Roku, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. Comparisons are to Q1 2022 unless otherwise noted. Roku reports Platform and Devices segments. Amounts below are in U.S. dollars.
Key financial metrics
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Platform revenue | $634.6 million | $643.7 million |
| Devices revenue | $106.4 million | $90.0 million |
| Total revenue | $741.0 million | $733.7 million |
| Gross profit | $337.6 million; 45.6% margin | $364.8 million; 49.7% margin |
| Operating loss | $212.5 million; 28.7% of revenue | $23.5 million; 3.2% of revenue |
| Net loss | $193.6 million; $1.38 per diluted share | $26.3 million; $0.19 per diluted share |
| Cash from operating activities | $(153.4) million | $101.8 million |
| Cash used in investing activities | $(59.2) million | $(14.8) million |
| Cash used in financing activities | $(79.1) million | $2.1 million |
At March 31, 2023, cash and cash equivalents were $1.63 billion, with an additional $40.7 million in restricted cash. Total assets were $4.06 billion and total liabilities were $1.50 billion. Roku had no outstanding debt after repaying its $80 million term loan in February. Operating lease liabilities totaled $641.6 million.
Material changes versus Q1 2022
- Total revenue grew 1%: Devices revenue rose 18%, while Platform revenue declined 1% as advertising weakness more than offset growth in content distribution services.
- Gross profit fell 7%. Platform gross profit declined 12%, reflecting softer advertising and higher content-related costs. Devices gross profit improved to $3.6 million from a $13.1 million loss, helped in part by a $10.0 million prior-period licensing transaction price adjustment and lower supply-chain cost pressure.
- Operating expenses increased 42% to $550.1 million. Research and development rose 34%, sales and marketing 60%, and general and administrative 23%. The quarter included $31.3 million of restructuring charges.
- Operating cash flow shifted from a $101.8 million inflow to a $153.4 million outflow. Management attributed the 2023 outflow in part to payments for content, marketing and retail costs, payroll, accounts payable, and other accrued liabilities.
- Active accounts increased 17% to 71.6 million and streaming hours rose 20% to 25.1 billion. ARPU decreased 5% to $40.67.
Outlook, commentary, risks and unusual items
- Management said it expects year-over-year operating expense growth to decline significantly over the course of 2023. The filing does not provide a clear numerical revenue, profit, or cash-flow forecast.
- Roku cited inflation, recessionary concerns and supply-chain effects as pressures on consumer demand and advertising spending. It expects these conditions to remain difficult to predict.
- In March, Roku approved additional workforce reductions and plans to exit, sublease or cease use of certain office facilities. It recorded $31.3 million in related restructuring charges and expected most cash payments to be substantially complete by the end of Q2 2023.
- Roku reported approximately $487 million on deposit at Silicon Valley Bank when it failed; the company stated it had full control of its cash and cash equivalents after the FDIC transfer to the bridge bank.
- Roku recognized a $3.2 million unrealized gain on its Level 3 strategic investment, contributing to $23.1 million of other income. The investment had a $47.7 million fair value at quarter-end and is valued using significant unobservable assumptions.
- Known obligations include $122.4 million of non-cancelable inventory purchase commitments and $350.4 million of content obligations, of which $236.8 million was not yet recognized on the balance sheet. Roku also reported $30.3 million of commitments for leases not yet commenced.
- Management believes existing cash and cash equivalents are sufficient for working capital, capital expenditures and known material cash requirements for the next 12 months and beyond. Risks include advertising-market weakness, intense competition, reliance on content and manufacturing partners, privacy and cybersecurity requirements, and macroeconomic uncertainty.
Important facts for investors to verify
- Whether advertising demand and Platform gross profit recover, and whether account and streaming-hour growth translate into higher monetization and ARPU.
- How much of the Devices revenue increase reflects recurring demand versus the $10.0 million prior-period licensing adjustment.
- Whether expense growth moderates as planned, and the full cash and operational effects of restructuring.
- Cash-flow trends, particularly working-capital movements and spending on property, facilities, content and inventory commitments.
- The valuation and repayment outlook for the strategic investment, and the status of restricted cash and letters of credit.