it's easy. It has to be easy. It has to be a small number of clicks to make sure that they can create a Gen AI-based commercial and, of course, on marketing to tell them about this awesome ad product.

So it's a growing percentage of your revenue.

It is a growing percentage of our revenue. It is growing far faster than the overall platform business. And I have extraordinarily high expectations of this as being a meaningful contributor to our overall ad business over time.

Got it. Okay. Shifting to the subscription piece of the business. One of the key areas of growth that you highlighted at the outset was this push towards premium subscriptions on The Roku Channel. Can you just give us an update on helping us size that growth in the business and what kind of benefits you might be seeing as you increasingly seem to be acting as a wholesaler for your partner services, whether that's through engagement trends or retention that you're seeing?

Yes. So as I mentioned on your first question, our subscriptions and content distribution is growing similar to our advertising business right now on an ex Frndly, ex political basis. A big part of that is premium subscriptions. Premium subscriptions is growing very well. And while we've always had subscriptions that we monetize, we've really started to focus on this as we exited 2023. And we're now seeing a lot of our initiatives that we've been building and will continue to build come out in premium subscriptions.

We -- I said in Q3, we announced a Tier 1 premium subscription partner with us doing very well. We've also said that we have several others in the process of being launched. So expect more Tier 1 services to be launched in the future. And the reason why is because it's a win for Roku, it's a win for the partner. How is it a win for the partner? When you're a premium subscription, you are embedded throughout the UI or you can be embedded throughout the user experience. You're part of TRC, you can be part of the home screen experience as opposed to if you're not, you have one ingress into the experience, and that's the app. So is it better to have multiple ingress into the content you provide or one ingress or one entry. Of course, multiple is far better. It's a better streamer experience. It's better for our content partners. So I fully expect that to be a continued driver of growth because it's doing well.

And then on top of that, and this is also important is we're launching new products for subscriptions. Some of them are just placement. The content row at the top of our home screens are relatively new placements, an ML-based placement on top of our home screen. Subscriptions are in that in addition to TRC and some of our other Frndly will be in that content row as an owned and operated service. But again, subscriptions sit up in that, and that is a way that we can monetize our subscriptions better.

We have new product that -- we have new things we're working on that I won't say what they are yet, but there's multiple new initiatives that are product-based that will help in terms of keeping -- reducing churn that will help in terms of the streamer to help them better manage their subscriptions. All this is positive for our customers, and it's positive for our subscription partners as well.

Okay. Understood. I want to also just ask about the broader industry which has a lot going on in terms of the -- your streaming partners and consolidation is heavily in the news right now. Price increases continue to happen. More broadly, as a distribution partner, what kind of trade-offs do you consider when you're negotiating these subscription take rates? And what -- how do you think about other forms of participating in your partners' economics?

Yes. On the price increase, I would say it this way, unlike price increases, which I do believe like SVOD will likely continue to increase price. We're seeing this a lot. Many, many partners have increased price. I suspect they will continue to increase price. I would say it this way. If the partner benefits from a price increase, we're going to benefit from a price increase. I mean that's a general rule of thumb, but it's by and large true. They know what they're doing when they increase price. They know that if there is some churn that they will be offset through higher SVOD revenue. Again, when they benefit, we'll benefit because we monetize the subscription on our platform when they monetize the subscription.

So on the consolidation piece, I would say this, like there's a lot going on in this world. It's not surprising that there's some consolidation going on. I think that our scale play of being over 50% of broadband households puts any -- makes any sort of consolidation less of an issue for us. We are a must-have platform at over 50% broadband penetration. I think it's -- I think we will stand to benefit if the acquirer stands to benefit from us simply because, again, we're a must-have in terms of apps.

I will say also, I probably -- I missed this opportunity on premium subscriptions. We just launched premium subscriptions in Mexico. [ Brian ] just launched it. It tells you how -- and we'll launch more countries from a premium subscription. I should have said that, I missed that. That's also important because, again, we're starting to utilize our subscription business to monetize our international footprint even when the ad market is still relatively immature. So Mexico is a great example on -- we have tremendous scale. We have almost as much scale in Mexico as we do in the U.S., incredible scale. But the ad market has just been slower to move to digital in Mexico for a variety of reasons. But we can still monetize that scale through subscriptions because we're now very focused on subscriptions. So launching premium subscriptions in Mexico, very strategic for us, and we'll do more countries.

Okay. Got it. Before we run out of time, I do want to talk on margins and profitability, which is very important, and we're kind of reaching an inflection point there, it seems on EBITDA. Maybe just to start off on the gross margin side, you spoke to some expectations that gross margins would remain broadly stable into next year. If we just think about the revenue mixes that go into that, my thought has been that premium subscriptions, as you mentioned, being a growth area would be a potential incremental headwind to the margin mix. How should we think about the primary puts and takes in terms of headwinds and tailwinds that are contributing into that [ stable at ]?

Yes. We have many different margin structures across all our different revenue streams, and we have a pretty well-diversified set of revenue streams. We are not just an ad business, far from it. I would argue that we're advertising, we're M&E advertising. We are -- we have a tremendous amount of what we call enterprise-based or brand advertising. We have performance advertising. We have subscriptions. We have content distribution deals. We have ads manager focused on the SMB market. All of them have different GM structures, but they're all getting better in terms of that.

Like that is my focus is how do we get better and then mix plays out what it is. We like -- premium subscriptions, slightly lower margins, growing very well, but so is a lot of our high-margin business on the ad side because we get tremendous leverage in terms of our inventory splits that we get from our partners as well as just generally being able to sell more ads with having some fixed basis in our cost of goods sold. We've added new ad units on the home screen that are highly profitable. Think of anything on the home screen highly profitable from an advertiser -- from a margin perspective.

All this mixes out to that 51% to 52% margin structure that I've changed -- that I've said is what we expect to have going forward. And we've also got, I would say, data licensing revenue now that helps offset anything that's slightly below 50% can be offset in that new advertising or that new advertising line that we have.

You bring that down to EBITDA. We have roughly 200 basis points of EBITDA margin improved in 2025 based on 3 quarters of actual and our fourth quarter guide. I said very clearly last quarter, we expect that trend to continue with the same basis point improvement. I think probably as important as EBITDA and becoming op profit positive, which we did in Q3 and guided to in Q4, is our free cash flow continues to grow in proportion to our EBITDA. So we are CapEx light. We are investing in R&D, but we're doing that within the $2-plus billion of fixed OpEx that we have. We don't have a lot of capital -- CapEx across the company. That is a huge benefit. So free cash flow is growing -- actually is -- free cash flow as a percent of EBITDA is more than EBITDA. It was more -- it will be more in 2025. It will likely be more in 2026.

So it all flows down to our North Star metric, which is free cash flow and free cash flow per share, which as our monetization initiatives are absolutely focused on. And I think it's important that we know that it is a CapEx light, and we continue to see that improvement. So -- and then within capital allocation, we've offset a big chunk of our dilution. SBC is trending in the right way for us. It's a real expense. We view it as such. It's actually going down this year. I suspect it will go down again in 2026. That's a big positive for us. And then we announced a share buyback. We're spending some of our free cash flow on keeping dilution very de minimis, which is a goal we have.

Great. I think we're running out of time. So thank you so much.

Great. Thanks for having us. Thanks for coming, everyone.

Good day, and thank you for standing by. Welcome to Roku's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I'd now like to hand the conference over to Conrad Grodd, Vice President of Investor Relations. Please go ahead.

Good afternoon. Welcome to Roku's Third Quarter 2025 Earnings Call. Joining us on today's call are Anthony Wood, Roku's Founder and CEO; Dan Jedda, our CFO and COO; Charlie Collier, President Roku Media; and Mustafa Ozgen, President, Devices.

On this call, we'll make forward-looking statements, which are subject to risks and uncertainties. Please refer to our shareholder letter and periodic SEC filings for risk factors that could cause our actual results to differ materially from these forward-looking statements. We'll also present GAAP and non-GAAP financial measures. Reconciliations of non-GAAP measures to the most comparable GAAP financial measures are provided in our shareholder letter.

Unless otherwise stated, all comparisons will be against the results for the comparable 2024 period. With that, Operator, our first question, please.

Our first question comes from Cory Carpenter with JPMorgan.

Anthony, hoping you could expand on the trends you saw this quarter in the platform business and how you're thinking about the growth drivers in 4Q in 2026. And Dan, maybe a question for you. You bought back $50 million of shares this quarter. So I thought it would be helpful to hear your latest thoughts on capital allocation priorities given your cash balance.

And I would say very good outlook. We feel good about our outlook and also feeling good about next year. And so what's driving our platform revenue growth, in 2024, we outlined our key monetization initiatives, the general buckets of areas we're focused on to grow our platform revenue. And that strategy is working. You can see it in the results, and I think we'll continue to see it for quite a while.

And the results and the success of our strategy just gives us a lot of confidence that we're going to maintain double-digit platform revenue growth while increasing profitability in 2026 and beyond. So just to recap, the 3 areas that we're focused on to grow our platform revenue. 1 is making better use of our home screen, which is a key strategic asset for us.

Another 1 is growing ad demand and the third is growing our subscription revenue. So in terms of our home screen, like I said, it's a key asset for us. Every Roku customer, which has half of broadband households in the United States, they turn on their TV and they start their viewing experience with their home screen. It's how they discover what -- decide what to watch and we're always actually working on improving our home screen.

We're always testing changes. And when those changes result in a better viewer experience or better monetization. We roll those changes out and that's ongoing. For example, we added the recommendation road to the top of our home screen recently and that's working well for us. But we have -- as we've mentioned before, we are working on a larger update to our home screen. That's in testing. It hasn't rolled out yet.

But the testing has gone really well, getting a lot of positive feedback we're being very thoughtful about that. It affects a lot of viewers. So we want to make sure that it's both a big improvement for all of our viewers as well as an improvement to engagement and monetization. But I think we'll see that based on the testing results we're seeing so far. I think that's going to roll out in 2026.

