01—Abstract
Summary
Summary of the 10-K filed March 1, 2019. Cited figures are marked; the original filing is the authoritative source.
Roku, Inc. reported total net revenue of $742.5 milliona for the year ended December 31, 2018, up 45% from $512.8 million in 2017, with gross profit of $332.1 million, up 66%.
Platform revenue rose to $416.9 millionb (up 85%), while player revenue was $325.6 million (up 13%). The company remained unprofitable on a net basis, reporting a net loss attributable to common stockholders of $8.9 million for 2018, compared with a net loss of $63.5 million in 2017, which included a $40.3 million charge for the change in fair value of preferred stock warrant liability. Loss from operations narrowed to $13.3 million from $19.6 million, and the filing notes that an $8.9 million release of intellectual property licensing accruals benefited cost of player revenue in 2018.
Operating metrics grew strongly. Active accounts reached 27.1 million at December 31, 2018, an increase of 40% from the prior year, and hours streamed rose 62% to 24.0 billion. ARPU was $17.95c, up 30% from $13.78.
Operating expenses increased to $345.4 milliond, driven by research and development ($170.7 million, up 58%) and sales and marketing ($102.8 million, up 60%). The company ended 2018 with cash and cash equivalents of $155.6 million and cash, cash equivalents and short-term investments of $197.7 million. Operating cash flow was $13.9 million, versus $37.3 million in 2017.
Subsequent to year-end, on February 19, 2019, Roku entered into a credit agreement with Morgan Stanley Senior Funding, Inc. providing a four-year $75.0 million revolving credit facility and a four-year $75.0 million delayed draw term loan A facility, plus an uncommitted incremental facility, secured by substantially all assets. The company stated it expects its existing cash, short-term investments and credit facility availability to fund working capital and anticipated cash needs for the next twelve months, and it expects material expenses to begin in 2019 related to its new San Jose headquarters lease. Risk factors highlight dependence on a small number of content publishers, concentration of player revenue among Amazon, Best Buy and Walmart (68% of player revenue in 2018), and reliance on contract manufacturers in China.
02—Key points
Key Highlights
- Total net revenue of $742.5 million in 2018, up 45% from $512.8 million in 2017.
- Platform revenue of $416.9 million, up 85%, while player revenue of $325.6 million rose 13%.
- Gross profit of $332.1 million, up 66% year over year; platform gross profit was $296.3 million.
- Net loss attributable to common stockholders narrowed to $8.9 million in 2018 from $63.5 million in 2017, with loss from operations of $13.3 million versus $19.6 million.
- Active accounts reached 27.1 million (up 40%), hours streamed reached 24.0 billion (up 62%), and ARPU rose to $17.95 (from $13.78, up 30%).
- Operating cash flow was $13.9 million in 2018 versus $37.3 million in 2017; cash, cash equivalents and short-term investments totaled $197.7 million at year-end.
- Subsequent event: February 19, 2019 credit agreement with Morgan Stanley Senior Funding providing $75.0 million revolving and $75.0 million term loan A facilities.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2018, Roku lost $0.01.
- Revenue$742.5M100.0%
- Cost of revenue−$410.4M55.3%
- Gross profit$332.1M44.7%
- Operating costs−$345.4M46.5%
- Operating income−$13.3M1.8%
- Interest, other & tax$4.4M0.6%
- Net income−$8.9M1.2%
04—Financials
Financial Highlights
Figures from 10-KFY2018filed March 1, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $742.51M$512.76M | +44.8% |
| Cost of Revenue | $410.36M$312.93M | +31.1% |
| Gross Profit | $332.15M$199.83M | +66.2% |
| R&D Expenses | $170.69M$107.94M | +58.1% |
| Operating Expenses | $345.44M$219.45M | +57.4% |
| Operating Income | -$13.30M-$19.62M | +32.2% |
| Net Income | -$8.86M-$63.51M | +86.1% |
| EPS (Basic) | $-0.08$-2.24 | +96.4% |
| Shares Outstanding (Basic) | 104.62M28.31M | +269.6% |
05—Questions
Frequently Asked Questions
How did Roku's revenue and profitability change in 2018?
Total net revenue rose 45% to $742.5 million, and gross profit rose 66% to $332.1 million. Net loss attributable to common stockholders was $8.9 million, compared with $63.5 million in 2017, which included a $40.3 million charge tied to preferred stock warrant fair value changes. The filing notes an $8.9 million release of intellectual property licensing accruals benefited 2018 cost of player revenue.
What drove growth in platform revenue?
Platform revenue increased $191.5 million, or 85%, to $416.9 million. The filing attributes $170.6 million of the increase to advertising, subscription and transaction revenue share and the number of paid subscriptions, and $21.2 million to licensing arrangements with service operators and TV brands. Platform revenue also includes $25.2 million recognized from adopting the new revenue standard.
How did player sales perform?
Player revenue increased $38.2 million, or 13%, to $325.6 million, reflecting a 19% increase in players sold, mainly lower-priced models, offset by a 6% decrease in average selling price. Amazon, Best Buy and Walmart together accounted for 68% of player revenue in 2018.
What are the company's liquidity position and financing arrangements?
Cash, cash equivalents and short-term investments were $197.7 million at December 31, 2018. Roku stated these, together with credit facility availability, should be sufficient for the next twelve months. On February 19, 2019, it entered into a credit agreement providing $75.0 million of revolving credit and a $75.0 million term loan A, secured by substantially all assets, with a minimum adjusted quick ratio covenant of 1.00 to 1.00. The company made no borrowings at closing and repaid its Silicon Valley Bank loan agreement.
What key risks does the filing highlight?
The filing highlights dependence on a small number of content publishers for most streaming hours, intense competition from Amazon, Google, Apple and TV brands, reliance on contract manufacturers in the People's Republic of China, sole-source component suppliers, and the company's limited ability to monetize streaming hours outside certain channels. It also notes the company has not yet achieved sustained profitability, and that CEO Anthony Wood holds Class B shares with 10 votes per share, giving him significant control.
06—Continue