Roku, Inc. (ROKU) Earnings Call Transcript & Summary

Good afternoon. Welcome to Citi's AppsEconomy Conference. I'm Jason Bazinet, I cover the media and Internet sectors here at Citi. We have disclosures available to the right of the video player or under the Citi disclosures tab, if you're watching us via Citi Velocity. Very pleased to introduce Steve Louden, CFO of Roku. Steve, how are you?

Good, Jason. Yes, thanks for having us today.

Yes, yes. Thank you for joining us. [Operator Instructions] So maybe I'll just start with just a very simple question, I guess, Steve, like how -- just for those that are maybe less familiar with Roku, maybe just give us a simple overview of Roku's strategy.

Sure. Yes. I mean we have a -- our strategy is -- well, let me start a little higher up, like our vision is that all TV will be streamed and we aspire to be the leading TV operating system in that streaming universe. And our business approach is a three-phase model in any geography that we operate in, right? So we want to build scale of the platform, we want to engage the users and then we want to monetize the platform. And we do that on the account acquisition side via our operating system, which you can get via the players, streaming players as well as we're the leading TV operating system in the U.S. as well. And then we monetize the platform by things like our advertising business, our rev shares from S5 and TVOD and then media entertainment spend, which is effectively spend by the content providers on the platform itself.

Super helpful. Now it seems like maybe you'll disagree with this, but it seemed like a really interesting year in the last 12 to 18 months. I mean we saw a big sort of compression in terms of ad outlays and then a very sharp recovery. We've seen huge amounts of incremental spending occur from all of these SVOD players as they all try and pivot their strategy from linear. We've seen consolidation in the space, right? Some deals have closed, some are sort of pending. But how would you -- of all those changes that have gone on, which ones do you think are the most relevant for Roku? And which ones do you think investors can ignore?

Well, I think you're right. It's never a dull moment in the streaming ecosystem. But certainly the last year, there's been a lot of affirmation of the fundamental changes in TV, as well as some disruptions that have occurred in the macroeconomy that are impacting ours. So I mean, what's heartening to see is that our vision that all TV will be streamed, there's a lot more evidence of progress on that front. You have more and more consumers that are shifting to streaming, whether that's cutting the cord in accelerated numbers or folks that have just never had traditional pay TV that are moving over. That continues and is increasing. Like you said that there's -- from a content publisher side, there are more and more of the companies, especially the legacy media companies over the last 12 to 18 months, have really started to lean into Roku, into streaming as a fundamental proposition for their content. So that's happening more and more. And then the advertising side of things, you're starting to see more of the dollars move over as the advertisers are starting to really put more focus on following the viewers, right? And so the viewers are still much further ahead in terms of the percentage of TV viewing that shifted to streaming versus the money within the average TV -- traditional TV advertising spend that's moved over, but these are all great proof points that the world is moving to streaming. So I think all of those aspects are very important. I think that's really important, given all the swirl we see out there in the world, is to remember that those are all fundamental proof points of that broader secular shift to streaming. And certainly, there's been a lot of disruptions in the world related to COVID. And our industry has not been immune in things like the supply chain disruptions that the industry has seen, that we've seen and our TV partners have seen but there's a very different lens, at least I look at, from those disruptions that we think will normalize over time versus the fundamental trends that remain intact. And so that's how I would characterize what's been happening, and it's not that they -- investors shouldn't pay attention to one or the other, but they should know that they are very different things in terms of secular shifts versus disruptions that we think will abate over time.

That makes perfect sense. So I've got a couple of questions here, if you don't mind, from the investors. So the first one is, what traction or benefits do you see from the investment in Roku Originals and content? And how is the Roku Channel doing?

