November 3, 2021

Fellow Shareholders,

In the third quarter, ARPU surpassed the milestone of $40 (trailing 12-month basis) and grew nearly 50% year-over-year. As the global shift to TV streaming continues, our performance demonstrates the strength of our business fundamentals and the momentum of our platform monetization. We are making significant progress with traditional TV advertisers, while also expanding our total addressable market to digital-first advertisers. Despite the ongoing headwinds created by the global supply chain disruptions, Roku remains well positioned as a result of our scale, brand, technology, and relentless focus on the TV streaming experience.

Key Results

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* Reported streaming hours data reflects previously disclosed adjustments to our streaming hours calculations for periods prior to Q4 2020.

Account Growth

We grew active accounts by 1.3 million, ending the third quarter with 56.4 million, which was driven by sales of our streaming players and Roku TV™ models. We believe that the slowdown in active account growth rate this quarter was, in large part, attributable to global supply chain disruptions that have impacted the U.S. TV market. Specifically, overall U.S. TV sales in Q3 fell below pre-COVID 2019 levels. Some of our Roku TV OEM partners were hit particularly hard with inventory challenges, which negatively impacted their unit sales figures and market share in Q3.

While Roku player unit sales were down year-over-year in Q3 2021 (following the extraordinary demand spike we saw in Q3 2020), unit sales were above pre-COVID Q3 2019 levels. Our player unit costs were impacted by the supply chain disruptions. However, we chose to insulate our consumers from these increased costs to prioritize account growth, resulting in Player gross margin decreasing to -15%. We view this Player gross margin erosion as temporary, and we continue to take action to maximize our manufacturing flexibility, including active sourcing strategies and adapting our software and re-designing for more readily available chips and components.

Roku’s streaming hours in Q3 totaled 18.0 billion, a 21% increase year-over-year. Streaming hours per active account per day were 3.5 hours, consistent with Q2 2021 and slightly higher than Q3 2019. According to Nielsen, we continue to outperform the viewing hour growth rates of both traditional TV and other TV streaming platforms.

Product Launches

We continue to enhance the appeal of our devices with hardware innovation and in Q3 we launched the all-new Roku® Streaming Stick® 4K and the Roku Streaming Stick 4K+, which includes the Roku Voice Remote Pro, Dolby Vision® and HDR10+. The Roku Streaming Stick 4K and 4K+ received Editor’s Choice awards from four different media outlets including Tom’s Guide, TechHive, Reviewed.com and Android Authority, while earlier this year, the Roku Express 4K+ maintained our 12-year CNET Editors’ Choice award streak. In October, we launched a new brand campaign which supports these new products as we enter the holiday season.

We also announced Roku OS 10.5, our updated operating system that powers our streaming devices and our partners’ Roku TV models. Roku OS 10.5 delivers multiple new features, including one-click access to The Roku Channel’s Live TV guide directly from the home screen, an expanded number of channels that support voice commands, new surround sound configurations, private listening made even better for wireless headphones, and new “Save List” capabilities in the Roku mobile app.

We continue to expand internationally, recently launching streaming players and the Roku platform in Germany, now with more than 2,000 channels including apps from top local and global partners. We announced a brand-new lineup of SEMP TCL Roku TV models for Brazil and will bring TCL Roku TV models to the country this year. Building on this momentum, we will expand our TV footprint in Latin America to Chile and Peru with Roku TV models later this year.

Platform Monetization

In Q3 — even with tough year-over-year comparisons — we grew Platform revenue 82% year-over-year to $583 million, reflecting significant contributions from both content distribution and advertising activities. Despite some macro challenges that impacted advertising partners in certain industries, ARPU surpassed the milestone of $40 (trailing 12-month basis), an increase of nearly 50% year-over-year.

Content Distribution

Content publishers, large and small, are using the tools and reach provided by the Roku platform to build and retain streaming audiences, and as a result, Media & Entertainment promotional spending continued to grow significantly faster than the overall platform. For example, the weekend after the release of “PAW Patrol: The Movie”, Paramount+ wanted to drive extra buzz to sustain momentum and engage new audiences. Paramount+ took over the home screen with a custom campaign that helped make the movie one of the service’s most-watched originals. Additionally, as more publishers launch their own channels, the distribution of U.S. streaming hours on our platform has shifted: in Q3, channels outside the top ten increased their share of total streaming hours by nearly five percentage points.

