Roku CEO Anthony Wood Sees Costs And Engineering Talent Protecting Company Against New Rivals Like Comcast-Charter Venture: “Streaming Is All We Do” – Update

UPDATED with exec comments. Asked about an emerging rival in streaming, a newly formed joint venture between Comcast and Charter built on the existing Flex system, Roku founder and CEO Anthony Wood said engineering talent and costs would continue to protect the company’s dominant market share.

“We’ve been competing effectively against big, strong companies for years, even Amazon, and we compete effectively,” he said on the company’s first-quarter earnings call. Roku reported mixed results and slowing account growth. “The reason we win in these markets is that we built the only purpose-built operating system for TV. We’re incredibly focused on streaming. It’s all we do. And we’ve got a great team. Our A team comes to work every day to build the best streaming products in the business.”

Charter will contribute $900 million over several years to the new venture, which is expected to launch in 2023. Comcast’s Flex devices and smart-TVs are in about 4 million households and have also been licensed to significant rivals like Cox. The expenses associated with streaming tech, Wood believes, create another obstacle. “The amount of money that goes into building a competitive streaming platform is very large and growing,” he said. “We’re funneling a big chunk of our gross profit back into increasing the strength of our platform. It’s very hard for a new player. It’s hard for me to imagine them being successful, given the long number of years we’ve invested in our platform, and our competitors have as well.”

He added that telephones and personal computers used to have an array of competitors, but those sectors ultimately consolidated because leading companies were able to more easily amortize costs.

Roku and Amazon Fire TV lead the U.S. streaming market. In its quarterly results, Roku said it had 61.3 million active accounts as of March 31, across connected devices and smart TVs equipped with its interface.

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Roku reported a 28% year-over-year upswing in revenue to $734 million in the first quarter, ahead of Wall Street forecasts, but it also narrowly missed analysts’ target on the bottom line.

Losses per share reached 19 cents on a diluted basis, compared with profit of 54 cents a year ago. Wall Street had expected a penny less at 18 cents.

Battered Roku shares, which have lost more than half their value in 2022 to date, fell double digits in after-hours trading before recovering to the break-even point. They had finished the regular trading day at $91.63, up 8%.

The company added 1.1 million active accounts, reaching 61.3 million. Growth in that area has slowed significantly in recent quarters, adding to investor anxieties about supply chain and competition, though Roku remains a dominant gatekeeper in streaming. Yesterday, top cable and broadband providers Comcast and Charter announced a joint venture for a direct competitor to Roku based on Comcast’s Flex streaming offering.

In its quarterly shareholder letter, Roku blamed the sluggish account figures on forces beyond its control. It pointed to strong growth in average revenue per user, or ARPU, which jumped 34% on a trailing 12-month basis, to $42.91.

“Account net adds moderated given the end of government stimulus payments that served to temporarily drive discretionary consumer spend in Q1 2021. Additionally, ongoing supply chain disruptions contributed to increased U.S. TV prices in Q1 2022, resulting in industry-wide TV unit sales that were below 2019 (pre-Covid) levels,” the letter said. “Our streaming player unit sales remained above 2019 (pre-Covid) levels but were down 12% year-over-year.
Importantly, our strong and growing ARPU has allowed us to strategically prioritize account acquisition and insulate consumers from rising material and shipping costs in our player business.”

The letter went on to point to an event the company considers and important milestone: streaming surpassing linear viewing. It cited a Nielsen report about viewership in March that determined 65% of adults aged 18 to 49 used their TVs for streaming compared with 63% watching legacy pay-TV, including both set-top boxes and DVRs.

The Roku Channel, the company’s five-year old hub largely for free and ad-supported programming, was a top 5 app on Roku in terms of hours of engagement and reach to active accounts.