So home screen -- continuous home screen improvements and UI improvements are one of the ways we grow our platform revenue. Another is we're focused on growing our ad business and our ad demand. Our goal is to -- our strategy there is to work with all the major platforms, including all the major DSPs. We announced the relationship with Amazon recently deeper support with the Amazon DSP. That's just turned on. So it's a little early to say. But so far, it's looking good. And I'm still very excited that's going to be a contributor to our business, but it hasn't really ramped up yet. It's just starting to ramp up.

Also on the ad side, we're focused on improving measurement. We announced, for example, this quarter integration with AppsFlyer. Another area we're focused on is apps manager, which is our self-serve platform for small- and medium-sized businesses, but also really focused on performance marketing. It's a business that's growing fast. It opens up a big new area of advertisers, a big new category of advertisers, a different class of advertisers as well as performance marketers. So that's a big area that we're focused on. We're putting more resources behind that.

So -- and I think overall, we believe we can be the most performing connected TV platform. We have a lot of data. We have the highest engagement by far in the United States and it's an area we're investing in improving the performance of our ad platform. And then subscriptions are doing well for us. Premium subscriptions, particularly doing well. And in Q3, we continue to improve the premium subscription experience.

We also added new services, we're always adding new premium subscriptions, but we can add more services in the quarter and we'll be launching more Tier 1 subscription services and premium subscriptions in 2026. And then, of course, there's Howdy, which is our latest owned and operated service which is $3 a month with no ads, an SVOD service, and it really taps into a large underserved market, a scenario of the market that's not really targeted with a particular SVOD service.

And I think it's a very large opportunity for us. So that's also still early. But just like we grew the Roku Channel into a large business over time using our platform, I believe we're going to do that with Howdy as well. So that's an area that I'm excited about, but it's still early as well. And then in terms of capital allocation, let me turn it over to Dan.

Thanks, Anthony, and thanks for the question, Cory. Let me just start by saying a few things about our financial position and capital allocation. We have $2.3 billion of cash and short-term investments on our balance sheet, a very strong position. We achieved a positive operating income in Q3. That's the first time since fiscal 2021. Our outlook for Q4 on adjusted EBITDA at $145 million is our highest ever for adjusted EBITDA.

For the full year, our EBITDA margins are expected to be a 200 basis point improvement year-over-year to approximately 8.4%, and we expect similar improvement next year. And I think, I've said several times, we are and will continue to be CapEx light and we're growing our free cash flow faster than our EBITDA. And all of this has resulted in a trailing 12-month free cash flow of over $440 million. So we're very strong in terms of free cash flow generation, and we're going to clearly grow from there.

Also, in early 2024, we initiated our net share settlement program offsetting about 40% of gross dilution. And last quarter, as you mentioned, we repurchased $500 million of our stock under our $400 million share repurchase program. So -- and total dilution for Q3 was 130 basis points. That's the lowest dilution we've had in any quarter.

So all this is a way of saying, we're very focused on dilution share buyback, free cash flow. We have a goal of offsetting 100% share dilution over time, and I certainly see line of sight to that. So we'll continue to look at opportunities to expand our business and maximize shareholder value through disciplined capital allocation. And we're investing in all the platform revenue initiatives that Anthony just addressed and talked about, but we're doing so mostly through through reallocation of capital.

And we'll continue to look at maximizing our ROI as we continue to generate this positive free cash flow.

Our next question comes from Brent Navon with Bank of America.

Just want to in your shareholder letter, you cited progress from third-party DSPs and Roku Ad Manager for advertising. Any way to frame how big each of those businesses are and what their underlying growth rates are?

And then just to circle back to the opportunity in '26 for you guys. It seems like you guys are growing 20% organic ex political, like ASC 606 and 3Q. Your guide implies somewhat similar to 4Q. It seems like there's a lot of irons in the fire that you just mentioned. Are there offsets that we should also be contemplating or tough comps because it seems like you have momentum in ad manager. You have the Amazon DSP ramp, a political year, potential improvements in M&A. So I just want to make sure we're thinking through all the pieces correctly?

Brent, I think Charlie will answer that question. .

Sure. Why don't I take the DSP portion and ad manager portion of the question, then I'll turn it over to Dan. Brent, stepping back, our strategy remains that we want to be open and interoperable and be deeply integrated with all DSPs so that we can meet clients anywhere they want to transact. So it was totally natural that we would do what you said, which is deepen our integrations across the board. And of course, we announced the Amazon integration as well.

And to put it in context, we've added dozens of ad tech partners over the last few years from the Yahoo! DSP or [ AppLovin world ] to Magnite on the SSP side. And last year, we really continue to deepen our relationships with each of them. At the heart of your question on third-party DSPs, I think the best comparison is last year, we discussed on these calls quite a bit about our UID integration with -- the Trade Desk and the deepening of our existing relationship with Amazon is very similar to that, that we talked about last year with Trade Desk.

So our goal with all these partnerships, Brent, is to drive greater efficiency and performance, and we are very bullish about our position as the open and interoperable partner in a marketplace with so many walled gardens. In terms of ads manager, in the macro, the shift to proof of performance or performance marketing to CTV is a tailwind we love.

And we like what we're seeing, but I should say, it's early days. So generally speaking, there's a market push towards automation and more sophisticated proof of performance and ads manager, which is our self-service platform. And that and many of the performance innovations we're building to prove that Roku is the most performance CTV platform. All those are providing tailwinds. But it is very early days. We do like what we see. We see new advertisers coming. We see them staying because their Roku campaigns are performing. And in third quarter, approximately 90% of advertisers on as manager were new to Roku, which we very much like as well. Dan, do you want to take the back half of that?

Yes. Thanks, Charlie, and thanks for the question, Brent. So to answer your question on thoughts on 2026? And are there any offsets, but let me just address Q3 and Q4 for a minute, so -- in Q3, we came in at a very strong 17%, actually, slightly over 17% growth rate. And our guide is at 15% growth rate, inclusive of political and friendly. And if you back out political and friendly for Q3, that number is 19% year-over-year. And if you back out political and friendly for Q4, it's actually a slight step-up from the 19%.

So we feel really good on how we're going to finish this year. We're going to finish this year very strong. To your question on 2026, obviously, we'll provide further guidance on 2026 after next quarter. But Anthony just went over, many initiatives. Charlie just touched on many initiatives. You're right. We have a lot of irons in the fire, many of them are launched and working. Some of them are yet to be launched.

Anthony talked about the home screen, which we're very excited about and the entire UI, which we're very excited about. We have ads manager. We have a lot of new ad products that that are performing well. We have premium subscriptions in our overall subscription business performing very well. And so I would just say, I feel very good about entering 2026. I'm very excited for the year.

Our next question comes from Justin Patterson with KeyBanc.

Great. Could you expand a little bit more on what this new home screen means for the business? How should we think of it influencing engagement and monetization versus the existing home screen and then stepping back just around the deeper DSP integrations. There have been a lot of investor questions around just what comes after the DSP integration. So would love to hear about just what other ad product innovation you have going forward? And how you can -- how you think that will help sustain platform revenue growth?

Justin, this is Anthony. In terms of the new home screen, I would say, first of all, we have a very iconic home screen. It looks different. It feels different. It feels simpler. It is simpler to use than our competitors. We're very proud of that. And it's also a fun, a lot of delight built into our home screen.

So an important goal for us is to maintain and improve that. We want to keep it iconic. We want to keep it differentiated we want to make it more delightful. But we also want to make it more useful. Our current -- I mean, customers love it. It's very useful, but we can make it even more useful. So that's a big goal.

So we want to increase customer satisfaction with our home screen, but we also want it to drive more monetization. So there's lots of things that we're testing that testing does show it drives more engagement, increases monetization, whether it's helping get viewers to sign up for more subscriptions or to watch more ad-supported content, those are all important goals or whether it's more promotion.

So those are the 2 goals for the business, higher viewer satisfaction, more engagement, more monetization. And testing -- our testing has shown that we're achieving both of those. So we're still testing optimizing. And like I said, we'll hope to roll that out in 2026. And then in terms of DSP integrations, what comes next, I mean, I'll just say, like, we're not done with DSPs like we do integrate with most -- with all the major DSPs. But I still think there's lots of room to continue to deepen those integrations to increase our business -- create stronger business relationships with those partners. So we're -- we continue to work on that.

And then in terms of ad products, there's a whole suite of ad products under development. I mean, I would say kind of high-level categories. 1 is we're very focused on performance, delivering on -- we already have a platform that is very performant, very measurable focus on performance and targeting. But we're doing things like integrating next-generation generative AI into our ad system to make it even more performance-oriented.

So just the overall being by a wide margin, the most performant Connected TV platform, a lot of our ad work is going into that. And then our traditional ad business is brand advertisers, agencies, that's a big and important business for us. But looking at small- and medium-sized businesses, businesses that traditionally advertise on social media are more digital-first type advertisers. Those are big markets, and we're building products to address those markets as well. So I don't -- I think I covered it, but I don't know, Charlie, if you have anything?

You nailed it. I'll say, Justin, is Charlie. -- really you asked what comes next. I'll tell you what comes before it is equally important, too. If you think about -- Anthony mentioned we're in half the broadband households in the country. Authentication leads everything. I mean, literally all else follows. So if you start to think about the fact that Roku has high fidelity signals, we have an ability to drive results for marketers in authenticated premium content.

That's where it starts. And then everything Anthony talked about is exactly right. We're going to continue to refine our integrations with each of these partners. And I think what the best thing is, is we'll drive outcomes for our marketers and be able to actually continue to refine to meet their needs. Dan, I don't know?

No, I don't have anything except to say that the question was around sustainable revenue on ad product. And I think Charlie and Antony answer that. We also have a subscription business, which is driving a lot of revenue growth and is in fact growing faster premium subscriptions is doing exceptionally well. We had a Tier 1 launch last quarter, we'll have more Tier 1 launches in the coming months that we feel very good about.

