SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
Form 10-K
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| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the year ended December 31, 20202023
or
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| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 001-38211ROKU, INC.
Roku, Inc.
(Exact name of Registrant as specified in its charter)
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| Delaware | 4841 | 26-2087865 |
(State or other jurisdiction of
| (Primary standard industrial
| (I.R.S. employer identification no.) |
1155
San Jose, California 95110
(408) 556-9040
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
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| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Class A Common Stock, $0.0001 par value | ROKU | The Nasdaq Global Select Market |
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐ ☐ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
☐ No
☑Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
☑ No
☐Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
☑ No
☐Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
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Large accelerated filer | ☑
| Accelerated Filer | ☑ | | Accelerated Filer | ☐ |
Non-accelerated filer | ☐ | | Smaller reporting company | ☐ |
Emerging Growth Company | ☐ | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☑ No ☐ If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
☐ No
☑As of June 30,
2020,2023, the aggregate market value of voting stock held by non-affiliates of the registrant, based upon the closing sales price for the registrant’s common stock, as reported in the Nasdaq Global Select Market System, was
$12,291,076,562.approximately $7.1 billion. Shares of common stock beneficially owned by each executive officer and director of the Registrant and by each person known by the Registrant to beneficially own 10% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for any other purpose.
As of January 31,
2021,2024, the registrant had
111,081,169outstanding 126,162,538 shares of Class A common stock, $0.0001 par value per share and
17,340,77617,359,398 shares of Class B common stock, $0.0001 par value per share.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates by reference certain information from the Registrant’s definitive proxy statement (the
“2020 Proxy“Proxy Statement”) for the
20212024 Annual Meeting of Stockholders. The
2020 Proxy Statement will be filed with the Securities and Exchange Commission within 120 days of the registrant’s fiscal year ended December 31,
2020.2023.
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NOTE REGARDING FORWARD-LOOKING STATEMENTS
GLOSSARY OF SELECTED TERMS
As used in this Annual Report on Form 10-K (“Annual Report”), unless the context otherwise requires, references to the following terms have the respective meaning as defined below.
Active Accounts: The number of distinct user accounts that have streamed content on our platform within the last 30 days of the period. See Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, Key Performance Metrics, elsewhere in this Annual Report for additional detail.
Ad-supported Video on Demand (AVOD): Streaming content supported by advertising that does not charge a fee.
Apps: Primarily refers to the direct-to-consumer streaming applications on the Roku platform (e.g., The Roku Channel or Netflix). We also use “apps” to refer to mobile applications (such as our Roku Smart Home app).
Average Revenue per User (ARPU): Platform revenue for the trailing four quarters divided by the average of the number of Active Accounts at the end of the current period and the end of the corresponding period in the prior year. See Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, Key Performance Metrics, elsewhere in this Annual Report for additional detail.
DSP: A demand-side platform (such as Roku’s OneView ad-buying platform), which allows buyers of digital advertising inventory to manage multiple ad exchange and data exchange accounts across multiple platforms through one interface.
FAST: Free, ad-supported linear streaming TV, which does not include on-demand content.
Licensed Roku TV partners: TV original equipment manufacturers (“OEMs”) that license the Roku OS and leverage our smart TV reference designs to build TVs.
Linear TV: A TV format that provides programming at specifically scheduled times.
Premium Subscriptions: Subscription-based streaming services from content partners (e.g., Paramount) offered through The Roku Channel.
Roku-branded TVs: TVs powered by the Roku OS that are designed, made, and sold by Roku. Roku-branded TVs include the Roku Select, Roku Plus, and Roku Pro Series TVs.
Roku home screen: The first screen the viewer sees when they begin streaming with a Roku streaming device. The viewer is also returned to the home screen by pressing the home button on the Roku remote or when exiting apps.
Roku home screen menu: The left-hand navigation bar on the Roku home screen.
Roku Originals: Original content programming created by Roku.
Roku OS: Roku operating system that is purpose built for TV and powers Roku streaming devices.