Yes, good question. So yes, the Roku Original, if you think of 2021, one of the things that has changed is this idea of Roku Originals and a broader emphasis on content within the Roku Channel. If I just can take a step back, if you think about the Roku Channel, its value proposition from the start was that we thought that free ad-supported TV was going to be a very important aspect of streaming for a large group of consumers and really, the Roku Channel is predicated on that free ad-supported proposition. We also have a subscription side of that, which is growing nicely as well, which we call premium subscriptions. But the -- really, the core is that free ad-supported TV. So the business model there has always been to find that content, whether it's licensed, whether it's stuff now that's Roku Originals', and that can create this flywheel within the Roku Channel, right, where more content within this sort of economic box of being free ad-supported TV as opposed to say, an SVOD service, it's really spending a lot of money ahead of the viewership we're spending in line with it. But this new content or broader content is driving increased viewership because of the free ad-supported business model that's driving incremental video ad inventory for us, which we can monetize and then we're driving that investment back in terms of more content. So what you've been seeing is the Roku Channel has been growing very fast. Last quarter, it doubled on a year-over-year basis. That was roughly 5x as fast as the overall platform in terms of the streaming hours, which grew about 20% year-over-year. And this flywheel is working really well. And the Roku Original is a small part of the overall content that's viewed but it's growing. And it's really one of the things that helps to drive viewership, whether it's driving incremental reach in terms of new viewers, whether it's getting people to come back in view and then we see evidence that once people come in with the Roku Originals, that they're also sampling other content. And so really, that's kind of a more marquee part of that strategy of just continuing to invest in strategy that drives that Roku flywheel, and that's working really well for us.

Do you envision a day in the future where there's like big working capital sort of swings as the content investments get large and people have to start navigating that? Or is this more small dollars, a little tuck-in acquisitions and just reaching a commercial agreement with someone that has the content available and you just do some sort of rev share right, by putting it on the Roku Channel?

Right. Yes. So the Roku Channel, right, the predominant model has been rev share licenses. And so that will continue to be an important part of this. But I think the big thing that's changed is the fact that the scale of the Roku Channel and the growth trajectory has increased our kind of the budget that we can spend, while still staying within that business model. And so we are able to make commitments for type of content that we historically weren't comfortable doing within that same business model. And whether it's things like fixed fee direct licenses, whether it's actually doing things like the Quibi acquisition of their content distribution rights is maybe a bit of a unique one-off case. But whether it's tuck-in content acquisitions, like This Old House, or whether it's other production that we're greenlighting, I think it's -- we're still thinking that within that same business model. The commitments will get bigger as the Roku Channel continues to grow. But I think for us, the economic model is consistent.

Okay. I've got another question from investors here. So I started to see brand advertising for Roku. That seems like a change, no advertising in the past, rationale and traction with that?

Yes. So what they're probably referring to is during the holiday season, we had an advertising campaign for it was called Ok Roku. And so that's something that we tested out. Certainly, for us that, as I mentioned, Phase 1 of our business model is to drive account acquisition. And so that's one of the things that, again, now that we have greater scale, we were testing that out. So we continue to drive a lot of the acquisition through our partnerships with the TV manufacturers but then all the players started supporting. And so I think this is a natural evolution for Roku. So we'll get the results, and we'll make an assessment on how effective that was versus other ways we have to help drive demand for our players and TVs. But yes, that's something that we haven't done historically, except for -- I think even before I started, we had done on brand campaign back in the day.

Okay. Another question from an investor. TCL talked about very strong Android TV sales. Can you comment on that as a competitive threat in your own position in the connected TV space?

Yes. Well, certainly, I can't directly comment on what TCL is talking about. So that would be a better question for them. But in terms of the Roku TV OS versus competitors, I mean, what we've seen historically is a very quick rise of the Roku OS in terms of market share. The program largely didn't exist 5 years ago, and we've always competed against Android TV and other competitors. And so what's helped us gain that market share over time is the fact that we have a purpose-built operating system for TVs. It's designed to run on low-cost hardware. So there's a cost advantage on that side of things. And then for our value proposition, then we also do more of the work for the TV OEMs. In terms of the short term, our market share has gone up into the mid- to upper 30%. The last quarter or 2, it's dipped a little bit, largely because of supply chain disruptions that have hit some of our TV OEMs. So we feel extremely comfortable about the -- how the value proposition of the Roku TV operating system works, and we're happy to continue our leadership position on that front.