So we have a whole other business in subscriptions that is also growing exceptionally fast and we fully expect that to continue. In addition, to the ad revenue that Charlie and Anthony just discussed.

Our next question comes from Laura Martin with Needham.

My 1 for Anthony is on data. So I understand that all these new revenue streams you're working on used Roku's best-in-class data. Do you have any updated feeling about licensing your best-in-class data to the LLM, which you're spending? It met $72 billion this year and Gemini, $85 billion this year, and they're running out of data, these LLM, -- so you guys have, I think, unrevenue stream that is really valuable that you're not utilizing at all?

And then for Charlie or Dan, Lots and lots of -- so there's auction density that you're working on. There is subscription revenue you're working on, and you didn't mention shoppable. Is that sort of the order you see in terms of driving upside from these, let's call them, ancillary or newer revenue streams over the 1 to 2 years? First would be getting the sellout rate higher? Second would be the subscription. And then third would be shopping?

Laura, thanks for the question. Great to hear from you. On data, I'll just say that, yes, that's right. I mean our first-party data is an extremely important asset. We use it in a lot of ways, we use it. It's what powers our ad -- targeted advertising, it powers our AI behind all our performance marketing. It's how we personalize our home screen, recommend, make recommendations to users.

So the primary way we use it is we use it to sell more ads, sell more subscriptions, deliver a better experience for our viewers. But we are -- we do we are, I'll just say, always looking for ways to get better monetization out of our data. And I mean, working with LLM is certainly something that we've thought of and considering, but it's not something that we're doing today, but it's certainly something that we're investigating, I will say. And then there's other -- I mean there's other opportunities to monetize our data as well that we're also looking at. So Charlie, Dan, do you want to take the section.

Laura, it's Charlie. In terms of the order, I think they're all important. I'll address your shoppable question. We're bullish on shoppable, and it's one of those opportunities that I think is early but working from some original programming where we've integrated product and made the products in the show shoppable to the far larger opportunity, which is to teach America how to shop on TV. I think Roku will be the best place to do that simply because of our scale.

But in terms of behavior, I think it is slightly early days. We do see, obviously, great performance metrics across our platform and certainly with some of our ads, including our shoppable ads, but it wasn't mentioned because it's early days not because we don't have great interest in pursuing it. And we have lots of partners who are working with us on that.

Our next question comes from Michael Nathanson with MoffettNathanson.

I have Charlie Dan. Charlie, as more and more sports content moves to streaming, it feels like you guys have a major opportunity here with sports experiences. Can you talk a bit about what you're seeing to date? Is it driving revenue growth?

And then longer term, do you envision at a time when I can actually watch all my sports in 1 experience zone, right? So instead of going to different apps, can I just have 1 centralized aggregation place to watch my sports -- that's for you.

And then for Dan, I just want to confirm, you said distribution revenues are growing faster than advertising and you had 1 new launch. But I think we had both Fox and ESPN launched in the quarter. So is there a timing issue because those are the 2 major launches? Just want to confirm that.

Michael, it's Charlie. Good to hear from you. Look, the fact that every NFL game is now available in streaming is nothing but a tailwind for Roku, which again represents half the broadband households in the country. We have tremendous opportunities with sports for a number of reasons.

Number one, if you think about it, and we talk a lot about being the lead into television. And when the last Olympics came, we took great pride in being the fact that we were the front door to everything you wanted to experience and we help drive that with NBC as our partners, and we'll do the same for the World Cup that's coming and other opportunities because, frankly, in Anthony talked about simplicity of the home screen, the simplicity and delight of us getting people to what they want to watch, especially their favorite sporting experiences through our destinations like the sports zone, I think we're really just scratching the surface of what that can be.

And as a sports fan myself, you see in Major League Baseball, how your team travels from site to site and we -- or excuse me, from app to app throughout the very same week. -- and of course, the sports experiences we create, make that really simple. So it's a long-term vision of having a time where you can watch them all in 1 place. I think -- that is a vision every sports fan would like. You know well the reality of these rights fees and how they are ending up behind paywalls.

But I will say, regardless of how it settles out, the best experience for watching sports will be on Roku, and we're really refining the way to help sports fans operate in a confusing landscape. Dan, do you want to take the back half?

Yes. Thanks, Charlie. The short answer to your question is no, it's not a timing issue with revenue associated with FOX and ESPN. We would have -- you back out any partner launch, you back out M&A we're still growing incredibly fast, faster than the market. It's not a timing issue.

[indiscernible] Gas in advertising.

Yes.

This is Anthony. I'll just add. Look, on the sports thing, I mean, Charlie answered that, but just to be super clear, it's a big opportunity for us, the fact that sports is and will continue to be fragmented across a lot of apps is a big opportunity for us with products like our sports zone to create a simplified experience that allows viewers to find the sports they want to watch.

So it's an area that we're focused on. It's also an opportunity for marketing and promotions and advertising and sponsorships as well.

Our next question comes from Vasily Karasyov with Cannonball Research.

Dan, I have a question for you. Now that we have had a few quarters in a row of very steady growth in platform revenue. And you just outlined -- you and Anthony and Charlie outlined the growth drivers for the years ahead.

Can you help us think in terms of ARPU growth, given where your user base is growing and the platform revenue growth is that -- if I were to think sort of in the ballpark terms, would ARPU grow at double the rate of the platform revenue growth in the midterm, just if you could help us dimensionalize that trajectory would be really great.

Thanks for the question, silly. It's a good question. And I would say several years ago, I know we had an ARPU when we actually had that [ KOM ] is roughly flat. And we talked a lot of mix. I will say that -- in the U.S. and globally, platform revenue continues to grow. That's -- we've talked about the overall platform revenue growth of 17%. The guide is at 15%, we are growing our streaming households as well. We've grown them well internationally. We've grown them in the U.S. They continue to grow in the U.S., but overall ARPU is growing I expect that to continue.

I think I mentioned in a prior call at some point, like I truly believe our ARPU can get a significantly higher with all of our monetization initiatives. And while we will grow streaming households, like I strongly believe we'll hit 100 million streaming households and in 2026, our ARPU is going to grow faster because our platform revenue initiatives are simply going to grow faster. So it is a good story on both U.S. and international ARPU.

I'm sorry, you said faster, faster than the active accounts growth or then the platform revenue growth?

It's going to depend on the country I will say that -- the U.S. is -- we're growing both the numerator and the denominator of the -- of that equation. But because of the platform revenue growth is of our constant -- as we said, we're going to continue to grow double digits and again, 17% growth in Q3 is very steady.

I do believe ARPU will grow. And I think the more important point is I think our ARPU can go up significantly higher from where it is per account or per streaming household today. Again, we're going to continue to grow streaming households, but ARPU is going to grow fast.

Our next question comes from James Heaney with Jefferies.

I know it's been under pressure for a while now, but is there anything you can say about M&E vertical this quarter and in Q4? And separately, how do you think about the consolidation in the media industry and how that potentially can influence your position as a distribution partner for streamers? And then I had a follow-up.

James, this is Anthony. I'll take the second question on consolidation first and then turn it over to Charlie to discuss M&E. I guess I would just say that as we said many times in the U.S., more than half of broadband households use a Roku to watch television. That means half of all streaming -- TV streaming happens on our platform.

And that, of course, means that we're an essential partner to every content owner and streaming service. And I don't -- however, whatever consolidation happens in the industry, that's not going to change. I mean, we're going to remain an essential partner. The streaming sector is robust. It's growing. It continues to grow nicely. And I think that, that's just creating a lot of opportunities for us to continue to grow our business. And then on M&A, Charlie.

Sure. Yes, I think that's right. It is easy to see, obviously, that the M&E industry is still figuring itself out as a whole, I'd say how many companies are still focused on profitability. And as such, there remains some general challenges in CTV. Our advertising business is doing remarkably well despite some of those headwinds. We got some benefit from the new launches this quarter, but the industry remains pressured.

So inside M&E for us, there is quite a bit of good news. The theatrical side of M&E as a category is really starting to perform. And we're seeing those advertisers invest in the benefits of some of our unique units like our custom home screen takeovers and the video in our marquee unit, which has been very popular.

I'll say, James, we have been focused on both diversifying and growing our platform business. And today, we're less reliant on any 1 vertical than we've ever been, including M&E and because we're so big, we're in half the U.S. broadband households, we do remain the best place to spend on M&E to attract and engage and retain subscribers and to measure ROI. So while we're not relying on M&E to drive our growth improvement in the industry at any time will represent upside for us.

And when -- and if the segment really rebounds, it will be a tailwind for us because we're really good at building the M&E business, and we -- I believe we're the best place for an M&E advertiser to invest our dollars.

Great. And then maybe just a quick follow-up on just overall macro environment in the quarter and so far in Q4, like anything stand out that's been particularly strong or weak anything on the call out there, maybe for Dan.

I think -- well, maybe Charlie wants to take the top of the macro environment as it relates to ads and then I can talk a little bit after Charlie. Charlie, do you want to take that one.

Sure. Thanks, Dan. James, I like what we're seeing trend-wise. I really do. And Roku has some unique attributes that allow us to take advantage of today the trends. I think that's equally important. One of them is you got to remember that as a platform, Roku, and I said it earlier, is the lead into all of television, and that comes with some real advantages in this market.

Also, we've been diversifying demand across our platform and our streaming service, and we built programmatic excellence and numerous third-party relationships that allow us to meet our clients as I say, wherever they wish to transact. So Roku's seen the benefit of the market as a platform and as a publisher. If you think about it, I want to say publisher, I mean an owner and operator of the Roku Channel, which -- you look at the Nielsen gauge, we're a top 5 streaming service and on our own platform, we're #2 in terms of engagement in the U.S.