Roku Pay: Our proprietary payments solution that handles method of payment, account information, and billing for the associated Active Account. Roku Pay enables content publishers to provide users with quick and easy purchases on the Roku platform without having to enter their payment information. It also enables users to easily sign up for subscription-based streaming apps (on those that have Roku Pay enabled).
Roku TV models: TVs powered by the Roku OS that are made and sold by our licensed Roku TV partners.
Streaming: The distribution of video, music, or other media content via the Internet.
Streaming device: Any device that enables streaming. For Roku, this encompasses Roku streaming players, Roku TV models, and Roku-branded TVs.
Streaming Hours: The aggregate amount of time streaming devices stream content on Roku’s streaming platform in a given period. See Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, Key Performance Metrics, elsewhere in this Annual Report for additional detail.
Streaming platform: The technology that delivers the viewer experience and streaming apps (e.g., The Roku Channel and Netflix) over an internet connection to a user’s TV.
Streaming players: A device that connects to a TV to enable streaming (such as the Roku Express, Roku Express 4K, Roku Streaming Stick 4K, Roku Ultra, Roku Streambar SE, Roku Streambar, and Roku Streambar Pro).
Smart TV: A television that is connected to the internet through an operating system (e.g., the Roku OS).
Subscription Video on Demand (SVOD): Streaming content that is available on demand, requires a paid subscription, and can be ad-supported or ad-free.
TV streaming: The act of streaming content over the internet on a TV.
The Roku Channel: Roku’s owned and operated streaming service. The Roku Channel aggregates three types of content—AVOD, FAST, and Premium Subscriptions—within The Roku Channel app and through viewing experiences integrated throughout the Roku platform (e.g., Live TV on the home screen menu).
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”), about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts
contained in this
report,Annual Report, including statements regarding our future results of operations and financial condition, business strategy, and plans and objectives of management for future operations, are forward-looking statements.
For example, statements in this Form 10-K regarding the potential future impact of the COVID-19 pandemic on the Company’s business and results of operations are forward-looking statements. In some cases, forward-looking statements may be identified by words such as
“aim,” “anticipate,” “believe,” “continue,” “could,” “design,
” “developing,” “estimate,” “expect,” “intend,” “may,” “plan,” “potentially,” “predict,” “project,” “should,”
“will”“will,” “would,” “target,” or the negative of these terms or other similar expressions.
We caution you that the foregoing may not encompass all of the forward-looking statements made in this Annual Report.
Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available. These forward-looking statements are subject to a number of known and unknown risks, uncertainties, and assumptions, including risks described in the section titled “Risk Factors” and elsewhere in this
Form 10-K,Annual Report, regarding, among other things:
| •
| our financial performance, including our revenue, cost of revenue, operating expenses and our ability to attain and sustain profitability;
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| •our financial performance, including our revenue, cost of revenue, operating expenses, and profitability;• | the impact of the COVID-19 pandemic on our business, operations, and the markets and communities in which we and our advertisers, partners, manufacturers, suppliers and users operate;
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| •the impact of macroeconomic conditions, uncertainties and geopolitical conflicts on our business, operations, and the markets and communities in which we and our advertisers, content partners, licensed Roku TV partners, other device licensees, manufacturers, suppliers, retailers, and viewers operate;• | our ability to attract and retain users and increase streaming hours;
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| •our ability to attract and retain viewers and increase Streaming Hours;• | our ability to attract and retain advertisers;
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| •our ability to attract and retain advertisers;• | our ability to attract and retain TV brands and service operators to license and deploy our technology;
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| •our ability to attract and retain TV brands, manufacturing partners, and service operators to license and deploy our technology;• | our ability to acquire rights to distribute popular content on our platform on favorable terms, or at all, including the renewals of our existing agreements with content publishers;
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| •our ability to produce or acquire rights to distribute popular content on our streaming platform on favorable terms, or at all, including the renewals of our existing agreements with content partners;• | changes in consumer viewing habits and the growth of TV streaming;
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| •changes in TV viewing habits and the growth of TV streaming;• | the growth of our relevant markets, including the growth in advertising spend on TV streaming platforms, and our ability to successfully grow our business in those markets;
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| •the growth of our relevant markets, including the growth in advertising spend on TV streaming platforms, and our ability to successfully grow our business in those markets;• | our ability to adapt to changing market conditions and technological developments, including developing integrations with our platform partners;
