Roku Revenue Breakdown, Profitability And Margin

TV streaming. Pixabay image.

This article presents the revenue and revenue breakdown of Roku, Inc., (NASDAQ:ROKU).

Roku is a pioneer in TV streaming and operates primarily in North America and Europe.

Before we start, let’s briefly introduce Roku’s revenue segments.

Roku’s revenue consists of two reportable segments, namely platform, and devices.

For your information, the devices segment was previously called the player segment.

The reorganization was done in fiscal 4Q 2022 and data up to fiscal 4Q 2021 was recast based on the new segments.

All told, let’s explore the following topics.

How Roku Earns Revenue

Under the platform segment, Roku earns revenue from the sale of digital advertising and services.

Digital advertising is sold to advertisers directly or through advertising agencies and to content publishers for their media and entertainment promotions via various campaign tools.

Digital advertising includes video and display advertisements delivered through advertising impressions.

On the other hand, services revenue includes the sale of demand-side ad platforms and revenue from content distribution.

Content distribution revenue consists of the sale of monthly subscriptions for premium content on The Roku Channel for varying fees for different content.

Apart from the sale of monthly subscriptions, Roku also sells branded channel buttons on remote controls of streaming devices that provide one-touch access to a publisher’s content.

Under the devices segment, Roku earns revenue from the sale of streaming players, audio products, smart home products, and accessories that are sold through retailers and distributors, as well as directly to customers through the company’s website.

Devices revenue primarily consists of hardware, software, as well as upgrades and updates to devices on a when and if-available basis.

Revenue By Year

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On a consolidated basis, Roku earned $3.1 billion, $2.8 billion, and $1.8 billion in the years ended on Dec 31, 2022, 2021, and 2020, respectively.

The FY2022 revenue figure represents a rise of 13% over 2021 or 76% over 2020.

Since fiscal 2017, Roku’stotal revenue has grown by more than 500%.

Revenue By Quarter

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On a quarterly basis, Roku earned $847 million, $741 million, and $867 million in 2Q 2023, 1Q 2023, and 4Q 2022, respectively.

Roku forecasts that it will earn $815 million in 3Q 2023, a rise of 7% over the same quarter a year ago.

The 2Q 2023 quarterly revenue represents a rise of 11% over the same quarter a year ago.

Revenue By TTM

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The TTM plot presented in the chart above is a lot smoother than the quarterly plot.

Since fiscal 2017, Roku’s revenue has been on a smooth ride and reached a record figure of $3.2 billion in fiscal 2Q 2023.

In the next quarter in 2023, Roku’s TTM revenue is expected to come in at $3.3 billion USD, representing a rise of 5% over the same quarter a year ago.

A trend worth mentioning is that Roku’s revenue growth on a TTM basis seems to have slowed considerably during the post-pandemic period.

Revenue Growth Rates

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As presented in the plot above, Roku’s revenue growth has considerably slowed in the post-pandemic period.

As of 2Q 2023, Roku’s TTM revenue grew only 5.7% compared to 31.1% recorded a year ago, the lowest figure over the past 6 years.

The projected revenue growth for fiscal 3Q 2023 is expected to come even lower at only 4.7% compared to the 22.6% recorded a year ago.

It seems like the low-single digits growth rate is the norm now for Roku.

Platform And Devices Revenue

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Roku’s platform segment earned $2.7 billion, $2.3 billion, and $1.3 billion in annual revenue in the years that ended on Dec 31, 2022, 2021, and 2020, respectively.

For the devices segment, Roku earned $415 million, $500 million, and $511 million in annual revenue in the years that ended on Dec 31, 2022, 2021, and 2020, respectively.

In just 6 years, Roku’s platform revenue has multiplied by more than 10X while devices revenue may have already peaked in fiscal 2020.

Platform And Devices Revenue In Percentage

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From the perspective of percentages, Roku’s platform revenue reported in fiscal 2022 accounts for up to 87% of the company’s total sales.

On the other hand, Roku’s devices revenue accounts for only 13% of the company’s total sales in fiscal 2022.

Since fiscal 2017, the percentage of Roku’s platform revenue has grown from 44% to a massive 87%, roughly double the figure over the past 6 years.

In contrast, the percentage of Roku’s devices revenue has declined from 56% to just 13% as of fiscal 2022.

Platform And Devices Revenue Growth Rates

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In terms of growth rates, Roku’s platform segment has much better revenue growth than the devices segment.

As seen, Roku’s platform revenue growth clocked 20%, 79%, and 71% for fiscal 2022, 2021, and 2020, respectively, compared to -17%,-2%, and 32% recorded in the devices segment for the same period.

While the platform segment had had incredible revenue growth in the earlier years, the latest figure shows that revenue growth totaled only 20%, the lowest figure that had ever been reported over the past 5 years.

Therefore, Roku’s platform revenue growth slowed considerably in fiscal 2022.

The same trend applies to the company’s devices segment whose revenue has in fact been on the decline since fiscal 2021.