The Roku Channel Growth

With The Roku Channel, we have a flywheel of content that grows engagement, which accelerates advertising revenue, which then enables more investment in content.  In Q3, The Roku Channel grew in both reach and engagement: it was a

top five channel on the platform by active account reach, and streaming hours more than doubled year-over-year. This growth was fueled in part by the continued expansion of our content strategy, including:

We acquired This Old House in March, and it is a good demonstration of The Roku Channel flywheel. By combining our first-party viewer insights with our recommendation capabilities, we grew streaming hours of This Old House on The Roku Channel by nearly 50% since our acquisition. With significantly increased engagement and subsequent advertising revenue to reinvest, we added 13 new episodes to the upcoming seasons of both This Old House and Ask This Old House and launched two new This Old House streaming channels.

With The Roku Channel, we are able to provide advertisers with creative new ways to go beyond the traditional 30-second ad spot and reach consumers who spend time primarily in ad-free, subscription environments. “Roku Recommends” is a 15-minute weekly entertainment program that recommends films and TV shows to viewers. “Roku Recommends” has been sponsored by brands such as Walmart, and the show has been a top-10 video-on-demand television series on The Roku Channel since its debut in June.

Ad Business Strength

Since day one, we’ve been building Roku not just for TV streaming but also for TV streaming advertising. Roku is a primary beneficiary as advertisers follow viewers who are moving to TV streaming from traditional pay TV. According to Nielsen, in Q3 ratings for adults 18-49 on traditional TV fell 19% year-over-year, creating supply shortages and increasing ad prices. As a result, the top 10 cable TV advertisers doubled spend on the Roku platform year-over-year. Total monetized video ad impressions nearly doubled year-over-year, driven by strong client acquisition and retention.

Building on this success with traditional TV advertisers, we are also expanding our total addressable market (TAM) to direct-to-consumer and small/medium businesses (SMBs) that currently spend primarily on digital and social media platforms. Our scale and first-party data are differentiators with these advertisers. OneView®, our ad buying platform built for TV streaming, enables cross-screen targeting, measurement, and optimization of campaigns on TV streaming, desktop, and mobile. For example, Lovevery, a DTC brand, used OneView to reach potential purchasers of products for infants and toddlers. The cross-screen campaign drove a 72% lift in website visits, 105% lift in subscriptions, and 170% lift in purchases. Spending by smaller advertisers (those outside the Ad Age top 200) continued to significantly outpace the overall growth in spending on Roku, and once again TV streaming impressions delivered through OneView more than doubled year-over-year in Q3.

We are also building new advertiser products for SMBs to access the OneView platform. In Q3, we announced a new tool that will allow Shopify merchants to easily build, buy, and measure TV streaming advertising campaigns on the Roku platform. Interest in the capability has been strong, with our beta partnership goals filled in just one day.

Outlook

Looking ahead, our business fundamentals remain strong but we are mindful that the challenges created by the global supply chain disruptions will likely continue into 2022.  These headwinds may have a broad impact on the holiday season in terms of consumer confidence, product pricing and availability, and advertising spend levels.

While the pandemic has had different impacts on different parts of our business, the secular shift to streaming remains intact. Our Q4 outlook is for strong growth with total net revenue of $893 million at the midpoint (up 37% year-over-year), and total gross profit of $385 million at the midpoint (up 26% year-over-year).

We continue to see a large opportunity ahead of us and are investing in headcount, product development, and sales & marketing to drive future growth. We anticipate these investments will increase operating expenses on a sequential basis and as a result, we expect Q4 adjusted EBITDA to be $70 million at the midpoint in Q4.

Conclusion

Roku was founded based on the belief that all TV and all TV advertising will be streamed. The global shift to TV streaming remains intact. Our platform monetization was strong, even with the outperformance in the prior Q3, and we further expanded our advertising TAM with digital marketers and SMBs. We have a relentless focus on building the best TV streaming platform that benefits audiences, content publishers, and advertisers, and we remain well positioned for the long term.