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| •our ability to adapt to changing market conditions and technological developments;• | our ability to develop and launch new streaming products and provide ancillary services and support;
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| •our ability to develop and launch new products and provide ancillary services and support;• | our ability to integrate the business and operations of dataxu, Inc., a demand-side platform (“DSP”) company that we acquired in 2019;
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| •our ability to integrate acquired businesses, products, and technologies;• | our ability to compete effectively with existing competitors and new market entrants;
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| •our ability to expand our products and services into adjacent markets, scale our operations in these markets, and do so profitably over time;• | our ability to successfully manage domestic and international expansion;
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| •our ability to compete effectively with existing competitors and new market entrants;• | our ability to attract and retain qualified employees and key personnel;
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| •our ability to successfully manage domestic and international expansion;• | our abilities to address potential and actual security breaches and system failures involving our products, systems and operations;
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| •our ability to attract and retain qualified employees and key personnel;• | our ability to maintain, protect and enhance our intellectual property; and
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| •our ability to address potential and actual security breaches and system failures involving our products, systems and operations; •our ability to maintain, protect, and enhance our intellectual property; •our ability to obtain financing on favorable terms, or at all; •our ability to manage the selling prices of our products to increase Active Accounts; and • | our ability to comply with laws and regulations that currently apply or may become applicable to our business both in the United States and internationally, including compliance with the EU General Data Protection Regulation and the California Consumer Privacy Act. |
We caution you that currently apply or may become applicable to our business both in the foregoing list may not contain all of the forward-looking statements made in this Annual Report on Form 10-K.
United States and internationally, including compliance with privacy and data protection regulations.
Other sections of this reportAnnual Report may include additional factors that could harm our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ from those contained in, or implied by, any forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this
reportAnnual Report or to conform these statements to actual results or to changes in our expectations. You should read this Annual Report,
on Form 10-K and the documents
that we referencereferenced in
this Annual Report on Form 10-K and
have filed as exhibits to this
reportAnnual Report, with the understanding that our actual future results, levels of activity, performance, and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
Investors and others should note that we may announce material business and financial information to our investors using our investor relations website (ir.roku.com/investor-relations)(roku.com/investor), SECU.S. Securities and Exchange Commission (“SEC”) filings, webcasts, press releases, and conference calls. We use these mediums to communicate with investors and the general public about our company, our products and services, and other issues. It is possible that the information that we make available may be deemed to be material information. We therefore encourage investors, the media, and others interested in our company to review the information that we post on our investor relations website.Roku, the Roku logo, and other trade names, trademarks, or service marks of Roku appearing in this report are the property of Roku. Trade names, trademarks, and service marks of other companies appearing in this report are the property of their respective holders.
PART I
Roku, Inc. (“
Roku”, “the Company”, “we”Roku,” the “Company,” “we,” or “us”) is the leading TV streaming platform in the
U.S.United States by hours streamed.
We pioneered streaming to the
TV and were founded on the beliefTV. We believe that all TV
content will be streamed. The
re-platformingshift of the TV ecosystem
is underwayto streaming continues and is
creating more optionsexpanding TV’s capabilities for
consumers,viewers, content
publishers,partners, advertisers, and other industry participants.
Nearly every major media company not only has a streaming service, but has also expanded beyond pure subscription streaming models to new ad-supported streaming options. Advertisers use TV streaming
is now mainstream and consumers are spending more time watching TV streaming services, with many ‘cutting the cord’ from legacy pay TV services entirely. Over the past several years, many of the biggest names in media have transitioned toward streaming offerings and similarly, advertisers looking to reach
and engage with streaming audiencesviewers who are increasingly
taking advantage of the benefits inherent tounreachable on traditional TV while also benefiting from the digital advertising capabilities
ofthat TV streaming platforms
and are re-allocating their budgets accordingly. These trends continued to gain momentum in 2020 as consumers spent more time at home due to the COVID-19 pandemic.can deliver.