Gross Profit And Margin

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Roku’s gross profit totaled $1.4 billion in fiscal 2022, roughly in line with the number reported in the prior year.

While gross profit has remained unchanged, the company’s gross margin has declined from 51% to 46% in fiscal 2022, illustrating the lower profitability despite having much higher revenue in the same period.

In fact, Roku’s gross margin may have already peaked in fiscal 2021.

Also, Roku’s declining gross margin may have been driven by the rising costs associated with acquiring advertising inventory as well as the rising costs of content, both licensed and produced.

Operating Profit And Margin

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Roku is not a profitable company and only managed to produce a positive operating income in fiscal 2021 over the past 6 years.

Between fiscal 2016 and 2022, Roku’s operating profit and margins were mostly negative, indicating the unprofitability of the company’s operations.

In fact, Roku’s operating loss worsened to a record figure of $531 million in fiscal 2022, driven primarily by higher research and development expenses as well as soaring sales and marketing costs.

Net Profit And Margin

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Similarly, Roku was only profitable in fiscal 2021.

Between fiscal 2016 and 2022, Roku was mostly having net losses.

In fiscal 2022, Roku’s net loss totaled a record figure of $500 million USD, probably the worst loss that the company has ever recorded.

Adjusted EBITDA And Margin

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Roku generated positive adjusted EBITDA in most fiscal years but the figures had been small.

In fiscal 2021, Roku’s adjusted EBITDA came in at $465 million while the margin was 17%, most likely the best record the company had ever produced.

In fiscal 2022, Roku’s adjusted EBITDA reverted to a loss, totaling -$84 million and the respective margin was -2.7%,

Platform And Devices Gross Profit

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The breakdown of Roku’s profitability by segment shows that the platform segment generates the majority of profit for the company.

More importantly, the gross profit produced by Roku’s platform segment has been on the rise and reached a record figure of $1.5 billion as of fiscal 2022, up 6% over 2021 and more than double the figure reported in 2020.

On the other hand, Roku’s gross profit generated from the devices segment was a lot smaller and had been insignificant.

In fact, Roku had even started incurring losses in the devices segment since fiscal 2021, most likely driven by higher manufacturing costs payable to third-party manufacturers for devices sold.

Platform And Devices Gross Margin

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While Roku’s platform segment gross profit has been on an exponential rise, the gross margin has been the other way around.

As shown in the chart above, Roku’s platform segment gross margin has declined from the prior high of 75.6% reported in fiscal 2017 to only 56.5% as of fiscal 2022.

Roku’s devices segment gross margin is even worse.

As seen, the devices segment gross margin not only had been on the decline but also tumbled to a new low of -21.8% as of fiscal 2022, indicating the massive loss under this segment.

In short, Roku makes no money under the devices segment.

U.S., U.K., And Other Countries Long-Lived Assets

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Roku operates primarily in the United States as most of the company’s long-lived assets such as buildings, offices, equipment, etc, are located in this region.

As of 2022, Roku had about $687 million of long-lived assets in the U.S.

This figure grew more than 50% in fiscal 2022 from 2021.

Therefore, it is not a surprise to see that the company generated the majority of its revenue from the United States or from the North American region.

Apart from the U.S., Roku also held a considerable amount of assets in the U.K., serving primarily the European market.

As seen, Roku’s long-lived assets in the U.K. more than doubled in fiscal 2022 to $128 million USD, illustrating the growing importance of the European market to the company.

The long-lived assets in other countries had been insignificant.

U.S., U.K., And Other Countries Long-Lived Assets In Percentage

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In terms of percentage, Roku’s long-lived assets located in the United States alone accounted for 80% of the company’s total long-lived assets.

The company’s U.K. assets accounted for 15% as of fiscal 2022 and were up slightly from 2021.

Roku considers the European region an important market and has been increasing its operations in this region.

I believe that the United Kingdom and Europe is Roku’s second most important market after the United States.

Conclusion

To recap, Roku had incredible revenue growth but the growth rate slowed considerably in post-pandemic periods.

While revenue has been on the rise, the margin has been under pressure, particularly in fiscal 2022.

Also, Roku is not a profitable company and the company has been mostly unprofitable in terms of operations and on a net level in most fiscal years since 2017.

Roku only managed to generate a profit in fiscal 2021 over the past 6 years.

Apart from poor profitability, Roku also suffers from poor margins.

Roku makes money only in the platform segment while having losses in the devices segment.

Roku based its operations primarily in the United States where most of the company’s long-lived assets are located.

However, Roku expanded considerably in the United Kingdom in recent years and doubled its assets there in 2022.

Therefore, the European market would be Roku’s second most important market after North America.

Credits and References

1. All financial figures presented in this article were obtained and referenced from Roku, Inc.’s SEC filings, earnings reports, financial statements, news releases, shareholder letters, etc, which are available in Roku Financial Results.

2. Featured images in this article are obtained free and are used without any attribution from Pixabay.

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