So as a platform, the value of our home screen engagement has allowed us to benefit from our ad product evolution, among other things. An example of this is, like I said, our marquee ad unit, which is now very popular and it's now a video unit. That's been great. And in terms of diversifying demand and the programmatic excellence I just mentioned, we're seeing positive impact of both heading into fourth quarter and moving forward.

Actually, Dan mentioned, our platform revenue grew 17% year-on-year that's due in part to strong performance in video advertising. And of course, that means we're growing faster than the U.S. OTT and digital ad marketplaces. And then if you look at that ex-political and ex-friendly third quarter platform revenue grew 19% year-on-year.

So to answer your question, James, the trends are positive, and Roku is really uniquely positioned as both the platform and a leading streaming service to compound the value of these market trends. Dan, did you want to...

The only thing I would add, I think on upfront pricing, Charlie. Like I think I'll just say that the 1 trend going into Q4 is we're pretty happy with our upfront in terms of pricing. Maybe you want to touch base on that as a trend because I think that is a change.

Yes. So you're right, with October comes to the new upfront schedule starting to run, not only do we have a really powerful upfront, but we saw pricing stability. And I -- if you want me to go deeper on pricing, it's really interesting how pricing affects different services in different ways. And the headline, I suppose I'd leave with, Dan, is that we have multiple levers to pull, and that's consistent with what I just said.

And on pricing, we don't have a supply issue so we can price up and down a demand curve and use that to our advantage. So we're doing really well, both in volume and I think our pricing approach really is distinct in this market.

Yes, exactly. So pricing is positive for us in Q4, at least as part of our upfront, which is different than last upfront. So that's a good positive trend for us. In terms of other trends, like our guidance that we provided, which was roughly 15% per platform, and again, backing out political and friendly, it's above the Q3 growth rate of 19%. It actually implies 20% growth on an ex-political ex-friendly basis.

Just would imply that a lot of the trends that we're seeing in Q3, we expect to continue. And again, it is advertising, for sure, on everything Charlie just said, but it's also our subscriptions business, which is performing incredibly strong, including our premium subscription business, which is growing very well.

Our next question comes from Ross Walthall with Cleveland Research Company.

I just wanted to ask a little more detail on the Amazon DSP partnership. I know it's early days, but can you talk to you what the rollout looks like from here? Any customer feedback and whether this could be a material driver going into either Q4 of '26?

Ross, this is Anthony. I'll start. I don't know if Charlie will have anything to add. But I'll just say that, as you said, it's still early on the Amazon I mean it's live now, but it's just basically gone live recently. So I would say there's strong interest from customers. I mean there's a lot of customers that are very interested in using the Amazon DSP.

And we're obviously a key partner for them in that. There's a lot of customers, obviously, that want to use Trade Desk, but also these days, also Amazon. So I'd say they're strong -- strong customer interest. The signs we're seeing so far are good, but it's just a little early to say. I don't know beyond that, Charlie, did you -- is there anything else?

I think you did -- you mentioned trade disk. You saw in the Trade Desk integration last year, it takes some time to roll out. But I like what we're seeing so far. We're seeing clients ask us the right questions about how to use it. We know there's a general push towards outcome-based buying and measurement of performance and our strategy to be everywhere, including now Amazon at depth has us in a good position. And I do think it will ramp well into '26.

And then I don't know, Dan, do you want to same thing on Q4 26?

No. I guess I would just say that I'm going to reiterate both Anthony and Charlie's point is we just turned it on the first of this month here. We're in very, very early days. We like what we see. It is contemplated in our Q4 guide. And we're going to have a lot more visibility as we exit the year and go into 2026, and we'll update you at that point in time.

That's great. One other question on the self-serve business. Do you think you have the right tech and partnerships in place to really scale this like are all the pieces in place? Or are there like additional capabilities or partnerships that you need to add? And just ultimately, like work in this business go long term?

So this is Anthony. I'll start and then see if Charlie has anything to add. I mean I think that -- I mean it's -- so the short answer is, yes. We have everything we need. We've got the partnerships we need, but it's also early in the evolution of this business. So we'll be -- we're still investing in R&D. We're still building more partnerships.

I mean we have our own self-serve platform called AdManager. -- but there are other businesses that are doing something similar and we're working with those companies as well. We're not wedded to our -- just using our own platform for this -- to serve this market. I mean it's a big market. And it's a large market. It's a market that's multibillion dollars it's as large as it's almost as large as the traditional brand advertising business.

So it's a big business. And I mean, the other thing we're really focused on is integrating generative AI into our platform to do an even better job on targeting and performance-based marketing. So I think that there's nothing that we're missing, but there's a lot more evolution and growth to come. But Charlie, I don't know, if you want to add?

Yes. That's right. We have everything we need, and we're going deeper. I mean, it's so funny. We talk about deepening these integrations. We continue to do the same with our own products and look for ways to refine and improve more and more performance. One thing that's unique about our product, obviously, is that these small and medium-sized businesses will now have access to authenticated premium content.

And so when they see that they're able to, we said in the early days, democratize television and access our platform, I think we have a really compelling and differentiated offering. And of course, because we have the scale that we do we're going to perform really well. And what's great about these platforms, which is different than our traditional business is that when we prove ROI, people will leave it on as long as there's a positive return. So I like these advertisers. I like how many new advertisers are coming to the platform, and I think there's a lot of opportunity ahead that we're poised for.

Yes. And I'll just add. I mean, I think it's kind of -- it's probably evident self-evident, but -- this is a large business that exists in -- like it's what caused the growth of social media platforms in terms of their advertising business. What's unlocked for platforms like for Roku is basically generative AI that allows a business to create a video ad for free basically with a single click of a button, producing a very high quality, high production value professional-looking video ad. And so that now makes video platform like Roku as easy to use as a social media platform for performance marketing.

Our next question comes from Robert Coolbrith with Evercore ISI.

2 questions, please. First, on performance, I wanted to ask maybe about some of the advantages that you may have to sort of deliver on that, the platform player, your ability to provide feedback loops or certain types of consumer interactions with ads on your platform. And then also I wanted to ask sort of related to that as well, your ability or your interest level in perhaps launching new pricing models like cost per action or something along those lines?

And then second, I just wanted to quickly touch on the streaming hours. It looks like you had a bit of a deceleration there. I wanted to just ask if there were any comp factors or anything else to be aware of on that? Thank you.

Okay. So just on performance, let me start and maybe Dan will have something to say. So I think the advantages of our platform include extremely large scale, a lot of first-party data on a very advanced technology platform, including a lot of AI. So like these are the things, these are the key -- a user experience that has a lot of places to promote and place ads as well as video ads.

So I mean these are the things that are sort of the base capabilities that we build our performance on top of. So -- and I think we're unique in our scale and the amount of data that we have and we have a world-class, I would say, probably the best TV engineering team in the world. So we have all the pieces and we're putting them together. In terms of our interest in new pricing models, I don't know, Charlie, do you want to take that one?

Well, the answer is you were asking about CPA. I think that performance is in the eye of the beholder, right? And you have some large package company who just want to see incremental reach. And then you've got some other businesses who have a very specific KPI, and we can help them reach all of them. It's interesting. When I step back I think about the use cases we can meet and there are many.

But ultimately, they all sort of fit into 1 of 3 buckets, which is planning or activation or measurement and we've got tools and we have Roku Data Cloud and all sorts of other ways to help people maximize the efficacy of their media across the largest streaming platform in America. And so the answer to your question is directionally, absolutely, we will meet people not just where they want to transact, but we'll start to prove ROI in deeper and deeper ways.

And then our platform in terms of the ads manager platform will really make it easy for them to do so and continue to see a return on their investment. In terms of streaming hours do you?

Yes, I'll take that one. On streaming hours, it was a slight decel from prior quarters, but really, there's nothing there from a monetization standpoint. What you're just seeing is -- these numbers are just getting very large. And so we still are growing well into the double digits and streaming hours.

I think it's also really important to note that here see streaming hours and monetizable hours, which is something I look at across the platform is actually growing very well, and we're actually gaining traction not in terms of acceleration of percentage hours, but any -- the TRC continues to be the #2 app on our platform by streaming hours.

And it's actually -- it's gaining ground from other apps in that perspective. So -- nothing on streaming hours is concerning in any way. It's just very, very large numbers, hundreds of billions of hours that are being streamed here. So the decel from quarter-on-quarter is nothing that is of any concern and in fact, like I said, monetizable hours, especially with our premium subscription growth and our TRC growth as it continues to do very well and it's very strong.

Yes. As a head of ad monetization, it is a nonissue. I -- this is Charlie. I think it's actually -- we have what we need to come to market, and we're maximizing that inventory opportunity.

Our next question comes from Alan Gould with Loop Capital.

I've got 2, please. First, on the Amazon, just 1 quick follow-up. What are the key features and functionality that Amazon provides at the other DSPs in addition to diversification is the key issue there, the frequency capping.

And then for Dan, when I look at 3Q and 4Q platform, growth and you back out friendly and political. If you were to also back out 606, would the numbers be north of 20% and would 4Q still be growing quicker than 3Q?

Alan, Charlie will take your first question and then Dan will take your second.

Great. Thanks, Alan, for the question. Look, the easiest way to talk about it probably is that we're powering audience addressability, frequency management and closed-loop measurement. As I said, we actually, again, tend not to advise a client on which DSP to use. We actually are everywhere they want to be, and we -- we're very proud of the Amazon deal. But at the highest level, that's what we're working on with that DSP integration. Dan, you want...

To your question. Sorry, I'll take the second part of your question. You're right, it would be slightly north of 20%. Actually, it's slightly north of 20% just 6x political and friendly for Q4, it would be closer to 21% on a 606 basis. And yes, you would still see that slight step-up on a 606 basis. And again, that's 606, just to be clear, that 606 from 2024 we have not booked any 606 in 2025, nor do I expect to.

That concludes today's question-and-answer session. I'd like to turn the call back to Anthony Wood for closing remarks.