Our mission is to be the global TV streaming platform that connects and benefits the entire TV ecosystem of viewers, content publisherspartners, and advertisers. Through our TV streaming platform, we are focused on connecting consumersconnect viewers to the entertainment they love, enablinglove; enable content publisherspartners to build, engage, and monetize large audiences,audiences; and providingprovide advertisers with unique capabilities to engage consumers. Central toreach viewers.
Our Strategy and Business Model
The foundation of our platform is the Roku operating system (the “Roku OS”). The Roku OS, which is purpose built for TV streaming, and powers Roku streaming devices. The Roku OS is designed to run on low-cost hardware, which allows usenables Roku streaming devices to manufacture and sell streaming players that are affordable.be sold to customers at competitive prices. The Roku OS also powersconnects viewers to our streaming platform via a broadband network, giving them access to a wide selection of content through a streaming experience that is both delightful and easy to use. We provide updates via the Roku OS to continuously deliver an exceptional TV streaming experience.
We dedicate significant resources to build, maintain, and advance the Roku OS; to provide an industry-leading streaming platform for our viewers, content partners, and advertisers; to obtain content for our streaming platform that attracts viewers, including our own original programming (Roku Originals); and to extend Roku’s leadership as the global shift to TV streaming continues.
Our three-phased business model—grow scale, grow engagement, and grow monetization—drives our mission as a global streaming platform that connects and benefits the TV ecosystem of viewers, content partners, and advertisers. We leverage our ownership of our streaming platform to help our viewers find content across the streaming universe, while simultaneously growing monetization.
Scale: Increasing the number of Active Accounts
We make access to TV streaming affordable through a broad lineup of devices, at a variety of competitive price points, including Roku TV models, thatRoku-branded TVs, and Roku streaming players.
Roku TV models are manufacturedTVs made and sold by our Roku TV brand partners, whowhich are TV original equipment manufacturers (“OEMs”) that license the Roku OS and leverage our smart TV hardware reference designs. We have driven strong Active Account growth through our Roku TV modelslicensing program, which we launched 10 years ago.
In 2023, we launched Roku-branded TVs, which are designed, made, and sold by us. The Roku Select and Roku Plus Series TVs are available at Best Buy, Amazon, and Costco in the United States, and the Roku Pro Series TV is expected to be available in spring 2024. Roku-branded TVs complement our successful Roku TV licensing program. We believe our Roku-branded TVs will enable us to further grow our leadership position in TV streaming and expand into the higher-end range of performance TVs. Roku-branded TVs will also help us innovate more quickly in all aspects of hardware and software and test directly with viewers, improving the product and viewer experience and strengthening the entire Roku ecosystem.
Roku streaming players enable
consumersusers to
accesseasily turn (nearly) any TV into a
wide selection of content by connecting their Roku device to oursmart TV. On a periodic basis, we launch new streaming
platform via a home broadband network.The features and functionality of our platform, powered by the Roku OS, enable us to address the needs of our consumers, content publishers, advertisers, Roku TV brand partners, and other partners. Consumers can discover and access a wide variety of streaming content, content publishers can reach our highly-engaged user base of over 50 million active accounts and utilize our billing services and data insight tools, advertisers can serve targeted and measurable ads to the TV viewers that they want to reach, Roku TV brand partners can build market share by offering high performance smart TVs in a range of sizes and price points, and retailers can offer customers Roku’s highly-rated streaming devices on-line and in stores. We continue to invest significant resources to advance the Roku OS; to provide an industry-leading platform for our consumers, content publishers, and advertisers; and to extend Roku’s advantage as the streaming decade continues.
Our Business Model
Three core areas of focus define our business model. First, we build scale by increasing our active accounts. Second, we increase engagement by growing the hours of content streamed through our platform. And third, we monetize the activities that consumers engage in through our platform. Furthermore, our business model is designed to fulfill the needs of the participants in the TV streaming ecosystem: consumers, content publishers, advertisers, TV OEMs, other device licensees and consumer electronics retailers.