Can I ask a question on TCL? And you can correct me if I'm wrong, but this is my maybe fuzzy recollection of what happened. A couple of years ago, TCL agreed to use Android TV, but there were different model numbers. And then I think what happened more recently is the model number sort of harmonized. Is that right where there's the same TCL model number and you can get Android TV or Roku? Is that fair? Or is that an erroneous?

I'm not sure about that.

Okay. Okay. Fair enough. So another question here. International. How are you doing on the international front? And what traction in particular are you getting in Germany with a recent launch?

Yes. So yes, international is definitely a strategic investment area for us. And we're -- I'll break it down into 2 components. There's progress we're making in existing international markets and then there is the progress we're making in expanding the footprint. So the last couple of years has been a bit of a challenge like everybody else, in terms of COVID has certainly not helped us expand the footprint into new international markets. But during that time, we've seen good progress in the markets that we've been in. So we've been gaining share in Canada, we've been gaining share in Mexico and Brazil and some of our other international markets. And as a reminder, that three-phase business model internationally, were primarily focused on driving scale initially, and then there's only a few of our international markets that are far enough along where we're actually starting to think about the monetization side. So in general, we've been very pleased with proving out that the same advantages that we have in the U.S., around the purpose-built operating system, around our neutral positioning, around the award-winning players and growing number of TV OEMs, that's all proving out. The other thing internationally that's important over time is the fact that with the Roku Channel that we're experts in free ad-supported TV is more important in international markets in terms of where the markets are coming from versus the U.S., where it came to streaming with a high pay-TV penetration. So we feel good about the international piece in terms of the progress we're making in those markets. We'd love to move faster in terms of expanding the footprint. Certainly, in Germany, we've just launched there in the fall, initially with players, and we'll continue to grow that value proposition. I don't have an update on that yet because we haven't actually talked about Q4, but that's early days.

Can you just remind us, Steve, like when you think about going into an international market, like what happens inside your tech development team or whatever that sort of has to get -- what do they have to do to get the players ready to launch in a new market? And what actually has to happen to get your software ready to go on a TV that's sold in another country? And how hard...

Yes, it's a good question. So there is quite a bit of work that happens behind the scenes before we kind of announce and launch a market, whether it's a launch that's player first in the case of Germany or in the case of Brazil, as an example, we launched TV first. So ideally, we would have both players and TVs in a market as close together as we can. Sometimes the players are ready to go before the TV or vice versa in the case of Brazil. But in terms of what needs to happen on our side, so the players are a little more straightforward. Certainly, for the operating system, in general, you need country language support for that. On the TV side of things, each country tends to have some very specific regulation around TV. So for example, it would be the equivalent of like the U.S. has close captioning. So if you want to have a TV in the U.S., there are certain requirements in order to be able to sell those TVs and sell -- almost every country has something in particular. So there's design work that we need to do for the TVs as well as we need to make sure we have a regional tuner that works in that country. And so that a lot of work we've done over time is to build out some of these regional tuner stacks and then add the country-specific things. So for example, in the U.K., when we put TVs in there, we had to do development work on a construct called preview play, which is important for the public broadcasters in the U.K. And then the other thing we have to do is we've got a lot of great content that's global on the platform already through our content publishers, but there's always key local content that we need, and so we need to do the content distribution agreements for a critical mass of the local and language content. And so those are pieces. We also do a lot of work with the retailers and some of the other stakeholders in that market to make sure we've got a successful launch. So there is a fair amount of work for us to just get into a country, and that's part of the reason, especially when COVID was happening, that a bit of a challenge to get new geographies lit up.

Okay. More questions from investors, Steve. So any easing of the supply chain constraints you talked about?

Yes. So we'll see here as we get into 2022. But in terms of our last guidance, we talked about that we thought some of the supply chain constraints were going to continue through Q4 and into 2022. So largely, I would say that the world hasn't gotten materially better from that standpoint. There are certain components that seem to have peaked in terms of the price increases, but they've -- they haven't certainly gone back to normal. And then obviously, the world is experiencing some significant near-term increases in COVID cases with Omicron, which wasn't even contemplated last time we talked in earnings. So that's something we're monitoring. But yes, unfortunately, I don't think we're out of the woods quite yet.