All right. Well, I want to say thank you to our employees, customers, advertisers and content partners, and thank you for listening.

This concludes today's conference call. Thank you for participating. You may now disconnect.

Really delighted to have Dan Jedda, newly appointed Chief Operating Officer and CFO of Roku. Thanks so much for being here. So maybe to just kick it off, high-level overview. Your business appears to be doing really well with your platform revenue guidance implying high teens organic growth in 3Q, mid- to high teens in 4Q.

Maybe we can just start level set, big focus of you guys in past few years monetization, high-level update on some of the monetization initiatives that you have going on at the company right now.

Sure. And thanks for having us. We're always happy to join Bank of America, a great partner with Roku overall. So thanks for having us. So yes, our strategy really since the end of 2023, when we exited 2023 after we rightsized our cost -- our cost structure, which is a big focus on my first 6 months at the company. We talked a lot about the -- a real pivot to the execution of the monetization initiative, which is the third part of our 3-part strategy. We focus on building scale first in a market. And then as we build scale, we focus on engagement. And then once you have scale and engagement, we focus on monetization of that scale and engagement.

And in the U.S., we've built a tremendous amount of scale. We're at over half of broadband households in the U.S. We just put out a press release, I think it was yesterday that talked about how -- now there's more streamed on the Roku platform than there is on all linear combined in terms of viewership and hours. It also says that this is Nielsen data. It also says that now over 1/5 of all TV viewing, combined linear plus digital happens on the Roku platform. So it's an enormous reach that we have across the U.S.

The engagement is exceptional. We stream hundreds of billions of hours a year, and the Roku Channel has incredible reach, has incredible engagement in terms of our streams. Our last -- during our last report, we said it was over 80%, it's going to continue to grow in significant double digits. So now that we've got that scale and engagement, we've really pivoted towards the monetization initiatives of all that scale and that engagement. And that's been something we've been -- we've done over the last 18 months.

You're starting to see a lot of that focus come in with our platform revenue growth, as you mentioned, it's in the high teens. We're very happy with that, very proud of that. And how we're doing that is we have a lot of supply of ad inventory. We have a lot of engagement that we can monetize. We have a lot of reach that we can monetize and we've done some -- we've built a process to where we've opened up all of Roku to a lot of more demand than we had, say, call it, 2 years ago by integrating with all the demand side platforms. And when I say all, we're integrated with all of them. We're going to continue to integrate and go deeper with all of them. We're integrated with many of the supply-side platforms as well. We've built new and innovative ad products. We're very focused on the performance measurement markets. We also have higher ultra-premium inventory.

So we run the gamut of the CPM demand curve now, which is very different than where we were, call it, 2.5 years ago. So we feel really good about the position that we put ourselves in to continue to monetize this incredible reach that we built with broadband penetration.

And that's a great overview and a lot of topics that we will dive into a little bit deeper. So I guess on your platform segment, now makes up 90% of your revenues and really sits at the core of the Roku story. You're approaching 100 million households. You're rapidly growing engagement, especially at Roku Channel. What do you view as Roku's greatest asset? And what do you think investors most underappreciate about the Roku platform?

Yes. That is a great question. And thanks for asking because now I can really talk about and maybe even brag a little bit about what I believe our greatest asset is because it's really something that is -- I would say, it's not as well known as other assets. So when you think about the CTV world, there's a lot that's talked about in terms of like the critical assets of like live sports or big content budgets or specific IP like Marvel or Lucas or certain IP that's out there. And we can monetize all that in different ways. We monetize live sports through subscriptions. We monetize a lot of our streaming hours that are outside the Roku Channel. But our biggest asset is our platform.

Our biggest asset is the fact that we control the UI when 150-plus million people a day start their TV experience by turning on a Roku TV. So when you think about that, you have 150 million people plus starting their journey with the UI that we control. And it allows us to nudge people into certain areas, subscriptions that we monetize, impressions at AVOD or the advertising video-on-demand that we monetize, the overall streamer experience that we have. We have -- the left nav of our home screen has sports zones like the NFL Zone. When the Olympics are on, we have an Olympic zone, we have a Home and Garden zone.

You think about the content row at the top of the home screen, which is an ML-based content row that's highly personalized to who's ever viewing where we can show subscriptions that we think they will like or shows that we think that we'll like, and they also happen to be the subscriptions and the shows that we monetize. So when you think about controlling the UI and controlling the viewers' experience and journey throughout the platform, that is our biggest asset.

Now I would just say that what you're seeing now is in the last 18 months, you're seeing how we've taken that asset, and we've really focused on monetizing that asset through all the different ad products, the demand-side platforms that we've integrated, the supply that we've created in the Roku Channel of impressions to sell. So we've really pivoted to focusing on monetizing that home screen, monetizing the asset that we have, monetizing the left nav, monetizing the new ad products like video in the marquee and monetizing the incredible reach that we've built over the last 15-plus years. That's been a pivot for us, call it, at the end of 2023. And so now you're just seeing the execution of that.

We have a lot of other initiatives that we're still working on. But the growth that we've seen, the profitability that we've generated, the free cash flow that we have is a function of the execution of those monetization initiatives.

And just sticking with the power of the platform, I mean, that's a great segue to the Roku Channel, right, and how the platform can really drive that. And so here you have the Roku Channel, you're growing engagement over 80%. You're delivering great revenue growth, but not quite keeping up. So I guess 2 parts here is how sustainable is that pace of engagement growth going forward? And what levers do you have to pull to sort of drive convergence there?

Yes. Great question. So yes, you're right. TRC, the Roku Channel, the last numbers we gave, I think, were -- it's growing greater than 80%. We're now comping some big improvements we made at the home screen like that content row on the top. So I suspect that, that growth rate will drop, but it will still be significant double digits, well, well in excess of 20%, 25%, 30%. I'm talking 50%, 55%, 60% growth. We'll still see that in the Roku Channel because of this amazing asset of controlling the UI that I just talked about.

So the supply of inventory to sell is going to be there for us, not just in the Roku Channel, but in the rest of the platform, the rest of the media network, what we call the run of the media network, that also is growing. So we have a tremendous amount of sellable inventory for advertising. I'm sure we'll talk about subscriptions later, but let's just stick with TRC that we'll continue to have.

And so one of our big focus is now that we have this inventory is how do we bring more demand to fill this inventory. And by the way, when I say we're growing this inventory, we're growing it in a relatively inexpensive way. We don't need to scale content literally with growth of TRC hours. We don't have to go out and spend hundreds and hundreds of millions of dollars to get more ad inventory. We can do it because we control the UI, and we have very good content already in the Roku Channel.

So supply, not a problem, going to continue to grow, going to be significant. The demand side is what -- again, what I talk about when I talk about the execution of the monetization initiatives because supply -- it doesn't of itself lead to revenue. The demand coming in is what ultimately leads to advertising revenue, content distribution revenue, et cetera. So what we're doing there is, in addition to having very innovative and unique ad products, like video on the home screen now, which in our -- what we call the marquee ad unit on the right-hand side of our home screen, we've added video. It used to be a static display. Now we've added video. And we've done that to diversify for that ad unit, which was primarily M&E to be much broader than that.

So now you'll see a lot of brand advertisers come in and buy that because they want video, think autos, think companies who can show an automobile video, think a theatrical trailer, anything from McDonald's to all the different big brands are buying that. We've integrated with every -- I believe it's every, if not nearly every demand-side platform out there. And now our goal is to go deeper with each one.

So we are higher up on the funnel of the demand that comes our way so we can fill it because like I said, we have plenty of supply. So we're integrated with -- obviously, we're integrated with Trade Desk, we're integrated with Amazon. I'll talk about that in a minute. But we're also integrated with DV360, we're integrated with AppLovin's World. We're integrated with Yahoo's DSP, like we're integrated with all of them. And the next phase of this build-out of bringing demand onto the Roku platform so we can serve advertising is going deeper with all these integrations. So we are more top of the funnel in terms of the fill rate that we can generate.

So with Trade Desk, we adopted UID, which is the hashed e-mail, where we are now more deeply integrated with Trade Desk, so more demand comes our way. Amazon, different deal because Amazon has different goals as a DSP. We've integrated in a different way with Amazon that's across the platform and which goes beyond just us as a publisher with the Roku Channel and is across the platform. And we'll go deeper with all the DSPs. They all want -- they have different goals in the integrations. We'll continue to go deeper with all of them so we bring more demand to fill the supply that we've generated.

Yes. So I guess on the demand side, right, like when you think about your integrations, right, so you first integrated with Trade Desk, then you did ACR data, then you did UID 2.0. Now you're doing this platform level data with Amazon. When you say deeper, like what could the next -- what could deeper look like from here? Like what more could there potentially be to go?

Yes. It really depends on the goals of the demand side platforms. All DSPs have different goals. Like Amazon is, of course, looking at purchase graphs. And so they want to be able to recognize the actual customer or streamer and show the right purchase graphs to improve the performance of any ad being shown.

So we'll integrate in a way with Amazon that allows them to do that, where we will be a beneficiary across the platform. Amazon will also be a beneficiary. If a DSP wants more signals, we'll get -- we'll provide as many signals as we can with our first-party data. If a DSP is -- maybe a DSP is focused on app installs, I'm just saying that like an AppLovin may be focused on app installs, which is less signal based, more lower-cost CPMs, more just a lot of impressions to get app installs, we can do that because we have the inventory. And there might be different signals involved in that DSP type of deal versus a DV360 on Google.

So I can't answer your question specifically because it really does depend on the DSP, and we're talking to all of them. We want to go deeper with all of them and deeper is a DSP by DSP basis.

And it's not as though it's like flipping a switch, right? Like these are gradual builds. And so like you think about Trade Desk, this has been an ongoing relationship for a while. Like I mean, do you -- you're still not fully ramped there, right? Like there's still more runway there. I mean as you think about Amazon, you said that it will ramp in 4Q, but these are gradual type of builds.