Scale: Increasing the number of active accounts
We make TV streaming affordable by offering a lineup of stand-alone streaming players that connect to a user’s TV. Furthermore, to enhance our users’ experience and to provide a better audio experience we also offer our Roku Smart Soundbars and Roku Streambars, eachplayer models with a streaming player built in that enables the soundbar to connect to our streaming platform, Roku wireless speakers that connect to Roku TV models, and our Roku Wireless Subwoofers. We launch new devices and provide updates via the Roku OS periodically to ensure they offer the highestfocus on offering high performance at an affordable price.
We also partner with TV brands that manufacture and sell co-branded Roku TV models that integrate the Roku OS to enable basic TV functions and connect to our TV streaming platform. We have driven strong growth in our Roku TV licensing program. Using our reference designs results in relatively low hardware costs, enabling these TV brand licensees to manufacture and sell smart TVs that are competitively priced for consumers and that are automatically updated whenever we issue a Roku OS update.
We also license the Roku OS and our streaming player designs, as well as provide ongoing technology and support services, to certain international pay TV and telcotelecommunications service operators that distribute co-branded streaming players to their subscribers in their markets.
Taken together,
The Roku ecosystem extends beyond TV streaming to smart home devices that include cameras, video doorbells, a home monitoring system, plugs, light bulbs, and light strips, along with our Roku Smart Home mobile application for iOS and Android. Similar to our TV streaming business model, we build scale by selling Roku Smart Home devices and then monetize through smart home services. We offer consumers tremendous optionalitysubscription plans for our cameras, video doorbells, and value when it comeshome monitoring system.
Audio is an important part of the TV streaming experience, and we also offer Roku-branded wireless speakers and subwoofers that seamlessly connect to gaining access toTVs powered by the Roku OS.
Through our streaming devices and the Roku platform,
we provide viewers tremendous choice, value, and
combined with thean exceptional
userviewer experience.
We have been able to significantly scale our active account base over a multi-year period. In
2020,2023, we added
over 1410.0 million
active accounts,net Active Accounts, ending the year with
51.280.0 million
active accounts.Active Accounts.
Engagement: Growing
streaming hoursStreaming Hours
We believe that offering usersviewers a wide range of content and an easy-to-use interface drives increased user engagement by delivering a better overall streaming experience.engagement. We grew Streaming hours on our platform have grownHours from 37.887.4 billion hours in 20192022 to 58.7106.0 billion hours in 2020, as we have grown active accounts2023 through the increased distribution of Roku streaming playersdevices, increasing our Active Accounts, and Rokucontinuing to enhance our viewer experience.
One of the key competitive advantages driving our success is our position as a TV
models, and as our active accounts stream more hours per day, on average.Through our streaming platform and that has achieved significant scale—our home screen is the first thing our viewers see when they start their TV streaming devices,journey. From this position, we make it easy and affordable for our userscan help the viewer decide what to watch their favorite TV shows and movies, as well as listenacross the vast range of options available to streaming audio. Furthermore, we believe our platform offers users an incredible streaming experience through a user interface that is easy to use and navigate. From the Roku home screen, our users can easily find and access the 500,000+ free and paid movies and TV episodes including live TV, news, sports, hit movies, popular shows, and more that are available from the thousands of channelsthem on our streaming platform. AndWe innovate and build features to support this critical role in the viewer’s journey, and it is a key driver of our monetization.
The Roku Home Screen Menu (left navigation bar) contains features such as Live TV, Sports, and What to Watch, and in 2023 we launched enhancements to make it even easier for viewers to find and discover great entertainment. For example, we are enabling more personalization through recommendations and features that allow viewers to track TV shows, movies, and sports teams. Additionally, Roku’s powerful cross-channeluniversal search capabilities makemakes it simplefast and easy when viewers are looking for our usersspecific content.