Okay. More questions from investors. YouTube, you finally came to an agreement. Any details and learnings you're willing to share?

Not really details, we generally don't talk about specific deals other than we're happy to have a multiyear agreement with YouTube. As a reminder to folks, the main topics that we were open as part of those negotiations were not your standard content distribution dispute or carriage dispute. And so we're glad to have gotten that behind us for now and to have secured a multiyear deal. But other than that, we're not going to talk about the specifics.

Okay. Another question, are a larger percentage of TV stick sales not becoming active accounts because they're being sold to existing Roku users?

So TV stick sales, I assume that that's sort of another way of saying premium players themselves versus the TVs through the OEMs. Yes. What we've talked about before is that as we -- as more people move over to Roku or to streaming in general, and as streaming has been more of a thing for a longer and longer time, thankfully, we do have good reactions from consumers and they tend to buy new players or new TVs over time. And so our devices per account has gone up over time. And so we do see that phenomenon, where the new account rate for devices sold has ticked down over time. I think that's a good thing overall, because that means we're building more devices for active account, and we're building like a greater share of the household in terms of share of their TVs. And so a lot of times, what we'll see is people will either upgrade their player or they might buy a TV, and then they'll move their old device to a secondary TV. And so now we're in more places. So that is definitely a phenomenon that occurs over time, although I think it's a positive in terms of our -- strengthening our relationship with our active account base.

Are we at the point where some of the older players are so old, some of it is just replacement cycle too? Could that be a dynamic as well as opposed to the deepening of the number of TVs that have a Roku device?

There certainly is some of that. The player replacement cycle because it's such a cheap price point, they tend to get replaced. But yes, what you see, quite a bit of the time is that people are actually just moving those over -- the older ones over to some price out. Certainly, some of them just straight up replace them, and you don't -- the other ones go inactive. But a lot of times, it's -- there's another home for it.

Okay. More questions. Can you address your content CapEx budget for '22 and beyond? How important do you think original content will be to the Roku Channel in the future?

Yes. As we're kind of talking about that other question, certainly, we haven't talked about 2022 in general yet. So I can't really comment specifically there. But as I mentioned in that other discussion, certainly, the Roku Channel is growing very fast, and it's a strategic investment area for the company. And this Roku flywheel allows us to kind of prime the pump with greater content spend. Again, it's within this kind of similar business model we talked about, and it's focused on free ad-supported content at its core. But because of the scale and the growth trajectory of that, that we now have more money to spend than we have historically, which allows us to get into other types of content in new ways. And so certainly, Roku Originals will be a more important part of the equation than it has been, since it didn't exist before 2021. And so we're pretty excited about that idea, not only from a content perspective, but it's another way for -- also for us to differentiate for things like TV upfronts. And -- but most importantly, it's really the content that's driving that Roku flywheel. So it directly translates into us improving reach, driving incremental viewership, which then we directly monetize via the video ad business.

Okay. More investor questions. Do you expect consolidation in the connected TV space/TV operating system space? Would Roku participate in that? More generally, what is the M&A outlook for Roku?

Okay. Lots to unpack there, certainly. Yes. It's interesting. I mean the connected TV space is so vast. So certainly, we've seen -- we started to see some consolidation on the content publisher side of things. We do think that, certainly in the content, the amount of money that's getting spent in the bar just keeps getting raised. And so we do think that over time, you'll probably have some kind of consolidation in terms of the number of apps that are in the ecosystem. I think that favors something like Roku and the Roku Channel, in particular, where the Roku Channel, especially for a certain type of content, be it library content or nonexclusive content, it's just a better mousetrap in terms of driving viewership. As a reminder, we know who's watching that kind of content because you're obviously logged into the Roku with your Roku ID. That allows us to -- our content recommendation algorithms to work very effectively versus many other apps on the free ad-supported side who don't know who's watching. That can also translate into higher CPMs with more targeted advertising, which again is a core advantage as a platform owner and having proprietary data on that standpoint. So I do think there's an idea that there'll probably be less apps, not more apps over time on Roku and just in the TV ecosystem. And I do think that could translate into opportunities for Roku, whether it's on the content side, whether it's on the advertising side, certainly, there's a lot of different ways we can do that, whether it's partnership, whether it's acquisitions. So for us, I think the good news is when we look out there and we say, okay, how does the value proposition look and what are we working on internally in terms of the product road maps, there's no glaring holes, but there is a lot of opportunistic partnership or acquisition opportunities. And certainly, seen us start to do more of that in the last couple of years, be it the dataxu acquisition, be it some of the acquisitions on the content side. They've still been relatively minor because a lot of our growth is fueled by organic investment in the platform, in the operating system and the other capabilities. But I do think there's more opportunity for us. And that's -- we're obviously very dialed into the ecosystem, so we're talking to a lot of people.

