ROKU Q1 Earnings Call: Advertising Demand Shifts and Subscription Growth Shape Outlook

Barchart·05/16/2025 07:50:09

Streaming TV platform Roku (NASDAQ: ROKU) announced better-than-expected revenue in Q1 CY2025, with sales up 15.8% year on year to $1.02 billion. The company expects next quarter’s revenue to be around $1.07 billion, close to analysts’ estimates. Its non-GAAP loss of $0.19 per share was 24.8% above analysts’ consensus estimates.

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StockStory’s Take

Roku’s first quarter results were shaped by shifting advertising demand and continued growth in its subscription offerings. Management highlighted that the ongoing migration of ad budgets from traditional TV to streaming, combined with increased adoption of programmatic advertising, were central to recent performance. CEO Anthony Wood emphasized, “Advertisers have already been shifting their budgets from linear to streaming and from direct insertion orders to programmatic. Those are two big trends that are positive for Roku.”

Looking ahead, the company’s guidance is built on expectations that these advertising trends will persist and that new initiatives, including the recent acquisition of Frndly, will accelerate subscription growth. CFO Dan Jedda noted that Roku’s outlook incorporates some macroeconomic caution, but the company is confident in its diversified revenue streams and expects platform revenue and adjusted EBITDA to benefit from both secular industry changes and specific product initiatives over the rest of the year.

Key Insights from Management’s Remarks

Management identified several business drivers and operational changes influencing first quarter results and the outlook for the rest of the year.

• Advertising market evolution: Roku’s ad business benefited from the industry’s shift toward programmatic buying, allowing advertisers increased flexibility and real-time campaign adjustments. Management stated that this trend, accelerated by macro uncertainty, played to Roku’s strengths, with Charlie Collier, President of Roku Media, describing programmatic as “gaining share, because… it offers the flexibility and performance that advertisers need.”
• Subscription momentum: Roku’s subscription business continued to expand, highlighted by the acquisition of Frndly, a “skinny bundle” service. Management explained this acquisition as both a growth driver for subscriptions and as immediately beneficial to adjusted EBITDA margins in its first full year.
• Platform diversification: The company’s multi-year strategy to diversify its revenue base—across advertising formats, subscription products, and home screen engagement—has reduced reliance on any single segment. This diversification was cited as enabling better navigation of market volatility.
• Home Screen and Roku Channel engagement: The Roku Channel became the number two app on the platform by engagement, growing 84% globally year-on-year. Management attributed this to enhanced Home Screen features and targeted UI improvements, which have also increased subscription signups and advertiser interest beyond traditional media & entertainment verticals.
• Tariff and supply chain management: Management addressed concerns over potential tariffs on devices, emphasizing a diversified manufacturing base and the ability to shift production as needed. Mustafa Ozgen, President of Devices, noted that the current tariff structure is not expected to materially affect gross profit for the year, and existing flexibility would help navigate any changes.

Drivers of Future Performance

Roku’s management expects future performance to be driven by continued growth in programmatic advertising, expansion of its subscription base, and disciplined cost management against a backdrop of macroeconomic uncertainty.

• Programmatic advertising gains: Management believes that advertisers’ increased focus on flexibility and return on investment will sustain the shift toward programmatic ad buying. The company has invested in partnerships with demand-side platforms (DSPs) and expects this to be a long-term growth driver.
• Subscription and content expansion: The acquisition of Frndly and further Home Screen improvements are expected to drive growth in subscriptions, with management stating that these initiatives should be accretive to adjusted EBITDA margins in the first full year.
• Manufacturing agility and cost controls: With device tariffs and supply chain risks in mind, management highlighted its diversified production network and pricing strategies as tools to mitigate potential headwinds, aiming to maintain or improve profitability even if market conditions change.

Top Analyst Questions

• Cory Carpenter (JPMorgan): Asked what gives management confidence in reiterating full-year platform and EBITDA guidance amid macro uncertainty; executives cited secular ad trends, diversification, and new initiatives as buffers, with Charlie Collier noting, “programmatic advertising is gaining share.”
• Brent Navon (Bank of America): Inquired about the ability of new business initiatives to offset macroeconomic weakness; Dan Jedda responded that ongoing and yet-to-be-announced initiatives in subscriptions and advertising offer some insulation, though not total immunity to broader downturns.
• Vasily Karasyov (Cannonball Research): Sought clarity on whether programmatic revenue is incremental or cannibalizing prior direct sales; management explained that while some is incremental, much is a reallocation of existing spend, but new partnerships and SMB adoption are net new.
• Laura Martin (Needham): Challenged the rationale for acquiring Frndly and asked about monetizing Roku’s first-party data; executives emphasized the popularity of linear streaming and indicated that while direct data sales aren’t planned, data enhances ad performance and is central to platform differentiation.
• Matt Thornton (FBN Securities): Asked about the inclusion of Frndly in guidance and the impact of tariffs on devices; management confirmed Frndly is included in full-year outlook and said their multi-country manufacturing strategy minimizes tariff risks and supports flexibility.

Catalysts in Upcoming Quarters

In the quarters ahead, the StockStory team will closely monitor (1) the pace of programmatic ad adoption and its impact on overall advertising revenue, (2) the success of integrating and expanding subscription offerings, especially following the Frndly acquisition, and (3) management’s ability to maintain profitability through supply chain shifts and tariff management. Additional attention will be paid to new Home Screen features and their effectiveness in driving user engagement and monetization.

Roku currently trades at a forward EV/EBITDA ratio of 28.1×. Is the company at an inflection point that warrants a buy or sell? Find out in our free research report.

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