We also empower viewers to
find the entertainment they’re looking for. Users have the optionalitychoose how much they want to
align their spend
to their budgeton content by
choosing content that is available on anoffering them a broad array of ad-supported, subscription,
orand transactional
basis.options. Our direct relationship with
our userscustomers provides us with detailed insights about
our users and their behavior on our
streaming platform, including certain content
theyviewers search for, the
channels theyapps viewers install
the channels theyand watch, and
certainthe types of content that
theyviewers purchase or subscribe to on our platform.
OurThis first party data enables us to develop actionable insights such as content recommendations to improve our
users’viewers’ experience.
We
Our significant scale, ability to reach highly engaged viewers, tools that enable
our content partners to publish streaming channels, quicklyseamless sign ups, and
easily, which makesmarketing/discovery features make us an attractive platform
forto content
publishers to partner with as they seek topartners. They can also reach
TV streaming, or over-the-top (“OTT”), users. Content publishers can deliver content directly to our large and
relevant audiences and reachengage those
usersviewers who no longer use or
those who never used
legacy paytraditional TV
or paid TV subscriptions.services. As
consumersmore viewers shift to TV streaming, content
publisherspartners that
usepublish apps on our platform are able to reach these streaming audiences at scale and engage
usersviewers directly.
One of the key engagement drivers on our streaming platform is The Roku Channel, our owned and operated streaming app. The Roku Channel aggregates a broad variety of entertainment into a unified streaming experience, through three distinct types of content:
•AVOD (ad-supported video on demand): Users can stream a broad variety of 80,000+ movies and TV shows, including Roku Originals, for free.
•Live TV: Users have access to watch 400+ FAST (free, ad-supported linear streaming TV) channels.
•Premium Subscriptions: Users can easily sign up, view, and manage subscriptions to dozens of streaming services that require a subscription such as Paramount+ and AMC+ with a single, monthly bill.
The Roku Channel benefits from its integration with our streaming platform, which has features such as Live TV, Sports, What to Watch, and more that can surface content from The Roku Channel to our viewers directly from our home screen and throughout a viewer’s streaming journey on our platform. In 2023, The Roku Channel was a top 5 app on our platform by both Active Account reach and Streaming Hours.
The foundation of our content strategy for The Roku Channel is our own streaming channel that drives user engagement on our platform by providing our users free, ad-supported accessthird party licensed content and, to a large librarysmaller extent, Roku Originals. Our content spend is intended to be commensurate with the growth trajectory of third-party content that we directly license, in addition to content made available through The Roku Channel by our content publishers. In this way, The Roku Channel also is intended to help content publishers drive additional viewership and maximizewith the value of their content on our platform.broader macroeconomic environment. The Roku Channel is available on devices powered by the Roku OS in the U.S., U.K.United States, the United Kingdom, Canada, and Canada.Mexico. In 2020, in the U.S., we added a line-upUnited States, it is also available online at TheRokuChannel.Roku.com, and on Amazon Fire TVs, Samsung TVs, Google TV, and other Android TV OS devices.
Monetization: Growing our revenue and gross profit by monetizing user activity
We believegenerate platform revenue primarily from the sale of digital advertising (including direct and programmatic video advertising, media and entertainment promotional spending, and related services), as well as streaming services distribution (including subscription and transaction revenue shares, the sale of Premium Subscriptions, and the sale of branded app buttons on remote controls). Previously, we referred to streaming services distribution as content distribution services. Our TV streaming platform enables content partners and advertisers to reach audiences that running relevant display and digital ads enhances theare increasingly unreachable on traditional TV. Each user experience on our platform. We generate revenue by monetizing our users’ engagement on our platform through a variety of services and capabilities, including video advertising in ad supported channels, sales of subscription services and other commerce transactions, brand sponsorship and promotions, and billing services. Each individual user on ourstreaming platform creates multiple revenue opportunities for Roku whether they’re purchasing content, enjoyingthrough activities such as navigating through the Roku home screen, watching ad-supported content, or simply opening the Roku home page.signing up for subscription services. We measure monetization of our platform by calculating the average revenue per user (“ARPU”), which we believe represents the inherent value of our business model, and growth in gross profit. In 2020, ARPU (which we measure
on a trailing twelve-month basis) increased from $23.14 to $28.76 and gross profit for the full year grew from $495.2 million to $808.2 million.