Correct. You don't just plumb the pipes in -- the data pipes and flip switches and instantly, you have got all this demand that you can fill. It's much more complicated than that. It's, again, DSP by DSP dependent. But you ultimately want to plumb in, you want to start to trade the signals and then you constantly iterate to improve the performance within the DSP to basically improve your chance at winning in the auction. And so that's, again, where our first-party data can come in and help us. That's how the Amazon DSP works. That's how UID2 data works with the hashed emails.

So yes, you're absolutely right. And it's really important. We've got teams focused on this that you are constantly iterating to improve that overall performance because remember, like the goal of the programmatic pipes is primarily, yes, there's reach involved, but it is a performance-driven campaign goals that are doing this. So the impressions that perform the best are the ones that are ultimately going to win in this game. And so how do you perform the best DSP by DSP dependent, but that's the ultimate goal when you -- as a publisher, when you go to the market and take part in the auction.

And I guess on that point on performance, I mean, historically, Roku did about $1 billion in advertising sales at upfronts. And so I'd be curious, there's a lot of debate about shift from brand to performance. How has your direct brand advertising trended over the last few years? Where do you see it going from here, especially versus more programmatic or performance-based advertising?

Yes. Another really good question because I think this market -- I think the market is changing in this respect. So linear was all about brand. It's all about reach and brand. The more reach you get, the more budgets you'll get from a brand perspective. And they have ways to measure it, but they're not great ways. They have MMM models, they have [ holdout ] models, they have market models, et cetera. So you pivot to CTV, and I do believe CTV at first, probably was more brand, and that shift is focused to be more based on performance because you can actually measure the performance of CTV advertising.

And so I believe this shift is going to continue to happen where even the budgets that are focused on brand are going to have a performance aspect to it. A lot of this will funnel through programmatic pipes. You see this now. It's well over half that we see through programmatic pipes. I think that number could hit 75% going through that. I do think you're always going to have ultra-premium and premium CPMs that are sold in different ways.

To answer your -- but a lot of it will go through the programmatic way. And that's why we changed strategy to focus not on our own DSP, which is something -- which was based on an acquisition and an ad product we called OneView. We pivoted, call it, two years ago to open up to all the DSPs because we want to meet the advertiser wherever they want to transact. If they want to do guaranteed ultra-premium, we have those products with our home screen, with Roku City, with our video ad unit. If they want to go at the higher priced CPM curve with signals, we can do that. If they want to be on the ultra-low CPM with different signals, we can be there as well.

And we want to be plumbed into everyone depending on whatever the campaign goal is of the advertiser and whatever way they want to advertise through programmatic pipes, through whatever DSP they choose, we want to be there for them as the supply of inventory. So I do think this shift will continue. I think it's an important shift to note. It's one where we feel very good about because of our overall supply and because of our first-party data that we can not just be effective in, but even be a big winner in this space and the shift to programmatic.

To answer your question on the upfronts, we just completed ours. It went very well. There's still a lot going on with the so-called guaranteed where you lock in rates, you lock in impressions. That still is a very important book of business for us. We're doing very well in that book as well. Our teams just came back from that with some very favorable discussions that they had across the agencies.

That's great. And I guess just that 75% programmatic target, I guess, -- just curious like where does that sit today in terms of like how big is programmatic as a percentage of your business today?

We don't disclose that. It's over 50%, and it's on its way. Whether and when it gets to 75%, more to come on that, but it is a significant amount of how we do business.

Got it. Shifting gears a bit. I think another interesting opportunity for you guys is self-serve, and it really has the potential to unlock this new class of advertiser that historically couldn't access TV. I think this has been the promise of media companies for a while, but it feels like maybe we might finally be at that point where it can happen. So just kind of curious how material you view this can be over the next few years and what you guys -- what your plans are in that market?

Yes. What an exciting market. So it's not that it could be, it's that we're there. This is happening. This is launched real-world self-service CTV impressions served primarily for the SMB market. So let's just talk about it because it's one of the areas I'm most excited about. So yes, we have a shift of linear into CTV. That shift is going to continue. So there's this tailwind into CTV from the continued shift in linear. As a matter of fact, I would argue that because now almost all sports are available in CTV. I think live sports was the one holdout for linear. That's changed.

If you just use the NFL as an example, several years ago, you had to have linear to watch many of the NFL games. I think -- I could be wrong on this, but I think almost every -- if not every game now is available on CTV for the NFL. And I'll even go on further. I think a certain percent, double-digit percent, maybe it's 15%, maybe it's 20%, are only available on CTV when you think about Thursday Night Football, when you think about the exclusive games on Christmas Day and some of the exclusive games on Peacock -- Netflix, Peacock, Amazon. The only way to watch these games is on CTV. You can't watch many of the NFL games on linear.

So what was true 5 years ago is no longer true, and I think that's going to continue to shift. In addition -- and that CTV market is going to continue to grow. In addition -- and by the way, the hours have already shifted. So when you think of like 60% of the hours roughly have shifted from linear to digital, only 30-ish percent of the ad budgets had shifted. That's going to catch up over time because you're going to want to advertise where the eyeballs are.

To your point on the SMB market, you have another tailwind into the CTV market, which is this notion that a small or a medium-sized business, which didn't have access to an agency because of their size and/or they did not want to go through a DSP because of the complicated nature of doing so, they were -- they have been primarily shut out of the CTV market. They might have had a little bit in the linear with local advertising, but even that was complicated. Now that entire CTV ecosystem from an advertising standpoint is opened up to them. Why? Because now there's self-serve products. We have one called Ads Manager.

There's a self-service product where you can go into our Ads Manager product, you can click your campaign performance goals, you can click site visits, you can click conversion, you can click different camp reach, installs, click-through rates, whatever your goal is, you can click through it like you do with performance, with their performance budgets. You can use Gen AI to create a very well-produced video commercial, and you can be up and running on CTV in a geo-targeted way within minutes, not days, within minutes.

So you now have a new vertical, a new budget, a new medium, if you will to spend this performance budget that they have been spending on, whether it's $5,000, $10,000, $100,000, $200,000, you can now do this in a self-service way just like you can with the traditional performance based budgets like in keyword bidding or on your social, you can now do this on CTV. I think this is a very exciting time. Whatever you think the performance market is $60 billion, $100-plus billion, a chunk of that will likely move over, in my opinion, to CTV because it's a new way for them to advertise and everybody wants video, like they would much rather have video than bidding on keywords or at least they like the opportunity to showcase a video.

So if you own a car dealership, five or four or three car dealerships in a regional location and you want site visits, you can be up and running on that. You can measure those site visits with your video that's running in a geo-targeted location for you, just like you can on any sort of performance market. I think this is very exciting because it's an entirely new market on top of that CTV market, that $90 billion-ish CTV market that already exists. This is on top of that. This is incremental.

And I think a lot of these SMB businesses will take some share of wallet and convert that over as long as it works. And so it becomes about the measurement. It becomes about the performance of it, the ease of self-service, very important, the ability to easily create a video, very important. And of course, the performance of it is very performant. And guess what, we are great at performance. So this is an area I think we can do very well, and I think we're going to be a leader in this space.

And so I guess just to follow up on that, right? I guess, customer awareness, SMBs have to be made aware of that this product and obviously, the simplicity of the product, especially for an SMB that may not have the sophistication, right? So I guess, -- what's the plan to make the SMB market aware of this offering? And what's -- how does -- what's your plan for that?

So there's got to be marketing behind it. I mean some of it will be word of mouth. There's got to be marketing behind. This is why I think there'll be multiple winners in this space because nobody is going to be able to market to 1 million SMBs, but many companies could likely market to hundreds of thousands and millions of SMBs out there. So I do think marketing is -- once they get them to try, I do believe as long as it's performant, they'll stay and they'll take a certain share of that performance budget and they'll switch to CTV. You got to get them to try it.

And that's where marketing and awareness comes in. That -- and we're focused on that. We have marketing budgets behind that. We have inside sales teams who are doing this right now. This is relatively new. It's got a typical new product ramp. I love it. It's going up and to the right. New advertisers are coming on every day to try this out. We're starting to get more data on repeat and performance and how they're doing. We're integrating with measurement companies that help the advertiser measure causal-based lift analysis. We can pixel sites. We can do APIs that allow us to do all these measurements. But in the end, I do think there'll be multiple winners in this space because of the ability to have a great UI and marketing.

And then I'll just end by saying, even for the other companies that do very well in this space, like we'll integrate with them as a publisher because of our sheer reach, our sheer size, our ability to geo-target like -- so even though Ads Manager, our product will win in this space, I think there'll be multiple winners, and we're going to benefit from all of them because as a publisher, they'll integrate and they are -- the ones that are out there already are integrated with us, just like the DSPs are all integrating with us. All these, call it, these ad servers, these mini DSPs focusing on SMBs, they're also integrating with us. So we'll win when they win as well.

Interesting. I mean, is this more of like a multiyear needle? Like is this a potential '26 needle mover? Or is it...

It's a typical product launch. Awareness matters. It's seeing the trajectory of a typical product launch where you're building more and more. And I suspect others in this space are doing similar. They're building more and more. And I think that over time, we'll have to wait and see how it plays out. But I do think over time, this will be a -- it could be -- in my opinion, it could be a double-digit percent of the share of the overall performance market.

But yes, it will take some time, mostly from the awareness and making sure the UI is awesome, right? It's got to be simple. It's got to be five clicks. I'm just making this up. It's got to be like, hey, just five clicks, you put in a credit card or you have invoicing and instantly, you're up and running. It can't be complicated.

Right. Shifting over to M&E. So Roku's M&E business has faced headwinds, but we are seeing some encouraging signs. Sticking on to the sports, there have been some several new large sports streaming services launching. And I can personally say I've seen some advertisements on my own Roku home screen. So how do you see this segment evolving? And could this potentially return to growth in '26 and beyond?