Can I ask a dumb question? How does Comcast FreeWheel sort of fit into the overall connected TV sort of programmatic ecosystem?

The FreeWheel in particular, on the advertising side?

Yes. Yes.

A better question for them, but yes, I'll leave it at that. I think that's a better question for them to talk about how it fits or doesn't fit in there.

So there's another question. As you look to scale the Roku Channel, what genres of content make more sense?

Interesting. Well, I think what's -- as Roku continues to grow and as TV becomes more mainstream, there's a lot of different categories that appeal to different types of consumers. Certainly, we've seen a lot of success in certain genres. One that's notable, I think, is kids and family has done very well. We've got -- we added live linear feeds to the Roku Channel. So that's done very well. And so there's a lot of different aspects that we could go in. But frankly, for us, the beauty of streaming and the beauty of the recommendation algorithms, the targeting is we can surface content whether it's niche or whether it's pretty broad-based to the right people and drive the viewership. And we can be pretty smart about that, especially if we're licensing content to have a pretty good idea about how much it's going to get viewed and how much it's worth to Roku. And so frankly, for us, it almost doesn't matter whether it's more niche or whether it's broader based, but we're able to get into more and more types of content. For us, I think the biggest thing is just the -- like I said, the scale and the growth trajectory, the Roku Channel. As that builds, that allows us to access types of content that were -- are more expensive than historically, we wouldn't have had the opportunity to license into or partner with. And so I think that's the biggest thing for us. But certainly, streaming, there's a lot of different angles depending on people's taste and we're able to handle niche ones and also broad-based ones.

Okay. Here's another question from an investor. Any directional impact from the various COVID variants like Omicron or Delta? More Roku uptake when consumers are forced to stay at home or work from home? What has been your experience with COVID and its variants over the last 2 years?

Yes. Certainly, over the last couple of years, I mean, we did see a significant uptake at the start of the pandemic in terms of very strong demand for players and TVs, especially around stimulus check time in the U.S. And we saw a massive spike initially in 2020, in terms of the streaming hours per active account per day. That spiked up, I think it was around 30% basically overnight. And then we've seen that tick back down a little bit. So I think it's more of a -- an acceleration to the end state, right? Like I said, the secular trends towards streaming have been intact and in some ways, accelerated. In terms of the latest uptick on Omicron, that's something that we haven't talked about Q4 yet, so we might have some more info in our next earnings call on that. But certainly, are monitoring the impact on that, both in terms of demand for players and TVs as well as the actual viewership behavior.

Okay. Another question from an investor. If 606 revenue is just straight line over the life of contracts with the customer, then how is there even any quarter-to-quarter variability in platform revenue in quarters in which you don't sign or amend a contract?