Our sophisticated and leading streaming platform enables advertisers, including content publishers, brands and agencies, to reach audiences that are no longer reachable or are increasingly unavailable through advertising on traditional TV. We make it easy for content publisherspartners to distribute and monetize their streaming content through three primary business models: transaction video on demand (“TVOD”), subscription video on demand (“SVOD”), which includes subscriptions to individual video on demand apps and advertising-supportedso-called virtual multichannel video programming distribution (“vMVPD”) services; ad-supported video, which includes ad-supported video on demand (“AVOD”). apps with on demand content that do not charge a subscription fee to users, as well as free ad-supported streaming TV (“FAST”), which we define as free, ad-supported linear streaming TV; and transaction video on demand, which includes apps that offer a la carte content purchases or rentals. Through Roku Pay, our platformproprietary billing solution, we are also able to assist content partners with billing services, including billing customersusers for in-channelin-app purchases like a movie rental,content rentals, managing subscriptions, and customer invoices. Roku Pay our platform billing solution, isallows content partners to enable a frictionless signup within their app, and we believe this key platform capability thatbenefit simplifies consumeruser subscription signups and drives purchase and retention for our content partners.
Content
publisherspartners also have access to our
promotionalmedia and
audience developmententertainment tools to help them attract,
engage, and retain
viewers.viewers by investing in promoting their content on our streaming platform. Content
publisherspartners can use a variety of ad placements, including native display ads on the Roku home screen or a screen saver to drive
channelapp downloads, promote
a channel’san app’s content, and direct traffic to their
channelsapps in order to drive subscriptions or movie and TV show consumption. We also
sellderive revenue from the sale of branded
channelapp buttons on streaming player and Roku TV remote controls that are intended to increase incremental usage of
the channelan app by allowing
usersviewers to launch straight into the
channelapp from
the homeany screen. Our analytics and reporting assist content
publisherspartners with analyzing viewership trends and metrics for specific
titles. Using machine learning,titles, and we also can help content
publisherspartners target new audiences that are more likely to subscribe to their services.
The Roku Channel provides monetization for both our content partners and Roku through digital advertising. The Roku Channel provides our users with free access to over 50,000 titles, including hit Hollywood movies,
Just as ads evolved decades ago when TV
episodes, news channels,replaced radio as the primary entertainment medium, ads on TV streaming offer new and more
performant opportunities than traditional TV. We offer advertisers a unique and
is a leading sourceseffective set of
advertising inventory. Through Premium Subscriptions within The Roku Channel, we resell ad-free premium content subscription services from providers such as Showtime, Starz,tools to reach viewers both on and
Epix directly tooff our
users. In addition, we have developed and implemented various features within The Roku Channel that can be used to recruit and retain subscribers for Premium Subscription. For example, we provide personalized content selection for users and integrated The Roku Channel into our billing services to enable one-click subscriptions.streaming platform. Advertisers are able to useleverage the combination of our platform to leveragesignificant scale, our direct relationship with our users, as well asviewers, and our advertising capabilities and user data and insights, to serve relevant targeted advertisements. Advertisers on our platform also can measure both the effectiveness of the ads served and their return on investment.
We are developing new and deeper relationships with third-party ad-buying platforms (retail media networks, demand-side platforms (“DSPs”), and other strategic partners) to meet marketers where they currently are buying programmatic advertising. At the same time, our specialized ad products (such as Shoppable Ads, the Kroger Shopper Program, native ad formats, and our audience guarantees) are accessible only on our advertising platform. This overall approach protects our strategic assets, while creating additional demand opportunities for our ad inventory. Advertisers can use third-party DSPs or OneView (our ad-buying platform) to set up, make changes, and measure ad campaigns entirely on their own.