Yes. First of all, we appreciate you being a Roku customer. So I'll start by that. We love it. So M&E is an interesting area. M&E during the -- coming into COVID and at the height of COVID, a lot of M&E was focused on subscriptions is the #1 driver. And I mean, this is no secret like literally overnight, they changed to, hey, we need subscriptions, but we also need to be profitable. And that impacted a lot. M&E continues to be a challenging market for us in terms of -- it's still a big market. We're still one of the best places for M&E to spend dollars. But the overall market of itself is not growing anywhere close to, say, how the platform revenue is growing.

That being said, it still is an area that we want to see the growth pick up. We're working on -- we're always working on new ways to do this. Part of our subscription initiatives -- this is an M&E per se, but part of our subscription initiatives, which we haven't talked yet about is to grow the subscriptions that we monetize. That is a combination of through M&E, but just signing up on the Roku platform as part of either premium subscriptions or just signing up through our Roku Pay so we monetize the subscriptions. All these are initiatives on how we partner well with the M&E companies. It's far more than just the ads, but the ad piece of it still continues to be one that's focused on profitability.

And yes, the new distribution, new content companies that launched, FOX One, the new ESPN+ is certainly an opportunity to us. I also think within the subscriptions network and potentially for M&A, I think bundling as a platform could be a big initiative where we can help these companies reduce churn and grow their subscriptions. Maybe there's M&E involved in that. So it's an area that we focused on. But yes, it's not growing like the platform business is growing.

Got it. So shifting to subscription. That's another part of the business you're very bullish on. So what are the key drivers for subscription growth? And you obviously just did the Friendly acquisition. You announced Howdy. How does that fit into the strategy there?

Yes. So just to really pivot from M&A, like one of the most important initiatives we undertook in the platform monetization was to diversify our advertising base and our overall platform revenue base and focus on subscriptions. This is why M&E as a percent of our overall platform is far less now than it was in 2022. And it's why despite the industry challenges, we are still able to grow so much on platform revenue. And if M&E ever did pick up to its COVID heyday, we'd be the best place to advertise on.

But part of this initiative was to diversify away from M&E with new ad products and with our overall investment in subscriptions. So subscriptions is a very exciting area. And I do get the question like, well, why subscriptions, like why are you investing in a friendly or we launched a very economically priced SVOD service called Howdy, which we launched earlier in August. The answer is because it goes back to that hidden asset. Like we have this UI, this amazing asset in the home screen and the entire UI of the platform. And we believe, in fact, we know that we can drive more subscription volume through our UI.

So having some owned and operated subscriptions just makes a lot of sense because one of the biggest challenges for any content company is marketing, it's distribution. That's what we can give a subscription company is distribution on over half of broadband households in the U.S., for example. So Frndly was growing when we bought them. We believe we can grow them even faster because of our unique asset that we're talking about. It's a great product. It's a very inexpensive virtual skinny MVPD with over 50 channels, very popular channels like Hallmark. I think we just added A&E, history. It's a very popular service at a very good price point for those who want to stream.

And so our goal here is to take friendly and integrate it more into the platform. And how do you do that? Well, -- it's not just more marketing, more distribution, you integrate them into our search, for example. So they can show up more in search results that content row I talked you about, they can show -- we can do that from a personalization for folks that we think want to watch hallmark. We can put them up into the personalization -- the personalized content row at the top and drive more volume that way.

We can add our demand ad inventory on their supply and help them fill some of their supply, which may be different reach than just Roku in and of itself. Like there's multiple things that we can do. There's some easy ones, too, like our rate card for web services or cloud services, those sorts of things, like some of the easier ones that will integrate over time. So there's just a lot we can do to accelerate the growth of their SVOD subscriber base, which is actually -- which is a decent size, like they're doing very well.

Interesting. Shifting over to costs. So that's been a big focus of you since you've come -- since you've been at Roku. You've targeted being operating income positive in '26. You're also well on track to do operating expense growth of mid-single digits. Longer term, where do you see margins of this business going?

Yes. Great question. I get this question a lot. And so let me talk about like where we've been and where we're going, and I'll answer your question. So in 2023, we said -- at the start of '23, we said we'd be EBITDA -- adjusted EBITDA profitable in 2024. We were able to eke out, I think it was $4 million of adjusted EBITDA in 2023, which is great for the full year. So we exited on a great run rate, and we are profitable -- adjusted EBITDA profitable for the full year. I was very proud of the company and the team that spent a lot of effort to get there. And we did it early, a full year early.

In 2024, we did about $260 million of adjusted EBITDA. So again, I think we surpassed our own internal expectations, primarily from the growth at the end of the year on the platform revenue, but also on all the cost initiatives that we put in place. We said we were going to be op income positive in 2026. Our guidance actually implies we have the potential to do that a little early with the Q4. We'll see where that comes out. My hope is and my expectation is we can actually hit profit positive in Q4. We'll see on that as we get into the quarter.

So we guided to $375 million, our latest guide of adjusted EBITDA on our platform revenue growth. That brings EBITDA margins to around 9%. So we've gone from 0% 2 years ago to ending the year at roughly 9% on adjusted EBITDA margins. We'll get to double digits soon on adjusted EBITDA margins. I've made -- I've not hidden the point that we're going to continue to be very focused on our cost structure. I think I've said many times, I expect mid-single digits in our OpEx growth rate. And a lot of the investment that we're doing in all these amazing initiatives are reallocation of capital within the business.

So we've been able to do this without a lot of incremental OpEx growth. I do expect that to continue. Again, we'll hit double-digit EBITDA margins in the near term. We're going to be op profit positive in 2026, as I mentioned. I do think op margins will continue to grow. At some point, I can't say when, we'll be double-digit op profit margins. That's absolutely my goal.

And I guess with that, you have inflection in free cash flow as well. I know that, that's -- you've said multiple times that's your North Star. You've recently announced a buyback program, I guess, in addition to what you've normally done on net share settlement, but you've also been active in M&A. So how should we think about your capital allocation priorities from here?

Yes. Great question. Our absolute North Star is free cash flow, free cash flow per share. We look at stock-based comp very closely. We've done net share settlement, which is an effective share buyback where as shares vest, we pay the taxes in cash rather than sell stock. So that's offset dilution by about 40% of what dilution otherwise would be. And now we've announced a $400 million share buyback. We're executing on that share buyback. My ultimate goal is to get dilution to 0. It might take some time to do that as we continue to grow our free cash flow. But that's my ultimate goal is to keep dilution close to -- as close to that 0% as possible.

Again, I'll provide more guidance on that once we get through a couple of quarters on the share buyback and where we're at on it. But the free cash flow is very positive. I've said in 2025, free cash flow is going to be higher than adjusted EBITDA. We're very CapEx light. I don't -- we don't capitalize R&D unless it's over a threshold. And so a lot of our EBITDA is a good proxy for us for free cash flow, and we expect free cash flow to [Audio Gap] because of the CapEx-light model that we have. So that's all real positive. And we're always looking for acquisitions that help us drive monetization that help us grow on our strategy [Audio Gap] and so we did friendly. We launched -- we didn't buy Howdy. We launched Howdy.

We are doing some really interesting and fun initiatives that we think will help us grow on the platform revenue side. But yes, we're going to continue to offset dilution with the cash that we generate. We have over $2.2 billion of cash on the balance sheet. We have no debt. We're in a great position to continue to do what we're doing.

Great. I want to sneak in at least one hardware question. So you guys have built this really strong position, approximately half broadband households in the U.S., Walmart acquiring VIZIO. How should we think about Roku's share of new TV shipments today, given that you guys are now the incumbent in many cases and implications for market share going forward? How should we think about that?

Sure. Are you referring to Walmart specifically, just so I understand the question?

Well, like Walmart, VIZIO is selling TVs.

Yes. Yes, it's a good question. So first of all, we have the benefit of being #1 in this space and #1 by a lot, like I said, over half of broadband penetration. And that is continuing to grow. I expect that to continue to grow in the U.S. and globally. So we're in a great position. Walmart is a great partner with us. I believe we'll continue to sell in Walmart. I do believe that Walmart will sell SmartCast. That is not lost on me at all. I think that will continue to happen.

But we will continue to spend on sales and distribution. I'm not planning to spend more than we can currently spend. We said in our last quarter, we spent hundreds of millions of dollars on sales and distribution. It's one of the reasons we've been able to grow to this incredibly powerful position in the market in terms of streaming households. We'll continue to spend that. We'll spend it with our distribution partners. More distribution partners have been opening up recently, which has been great for us.

I also would say that our player business is an amazing business where any hardware can instantly be turned into a Roku TV by putting a $30 dongle in it. That business continues to perform very well to whatever equipment the streamer buys. But most importantly is our streamers love the operating system, our operating system. Like we didn't become #1 because for any other reason than our streamers love it. It's simple. We're going to keep it simple. It's effective. It's -- we put a lot of R&D into the operating system. We invest a lot into making it an exceptional streamer experience. We're asked for by name as streamers come in and buy their hardware.

So I think we're in a great position, notwithstanding the acquisitions, we're in a great position to continue to grow our share. And I think we've said publicly that we are on track to hit 100 million soon, likely in 2026, and that includes continuing to grow in the U.S., so expanding on that greater than 50% broadband share that we already have.

Great. We got 30 seconds left. So I guess we'll sneak last one in here. I guess, putting all this together, a lot of irons in the fire. We're sitting back here in 3 years, which of these opportunities that we discussed are -- you think were going to be the biggest surprise to all of us?

I think that -- that's a good question. I think in 3 years, I think there are many aspects of things that are going to happen that we're not talking about here. I will say like I am very excited about Roku's position in the marketplace that we are at, inclusive being #1 and how we monetize it. There are things that we're not talking about that could potentially be huge monetization initiatives in 3 or 4 years. Think gaming as an example on what that could mean for CTV. This performance market that we're talking -- sorry, this SMB market that we're talking about, like I don't know where that's going to be in 3 years. I know it's going to be more than it is today, and I think it could be significantly more.