Thank you for your support and Happy Streaming™!

Anthony Wood, Founder and CEO; and Steve Louden, CFO

The Company will host a webcast of its conference call to discuss Q3 2021 results at 2 p.m. Pacific Time / 5 p.m. Eastern Time on November 3, 2021. Participants may access the live webcast in listen-only mode on the Roku investor relations website at roku.com/investor. An archived webcast of the conference call will also be available at roku.com/investor after the call.

About Roku, Inc.

Roku pioneered streaming to the TV. We connect users to the streaming content they love, enable content publishers to build and monetize large audiences, and provide advertisers with unique capabilities to engage consumers. Roku streaming players and TV-related audio devices are available in the U.S. and in select countries through direct retail sales and licensing arrangements with service operators. Roku TV™ models are available in the U.S. and in select countries through licensing arrangements with TV brands. Roku is headquartered in San Jose, Calif. U.S.A. 

Roku, the Roku logo and other trade names, trademarks or service marks of Roku appearing in this shareholder letter are the property of Roku. Trade names, trademarks and service marks of other companies appearing in this shareholder letter are the property of their respective holders.

Use of Non-GAAP Measures

In addition to financial information prepared in accordance with generally accepted accounting principles in the United States (GAAP), this shareholder letter includes certain non-GAAP financial measures. These non-GAAP measures include Adjusted EBITDA. In order for our investors to be better able to compare our current results with those of previous periods, we have included a reconciliation of GAAP to non-GAAP financial measures in the tables at the end of this letter. The Adjusted EBITDA reconciliation adjusts the related GAAP financial measures to exclude other income (expense), net, stock-based compensation expense, depreciation and amortization, and income tax (benefit)/expense where applicable. We believe these non-GAAP financial measures are useful as a supplement in evaluating our ongoing operational performance and enhancing an overall understanding of our past financial performance. However, these non-GAAP financial measures have limitations, and should not be considered in isolation or as a substitute for our GAAP financial information.

Forward-Looking​ ​Statements

This shareholder letter contains “forward-looking” statements that are based on our beliefs and assumptions and on information currently available to us. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as “anticipate,” “believe,” “continue,” “could,” “design,” “estimate,” “expect,” “may,” “seek,” “should,” “will,” “would” or similar expressions and the negatives of those terms. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements represent our beliefs and assumptions only as of the date of this letter. These statements include those related to the continuing shift of audiences, content, and advertisers to TV streaming; the benefits of our technology and platform to our long-term growth; the resolution of global supply chain disruptions, tight component supply conditions and shipping constraints; actions taken to maximize manufacturing flexibility to minimize player cost and gross margin erosion; our user experience; our ability to innovate, build and launch new products and services; our international expansion, including Roku TV models into Chile and Peru; the performance, growth and monetization of, and content available on, The Roku Channel; advertisers moving their budgets to streaming;  the expansion of our TAM to direct-to-consumer and SMBs that primarily advertise on digital and social media platforms; the benefits and features of the OneView platform;  our competitive advantages; the impact of the COVID-19 pandemic and varying rates of recovery around the world on our business and the industries we operate in; our financial outlook for the fourth quarter and full year 2021; our investments; and our overall business trajectory. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in the forward-looking statements, even if new information becomes available in the future. Further information on factors that could cause actual results to differ materially from the results anticipated by our forward-looking statements is included in the reports we have filed with the Securities and Exchange Commission, including our Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q. All information provided in this shareholder letter and in the attached tables is as of November 3, 2021, and we undertake no duty to update this information unless required by law.

ROKU, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data)

(unaudited)

ROKU, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except par value data)

(unaudited)

ROKU, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)

(unaudited)

NON-GAAP INFORMATION (in thousands)

(unaudited)

Quarterly streaming hours published vs. revised streaming hours (billions) 0b 2b 4b 6b 8b 10b 12b 14b 2017 q1 2017 q2 2017 q3 2017 q4 2018 q1 2018 q2 2018 q3 2018 q4 2019 q1 2019 q2 2019 q3 2019 q4 2020 q1 published streaming hours revised streaming hours