Well, I think the first part -- the first assumption was that 606 revenue is straight lined. That's not always the case. So the -- when we talk about 606, we're usually talking about the deal model, certainly, 606, the account -- the overall accounting rules around 606 are pretty volumist and different parts of our business are treated differently. But usually, if I kind of divine what the question behind the question is, our 606 models, which usually we talked mostly about our content distribution models, they tend to be the sort of biggest value models. And they -- whoever asked the question is correct in terms of the biggest pops you can get is when you either renew an existing deal and the value of the deal changes or you -- let's say, a new service comes on and it's a brand new 606 model, and that can create value in the quarter, and then there is a value for the model, for the lifetime of that deal. But there's -- within there, there are some complications depending on the type of deal. Within that, we're valuing the lifetime of the deal, but also to the extent that we have performance obligations that we are agreeing to, say we're giving away some free impressions for display advertising on the home screen or we've made some other things, where we say we're going to send out some emails on the content publisher's behalf or precheck their service in like the initial channel set up flow. These are performance obligations. So some of the revenue can be tied to that when you go out and you value the whole deal and then you assign the different components of value and then you potentially connect them back to performance obligations that you've agreed to. And so to the extent that you have those connections with performance obligations, it can be a bit lumpy in terms of the revenue recognition. So it's not always straight line on that front. Historically, on the 605 accounting, that tended to be much more peanut buttered throughout the life of the deal. So there may be a disconnect there. Certainly, if there's no performance obligations or whatnot, then the revenue can be a little more uniform. But in 606 land, it's a lot more variable. The other thing I'll say to that, which can make significant increases in any given quarter is, remember, we have a portfolio of these deal models. And so in any given quarter, because of how the performance of a specific service is trending, we have expectations about how many new SVOD subscribers are going to sign up or other key assumptions in each model. In any given quarter, some of those may be tracking ahead of those assumptions, and then we have to make an assessment on whether we think that trend will continue or not. But what you have in the portfolio is some deal values go up, some deal values may go down, many will stay the same. And so we have had significant occurrences where the unusually amount of deal models are moving in one direction. And thus, we have a spike in revenue in the quarter itself. That certainly happened especially in 2020 and in some cases, in 2021 in certain quarters when we were changing broadscale assumptions around some of the uptake of SVOD subscribers. And so there's a lot at play there.

Another investor question, also related to performance obligations. After significant growth during COVID, Q3 revenue allocated to remaining performance applications declined quarter-over-quarter for the first time to $1.22 billion from $1.25 billion in 2Q and $300 million in 3Q of '20. What makes up that revenue? Who are the customers? Why did it grow so fast? And should we expect it to decline meaningfully as things normalize post-COVID?

Okay. Yes. So on the remaining performance obligations, I think let me take a step back. There's been a lot of focus on that more recently. And there -- so there are a couple of things to just know about that. So -- because I think a lot of people have looked at that, that's a stat or that kind of analysis is better for a company that's kind of a SaaS company, where you have a lot of uniform deals, where that's basically a very easy track to overall revenue. In our cases, there's a lot of value that's in there, of course, but it's largely related to some of these 606 deal models that we've talked about. That has the -- that has a portion of the revenues that we get, but it's not the total part of the revenue. And as I just talked about, that can be pretty lumpy in terms of adding to those balances, and then naturally, those balances will come off over time. So one of the reasons that if you look back the last year or so, what's happened is a couple of different things. One is we've had some very high profile new content publishers or streaming services that have come on. And so we have had new models that have occurred, right? So the value of that model for the life of the deal has now been added to that. We're now in a period where we haven't had a new deal show up in a while. And that's just because now you pretty much have a -- every Tier 1 media company now has a streaming service out there. And so I think that's kind of a phase that we went through from that perspective. And then the other thing to note on that is that -- and this may be getting into a question around the current balance of that versus the noncurrent balance that a lot of people have asked, so might as well talk about it here, which is in some cases, we're signing much longer deals than what we historically have had, right? So that might up the historical -- that might up the overall balance, but the current period gets to be a lesser extent of that, right? So to the extent that we're in a period where we're not having brand-new deals come on and we're getting -- we've signed some longer-term deals, then over time, if nothing else happens, you will tend to chip away at that balance until the next big renewal that we have. And so that's why it can be pretty lumpy. And so people just need to be careful about that. And then like I said, that's only a portion of the story, things like the vast majority of media and entertainment spend is not included, that the advertising side of the business, largely not included in those numbers. And so you have to be careful in how far you read through that. It's not a perfect approximation of future revenues.