I don't know where the -- how the auctions -- how dynamic the auctions are going to be in 3 years. Is Gen AI going to have a bigger player -- a bigger -- be a bigger player in the auction market versus all the ML auctions that are going on? I don't know. What I do know is because of our scale, because of our reach and most importantly, because of our execution on monetization, I think we're going to benefit from all of it. I think it's all good news for Roku on where this market is going.

And I'd like to say internally, like we've become very good at skating to where the puck is going. That's how we've gotten this programmatic space that we're in now. That's why we've opened up to all DSPs when at the time, we were like, is this the right thing to do and it was absolutely, it's the right thing to do. That's worked.

And I think there's going to be more of these initiatives 3 years from now that we're not talking about today that are going to put us in a great position. I'll just end by saying having scale in this space is incredibly important. You do not want to be #4 or #5 in this space. You want to be #1, maybe #2. And we've got the benefit of being #1 in the U.S., being #1 in Mexico, being #1 in Canada. We're growing in Brazil. We're growing in the rest of Latin America. And that's just a great position to be in for this space.

That's great. I end it on that, and thank you so much.

Thank you. Enjoyed it. Thanks, guys. Thanks for coming.

Dan Jedda, CFO of Roku, with us here today. Dan, how are you?

Great. Thanks for having us. Happy to be here.

Thanks for coming. Yes.

[indiscernible] in New York.

Yes. New York is great. Weather is not bad.

Weather is not bad. U.S. Open is going on.

That's right. That's right. So I want to start with just -- this is maybe a dumb question because you guys have been around so long. But you play in a pretty unique space. And so I would just love for you to just start with a high-level overview of how you would describe Roku's strategy and how you're currently executing against that strategy.

Yes. What a great question because I agree we are unique. There's like no real peer that we point to that's out there. But let me talk a little bit about the strategy because I do think the strategy is really important to understand and then where we are on that strategy. We have a strategy of get scale, get engagement and then monetize. And let me just spend 30 seconds on what that means.

With scale, it means it basically means become significant in broadband penetration, which we've done. We're over half of all broadband households in the U.S. We have incredible scale in Mexico and in Canada, and we're growing scale in Brazil and in Latin America and in the U.K. So once you have scale and as you get scale, you focus on engagement because you want people to be engaged with the operating system, with the product. And so the second prong of our strategy is engagement. And with that, we're also very far down the line.

We just put out a press release today that talked about that over 1/5 of all TV viewing is on the Roku platform. Over 1/5, that's combined, linear plus digital is on the Roku. And within the digital, you see the gauge reports, we're 5% of overall streaming, so over 100 billion hours, incredible engagement on our platform. So we have scale, we have engagement that I gave us for the U.S., like I said, 1/5 of all viewership happens on the Roku platform. That's incredible. No one else is close to us in that.

And then now that we have scale and engagement, the focus is on monetization. And I would say that, that's really been the focus over the last 2 years. The monetization piece of the strategy is now that you've got broad scale, broad penetration, you have engagement with the platform. Now, we focus a lot on monetization. And that's where we're in early innings of our strategy. That's what you've seen happen throughout last year and this year. As we exited 2023, we got our cost structure in order. We rightsized our workforce. We got rid of 1/3 of our footprint. We really honed-in on cost.

Footprint, you mean real estate footprint? Sorry.

And then as we exited 2023, we made it very clear like we're now focusing on the monetization, the platform revenue growth, which is the monetization of our overall operating system. And so with that, you focus -- we have 2 main activities within platform. It's advertising and it's called content distribution or streaming services distribution, which is, by and large, subscriptions and content distribution agreements.

So our focus over the last 2 years has really been on that monetization. That's what where you're seeing the overall growth in platform. That's where you've seen our pivot to profitability. We exited 2023 just barely profitable for the full year on an adjusted EBITDA basis. I believe it was $4 million. We're now on track. We just guided to $375 million of adjusted EBITDA.

So in 2 years, we've really been able to grow our platform. Our cost structure is rightsized. Our margins are strong. And so we're generating a lot of positive adjusted EBITDA and free cash flow. I'm sure you'll get into more questions, but that's the overall strategy. And like I said, we're very far along on scale and engagement, and we're really in early innings of overall monetization, which makes it a very exciting time to be at Roku.

Can I go back to those engagement numbers? Just so I understand what you said. The 20% of all viewership happening on Roku, that is a measurement of -- I have a Roku device, but I might be watching Netflix or I might be watching YouTube. That's like the umbrella term.

Right. That's overall engagement of us as a platform in terms of our...

Using device.

[indiscernible] on our platform. And we have multiple ways that we monetize on our platform. We don't only monetize through ads on TRC. We have multiple other ways that we have we monetize, including with our content distribution partners.

Understood. And then when people look at the gauge and they see that 5% number, that number includes both the Roku Channel tile and other engagement that what fill in the pieces.

So that 5% number is the Roku Channel now. And the reason why the Roku Channel is so significant in terms of, in this case, the Nielsen Gauge Rating is because we ingress in multiple fronts from our homepage into the Roku Channel. So less than 20% of actual ingress, the entry point into the Roku Channel is through the Roku Channel app. We have so many different ways to enter the Roku Channel, which shows the power of our platform. So I get asked this question, what is the big asset that Roku has?

It is the power of the platform. When you turn on your TV for that over 20% number, I just gave on overall engagement in TV viewership, you start basically 99% of the time on the Roku home screen. We control that UI. So we can nudge people in certain directions based on the content we show, based on the -- we have a Left Nav that has multiple zones, a sports zone, a home and garden zone.

When the Olympics are on, we have an Olympic zone. We have a content tile at the top, which is a machine learning-based content row that is personalized, so we can push people into subscriptions that we monetize or the Roku Channel based on content we think you'll like. We have so many different ways to ingress into the Roku Channel and into subscription products that we monetize.

Okay. So on the monetization part of your strategy, you talked about advertising and streaming were the 2 high-level categories. I want to talk about advertising. Over the last few years, I think you've expanded quite dramatically the number of DSPs that you're willing to partner with.

Can you talk about that? Because I think you've said in the past, it doesn't hurt margins. It's all -- it feels like all upside. So can you just talk about what this -- I mean, many years ago, I think you bought your Dataxu, I believe it was called. And so this is a pretty big shift in your strategy in terms of embracing these demand partners. Talk a little bit about that. How is that integral to your monetization?

It's a great question. It goes back to that focus on monetization. So again, like when we -- as we focus on this overall monetization, we said back and we said we could drive a lot of volume through our own DSP, which is through the Dataxu acquisition. It was a product that we called OneView. And we felt as we looked at that, and that was the only way you could, in essence, come in and buy off Roku Media was through our own DSP. We were not integrated with other DSPs back in 2023.

We -- again, as really a strategic pivot, we said, if we want to be really open and interoperable across the media network, we need to be more open to other integrations with other third-party demand side platforms and supply-side platforms as well, SSPs. And so we changed strategy and we said rather than forcing advertisers to come through our DSP, let's meet advertisers where they want to transact in whatever way they want to transact. It was a big pivot internally.

And in hindsight, it was really a no-brainer. At the time, there was some discussion on it, but it was a really smart thing that we did because we ultimately then said, "Hey, let's integrate not with 1, not with 2, not with the biggest, not with certain ones that specialize. Let's integrate with all of them. Like let's be open and let's -- let the advertiser decide where they want to transact and be as deeply integrated as the DSP is willing to go with us.

And every DSP has different areas that they're trying to integrate with Trade Desk, it was adoption of UID 2.0, which is a hashed e-mail to make sure that they can recognize the customer and, of course, push as much media our way as possible. With Amazon, it's a different integration, which I'm happy to talk about. And we're integrated with all the DSPs. Every once as well, are you going to integrate with more? We're integrated with all of them.

Now we'll go deeper with many of them. We're integrated, as I mentioned, Trade Desk, Amazon, with AppLovin's World. We're integrated with Yahoo!. We're integrated with the SSPs. And so we'll continue to be integrated because we want an open and operable platform of which the advertiser can transact on any point of the CPM demand curve.

The ultra-premium down to the lower-priced CPMs, we're going to operate across the entire demand CPM curve, which is really different and unique. Most don't do this. We do, do it, and we have the inventory to do it. Like we have the inventory to operate at all prices. So when I hear a lot of CPMs are going down, that doesn't concern me because that will just mean more demand come our way, and we have plenty of inventory to sell.

Why -- so I've heard you use that phrase before in terms of set your pricing so you capture the entire demand curve. Why do you think others have not pursued that strategy? Like what is it that makes that right for Roku, but might be wrong for others?

Yes. First of all, I do believe that there's a supply constraint for some publishers out there. Well, they'll just run out of inventory during peak times. I don't -- I obviously don't have actual data on that. But from what I can tell and the way we look at internal demand, I'm pretty certain I'm right on that, there is supply constraints. Others play so much in a premium space, they want to protect CPMs at all cost. And so they're going to try to hold CPMs higher.

Is that because they have some -- like a linear business they're trying to protect.

No. It could be that they just have ultra -- that the bulk of their content is ultra-premium CPM. That's how they're going to play. We have the whole board -- we have, again, the whole gamut of -- across the demand curve that we can and do play in. So if you want an ultra-premium type experience, you can come and advertise on Roku City, for example, that has so many viewers have look at Roku City or you can be on our homepage.

I'm going to go all the way down to the low end of the CPM demand curve. Maybe you're an app install and you want -- you're only willing to pay $4 or $5 CPMs at the low end based on an app install. We're going to play in that space, and then we're going to play -- we play in every place in between. A lot of it is based on what signals you get on the exchange, how the auctions work. This is where measurement comes into play. This is where signals come into play. This is where our first-party data helps us out a lot. It allows us to play in all these different aspects of the CPM demand curve.