Roku CFO: 'A lot of the trends right now are accelerating the shift to streaming'

Roku CFO joins Yahoo Finance's Alexis Christoforous and Brian Sozzi to discuss the streaming service's first quarter earnings report.

Video Transcript

BRIAN SOZZI: Now, Roku shares are getting hit today despite a spike in total hours streamed in the first quarter with most everyone being quarantined at home. In this case, it's all about the outlook.

Roku's CFO Steve Louden is here to discuss. Steve, always good to speak with you. Thanks for taking some time this morning.

So let's just swab the deck. I think you're seeing some pressure here in the stock because of the outlook Roku put forward here. What's embedded in that outlook, and what are you seeing in the business?

STEVE LOUDEN: Yeah. Hi, Brian. Thanks for having me on, and good to talk to you. Yeah, Q1 was a good quarter. But most importantly, you know, given the health crisis and the economic crisis, at Roku we feel relatively fortunate that we're more relevant ever, both to consumers as they're staying at home but also content providers as well as advertisers.

And for us, you know, as you mentioned, we've seen a surge in new accounts in April here, as well as streaming hours. And so we think a lot of the trends that are happening right now are accelerating that shift to streaming that was already underway.

ALEXIS CHRISTOFOROUS: Steve, we know how important the ad business is to your business model and to many like yours. Talk to us about sort of the state of the ad business in Q2. Do you have any clarity at all? Can you offer any sort of an outlook, as we start to reopen different economies throughout the country, how the ad outlook may change?

STEVE LOUDEN: Yeah, well, we did not provide a formal outlook, but what we did say is that we expect our ad business to grow substantially in 2020, albeit at a slower rate than we originally expected. I think there's a couple of factors at play here in the ad business. First, the overall US advertising spending is down, and we're certainly not immune to that. We did see some cancellations that spiked in March, but in early to mid April, those had subsided a bit.

But also what I think you're seeing is the fact that advertisers for their remaining budgets are, you know, even more interested in looking to make sure that they're having good return on investment for that spending. And so we are seeing another trend in terms of marketers bringing over budgets that are freed up because of cancellations around things like the Olympics, [INAUDIBLE] playoffs. And they're coming to Roku because we can offer them targeted, measurable advertising.

And, frankly, you know, the biggest factor is they need to follow the viewership, right? So our streaming hours were up 80% year over year. There's some recent statistics that for key demographics like 18- to 34-year-olds, nearly half of their viewing recently was on OTT where, at the same time, prime-time linear TV viewing was actually down. So these advertising budgets that remain need to follow the viewer, and they're much more in tune with trying to justify the marketing spend on an ROI basis.

BRIAN SOZZI: Steve, has the-- I think we would all agree that we're in a recessionary environment, if not in something worse than that. Has that accelerated the cord-cutting movement?

STEVE LOUDEN: Well, yeah. The cord-cutting movement was actually already accelerating prior to the recent impacts of COVID, but we do think that the impact as people spend more time at home, as they're more mindful of their budgets that, you know, looking at cable bills which can be substantial will be one of the areas they're looking at. And so we do think that will further accelerate a trend to cord cutting and the trend-- the movement towards streaming on the consumer side.

And we have seen, you know, the fastest-growing type of content on Roku is free ad-supported content, although we're also seeing acceleration in SVOD subscriptions as well as what's called TVOD, basically buying movies and TV shows, as well on the platform.

ALEXIS CHRISTOFOROUS: Hey, Steve, in Q1 I know you launched something called "are you still watching?" feature. How has that impacted the amount of streaming hours that you saw in that-- in this earnings report?

STEVE LOUDEN: Yeah, well, we actually started rolling out that feature late 2019, but we completed the rollout in Q1. And that's a feature that, after a time of inactivity, prompts the user to just make sure, hey, are you still watching? And verify that so the TV doesn't continue to run.

So as part of that effort, we think that's good hygiene for the platform and just making sure that people are actually still using the TV. We mentioned on the call that that's had a roughly seven- to eight-percentage-point decrease in the streaming hours as opposed to if we hadn't rolled it out and then a slightly bigger impact, you know, now that it's fully rolled out in the subsequent quarters in 2020.

But as you-- as I mentioned, streaming hours are up 80% in April on a year-over-year basis, even including that factor.

BRIAN SOZZI: Steve, I want to talk about you for a second. You were supposed to be, I guess, somewhat quasi retired or spending more time with your family, and you came back to Roku. I knew you have a lot of fans on the Street. You led the company financially through the IPO process. What are your plans?

STEVE LOUDEN: Yeah. Yeah, Brian, I'd actually never left. You know, I had always said I'm committed to Roku and making sure that I can help find a replacement and get a smooth transition in place. So that search is ongoing, but in the meantime, you know, I'm fully committed to Roku. And so, yeah, you may see me here even longer than originally anticipated, but that's absolutely great.

BRIAN SOZZI: No, I know that they're lucky to have you. But, Steve, before I let you go, on the TV business, Roku sells 1 in 3 smart TVs. What have you seen in your smart-TV business with all these retail stores closed?

STEVE LOUDEN: Yeah, so you mentioned in April new accounts grew 70% year over year. That's driven by strong sales in both players and Roku TV from our Roku TV partners. So certainly different retailers, depending on their footprint and what kind of items they sell, have had different impacts based on the pandemic and the stay-at-home orders. But in general for us, the short-term trend has been an accelerant in terms of new accounts and unit sales and then partner TV sales.

BRIAN SOZZI: All right, let's leave it there. Roku's CFO Steve Louden, as you always would tell me, happy streaming.

STEVE LOUDEN: Happy streaming. Thanks for having me on.

BRIAN SOZZI: All right, I'll talk to you soon.