Helpful. Another investor question. Could you please ask Steve to help us reconcile the new ad campaign investment while Roku is still supply chain constrained?

Yes. So if we think about the supply chain constraints, there's a couple of different factors. And remember, the player, the player side is very different than the TV OEM side. And well, one thing to note is this is more of a brand campaign as opposed to a product campaign to specifically drive units. And so that's one other piece just to make note of. But remember, for us, the -- we've done a good job of keeping player units in stock, and we've been absorbing the cost increases. And so the consumer prices have not changed particularly much. The TV OEMs have been hit with cost increases. Structurally, that's a lower-margin business on the TV side and several of our TV OEMs have been hit with significant inventory availability issues, right? So for us, again, this is more of a -- an experiment around the brand campaign as opposed to driving specific holiday units. And secondarily, for us, on the player side, we do have player availability. That's been less of a concern because we've done -- we can use our scale, we can use our relationships in the supply chain, and we've largely been able to keep stuff in stock. Sometimes, we have minor outages but -- on the player side, but that's much more of a TV issue for our partners.

Okay. Another question from investors. Staffing. Are you continuing to staff up? And in which areas? Any issues recruiting in a tight labor market? Any cost pressures from that?

Yes. So certainly, we talked about earlier this year that as we felt more comfortable with the trajectory of the business that we were going to start staffing up at a more normal pace, similar to what we did pre-COVID. And so we have been investing back in the business. Historically, that investment is largely around increased head count. And so we have been growing fast. Certainly, Silicon Valley has always been a competitive market, but it certainly maintains its competitiveness. We have been diversifying where and how we hire. As we've grown both in size, we've also grown in terms of geographic footprint. So we've been doing that. But certainly, we've been hiring very robustly. It's definitely competitive. Costs are definitely a factor. But frankly, in Silicon Valley, those have always been things that we've been used to. And so over time, the fact that Roku's become bigger, we've become a leader in the space and that there's been more focus on streaming. Those have all been helpful things for us to attract talent.

Okay. Another question from investors. To what degree are the supply chain issues a headwind to overall advertising? Are there any other big ad market themes that you think are relevant or you'd like to call out?

Yes. Again, we haven't talked -- I'll just kind of talk about what we mentioned in Q3 because we haven't talked about Q4 yet, but certainly, we started to see, like a lot of folks mention on their Q3 calls, some knock-on impacts on the advertising side. The supply chain constraints most directly hit us and others, like we've talked, around product availability, supply chain shortages, increased costs and delays on the shipping side. But in Q3, we did talk about also that we started to see some impacts on the advertising side in certain verticals, where they were having their own supply chain constraints and thus, had product availability challenges, and we talked about whether it's auto, whether it's CPG. To the extent you don't have any more capacity to put more products on the shelves or in the, I guess, dealer showrooms in terms of the auto manufacturers, in the short term, you're less likely to advertise against that. So that's something we're continuing to watch, but it's certainly -- that has been a factor for certain industries in the U.S.

So another investor question. You guys have talked a lot in the past about how you're undermonetized versus traditional TV in terms of ad spending per hour viewed. The value proposition for connected TV is clear. However, there seems to be an issue around changing the buyer behavior for the ad executives in charge of linear TV budgets. What are the tangible steps you can take to help accelerate the shift in these budgets in '22?

