Roku, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Financial statements are unaudited. Unless otherwise noted, amounts are in U.S. dollars.
Business context and reporting period
Roku operates a TV-streaming platform and reports Platform and Player segments. Platform revenue comes mainly from advertising, content distribution, subscriptions and related services; Player revenue is primarily streaming devices and audio products. The filing was signed August 5, 2021.
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Platform revenue | $532.3 million | $244.8 million | $998.8 million | $477.3 million |
| Player revenue | $112.8 million | $111.3 million | $220.5 million | $199.5 million |
| Total revenue | $645.1 million | $356.1 million | $1,219.3 million | $676.8 million |
| Gross profit | $338.3 million | $146.8 million | $665.0 million | $287.9 million |
| Operating income (loss) | $69.1 million | ($42.2 million) | $144.9 million | ($97.4 million) |
| Net income (loss) | $73.5 million | ($43.1 million) | $149.8 million | ($97.8 million) |
| Diluted EPS | $0.52 | ($0.35) | $1.06 | ($0.81) |
- Q2 revenue grew 81% year over year; Platform revenue rose 117%, while Player revenue increased 1%. For the first half, revenue grew 80%, with Platform up 109% and Player up 11%.
- Q2 gross margin was approximately 52% overall: Platform gross profit was $345.0 million and Player gross profit was negative $6.7 million. First-half overall gross margin was approximately 55%.
- Operating expenses were $269.2 million in Q2, up 42%, and $520.1 million for the first half, up 35%. Stock-based compensation was $42.5 million in Q2 and $83.1 million for the first half.
- Six-month operating cash flow was $144.8 million, compared with $80.1 million in 2020. Investing used $150.7 million, including $136.8 million for business acquisitions; financing provided $997.4 million, primarily from the ATM equity offering.
- Cash and cash equivalents were $2,083.3 million at June 30, 2021, versus $1,092.8 million at year-end 2020. Current assets were $2,799.2 million and current liabilities $611.3 million.
- Debt had a $92.5 million principal balance ($92.3 million net carrying value); the effective rate was 2.02%, with maturity in February 2023. The company reported compliance with loan covenants. It also had $30.8 million of letters of credit outstanding against the revolving facility.
Material changes versus the prior comparable period
- Profitability improved substantially from losses in Q2 and the first half of 2020, driven chiefly by Platform growth and higher gross profit. Platform remained the principal source of gross profit.
- Player economics weakened: Q2 Player gross profit turned negative, primarily because of higher manufacturing costs and inventory reserves amid supply-chain constraints. Q2 player unit volume decreased 1% and average selling price decreased 2% year over year.
- Roku raised $1.0 billion gross, or $989.6 million net, through an at-the-market offering in March, issuing approximately 2.6 million shares. Cash increased accordingly; the offering also diluted existing shareholders.
- Roku acquired This Old House for $97.8 million and Nielsen’s Advanced Video Advertising business for stated consideration of $47.4 million; purchase-price allocations were preliminary. It also acquired Quibi content rights, contributing to a sharp increase in content assets and amortization.
Outlook, management commentary, risks and unusual items
- No quantified full-year revenue or earnings guidance is provided in the filing. Management expected sequential increases in operating expenses to support growth and competitive investment, and believed available cash, operating cash flow and undrawn credit capacity would cover working-capital needs for at least 12 months.
- Management said active accounts reached 55.1 million, up 28% year over year, while streaming hours were 17.4 billion, up 19% year over year but lower sequentially than Q1. It attributed the sequential decline to consumers returning to out-of-home activities; it cautioned that post-pandemic patterns and comparisons could remain volatile.
- ARPU was $36.46, compared with $24.92 a year earlier. Management expected advertising budgets to continue shifting toward streaming, but noted that pandemic-related viewing and demand trends were not assured to persist.
- Supply-chain and shipping constraints increased component costs and pressured Player gross profit. The filing said COVID-19-related supply-chain effects could continue into 2022. Roku had $260.5 million in inventory purchase commitments and $176.6 million in other non-cancelable content, advertising and platform commitments.
- Roku disclosed that earlier streaming-hours figures had included some pause time. It adjusted historical estimates for affected periods; the errors did not affect financial results and did not require restatement of other operating metrics.
- Other risks include strong competition, dependence on content publishers and advertising demand, concentrated retail distribution, component and contract-manufacturer availability, privacy and cybersecurity regulation, and the uncertain effects of COVID-19. The top three streaming services represented over half of Q2 streaming hours; Amazon, Best Buy and Walmart together represented 65% of Q2 Player-segment revenue.
- The company reported ordinary-course legal proceedings and said it did not believe their outcomes were reasonably likely to have a material adverse effect. Acquisition valuations remained preliminary; contingent consideration for the Nielsen deal was not expected as of June 30.
Important facts for investors to verify
- Whether Platform growth and margins remain strong as advertising and content-distribution revenue evolve, and how much of recent growth reflects pandemic-related comparisons.
- Whether supply constraints, inventory reserves and product costs continue to depress Player gross profit, and whether Roku can meet its manufacturing and purchase commitments.
- Cash-flow quality and working-capital trends, including receivables, contract assets and content-related spending; reconcile operating cash flow with net income.
- Acquisition integration, final purchase-price allocations, content monetization and any future contingent payments.
- Effects of the March equity issuance, ongoing stock-based compensation and potential future dilution; monitor debt repayment and February 2023 maturity.
- Use the adjusted historical streaming-hours data when comparing engagement trends, and review the filing’s disclosures on data privacy, cybersecurity, publisher concentration and supply-chain exposure.