Yes. That's a great question. Yes, we've talked a lot about that as all TV will be streamed, that we think all TV advertising will be streamed. And certainly, the advertising ecosystem has been a bit slow to follow the viewership. The -- like I said earlier, the amount of streaming or the share of streaming in terms of total TV viewing is well ahead of the advertising side of things. In some way, and it's obviously unfortunate, that the pandemic and some of the economic uncertainty related to that has actually helped to arrest some of the inertia, whether it's either on the advertising side or whether it's on the things with TV upfronts in particular or whether it's in certain things on the content side with the traditional windowing structure. These are things that aren't going away completely, but the -- I think there's a new openness to think differently. And so we have seen more advertisers, since the pandemic, start to move more of their money over to streaming. They're still well behind the viewership. But that is one of the big things, one of the biggest growth factors for us over time. Because the case is very clear in terms of the ROI of streaming because you have the power of the TV lean back experience from an advertising, you have the significant reach now in streaming like you've historically had on the traditional TV side, where their ratings are now declining significantly in an accelerated pace. But what you've had is this idea that a lot of the traditional TV buying teams have been used to buy in a certain way, buying through direct sales forces in large agency holding companies on a Nielsen demo basis or overall run of network. What we've done for a number of years is our direct sales force goes out of their way to help these advertisers. They can buy the same way on Roku as they've done historically or you can buy on Nielsen demos. We were the first partner with Nielsen in the streaming space for their Nielsen DAR. But then we worked a lot, and we proved the validity of the Roku platform around being able to target more specifically on an audience basis and that we have other unique factors that we work with the advertisers, be it leveraging our ACR footprint for certain things like ACR audience guarantees, whether it's things like our Kroger shopper data partnership, there's a lot of things that we can do around targeting interactivity and measurement. And so we certainly try to walk a lot of the traditional TV advertisers from the kind of historical way of buying TV spots to the fact that our streaming platform in our ad stack, our digital -- native digital-first advertising, they have all those capabilities. And so that -- advertisers are on this kind of continuum. Some are getting very advanced. We now have pulled in digital-first advertisers which is a meaningful increase to the TAM, and that's very exciting, I think, over the long term. And so there's a lot that we're working on with that. Certainly, adding OneView, the -- which is the rebranded dataxu ad platform helps to broaden out the capabilities that we have as well for advertisers. So that's another thing that we're doing to help them, not only buy on Roku, but then able to leverage DSP capabilities to broaden out the offering off platform if they need to.

Okay. Two last investor questions, Steve. You say that Roku's market share of TV OS shipments declined in the last few quarters. But among like-priced TVs, have you maintained share? In other words, is it only at the high end that Roku is losing share?

Well, so the main reason we believe in terms of the reason the market share has dipped the last couple of quarters is actually supply chain availability issues with our TV partners. So overall, there are 2 factors going on in the market right now that are headwinds for sure. One is that the -- like I said, structurally, the TV business is a low-margin hardware business. And so they've gotten hit with component cost increases, like many industries have. And structurally, they're sort of unable, especially at the value in sort of mid end of the range. They're structurally unable to absorb those like we can on the player side. And so the significant increase in prices has dampened demand somewhat, right? So that changes the overall size of the market. That doesn't change the market share itself, but it's important to note that the overall TV market is down. And so that's impacting unit volumes for us and everybody else, right? The fact it was down below 2019 levels, we talked about that on the Q3 call. And then within that, there's a question about the market share. And so the market share is impacted by the fact that some of our TV OEMs have had significant issues. And so we've heard from them that had they had the use to sell, they could have sold more Roku TVs. They just didn't have them at the right time. And so that's one of the pieces that we believe is a primary factor in our market share ticking down in the last quarter or so.

Okay. And then last question from an investor. Can you comment on the recent connected TV deal with Sharp? Are there opportunities for further inroads with other OEMs?

Yes. So we're excited about that, bringing Sharp on to the Roku TV platform. Over time, we have been growing the number of OEMs on the Roku platform, whether it's in the U.S. or increasingly now, internationally, it is important for us to have a growing stable of TV OEMs. And then obviously, that our goal is to become the default operating system for smart TVs, and we made great progress in the U.S. and Canada and are making good progress in places like Mexico and others. So we're excited to have Sharp on board. It's part of a continuing trend of us being able to sign up more and more TV OEMs throughout the geographies that we work in. And so we're excited to have them as part of the TV OEM program for Roku TV.

Perfect. Steve, you did a fantastic job handling all those questions from investors. I've never seen so many, so you're a very popular firm. Lot of investor interest. So I really appreciate your time. And thank you.

Yes. Well, thanks to all the investors for the interest in sport, and Jason thanks to you and Citi for hosting me and Roku today. I appreciate it.

Absolutely. Be well. Thank you, Steve.

All right. Take care all.