We offer engagement analytics such as ad impressions served, click-through rates, and video completion rates. We work with a wide variety of third-party measurement companies to measure the branding impact of the ads served and audience demographics, validate ad effectiveness, and quantify sales lift from advertising on our platform. Furthermore, we have relationships with third-party providers that focus on transactional or point of sale data, which enables our advertisers to compare the effectiveness of ads served on our platform to advertising on traditional TV. Additional promotional advertising opportunities include content sponsorships tothat give usersviewers the opportunity to experience a free movie or show and sponsored themes in our viewer experience and shoppable ads that allow viewers to buy products directly from the TV screen. With shoppable ads, we are adding more performant tools and more partnerships to expand the capabilities we can offer advertisers.
The Roku Channel is also a core strategic asset in our monetization efforts that simultaneously benefits viewers, content partners, and advertisers, while generating increasing platform revenue. For viewers, The Roku Channel is a compelling destination for a diverse selection of free and paid entertainment. For content partners, The Roku Channel provides a variety of options to distribute and monetize content through both licensing agreements and Premium Subscriptions. And for both content partners and advertisers, The Roku Channel delivers a large and engaged audience at scale that we believe will continue to grow. Owning and operating both The Roku Channel and the streaming platform creates unique value, making us a leader in free content, positioning us to be a valuable partner to content partners, and providing a large source of ad inventory.
Business Growth
Investment in Growth
We believe that our future performance will depend on the success of the investments in our business that we have made, and will continue to make, to further differentiate our streaming platform and increase the value we deliver to our viewers, content partners, and advertisers. We must regularly update and enhance our streaming platform to meet evolving viewer behavior and provide a best-in-class content delivery and advertising platform. We must provide content partners with best-in-class publishing tools and actionable audience insights. We must continue to innovate and invest in our advertising capabilities and technology so that we attract and encourage incremental advertising spend on our home screen.platform. We aim to balance our commitment to achieving positive Adjusted EBITDA for full year 2024 and our investments to further expand our scale, engagement, and monetization.
Advertising Innovation
We continue to innovate our advertising offerings. In 2023, for the first time, Roku City (our dynamic screen saver) was opened for major advertisers in a broader range of verticals, such as McDonald’s, Mattel, and Carnival Cruise Line, which have integrated brand-specific visuals into our iconic screen saver. We also sell branded content rowsannounced a number of partnerships to expand the value we can deliver to marketers. For example, we partnered with DoorDash to allow their merchants to place click-to-order offers within their Roku ads, and with Instacart to help consumer-packaged goods (CPG) advertisers measure whether users are purchasing products on Instacart after seeing an ad on our streaming platform. Building on the Shoppable Ad technology that we launched with Walmart in 2022, we partnered with Shopify to enable users to purchase products from Shopify merchants directly from Roku devices. And Spotify partnered with Roku as its first TV streaming partner to introduce video ads in the Spotify app on Roku devices.
International Markets
The
Roku Channel.In May 2020, we announced the rebranding of the OneView Ad Platform, a single platform leveragingshift from traditional TV identity data to manage advertising across OTT, desktop, and mobile campaigns. As consumers move to TV streaming OneView provides advertisers withis a toolset to scaleglobal phenomenon, as it offers viewers better choice and greater control over their OTT advertising and marketers self-serve capabilities to optimize and measure effectiveness across screens. OneView integrates the reach, inventory, and capabilities of Roku advertising with the identity and attribution tools of demand-side platform dataxu, which the company acquired in November 2019.
International Markets
entertainment. We believe that the value our business delivers to participants in the TV ecosystem in the U.S. — consumers,viewers, content publishers,partners, and advertisers TV OEMs, other device licensees, and retailers — is alsoas compelling in international markets. To date, we have broughtmarkets as it is in the same business model to certain markets that has enabled us to developUnited States. Today Roku streaming devices are available in 15+ countries. We are the No. 1leading TV streaming platform in the U.S.United States and Mexico by hours streamed.
Internationally, we continue to grow our footprint and deepen our presence in key markets. In 2020,Mexico, we announced RCA as a new Roku TV was the No. 1 selling smart TV operating system in Canada. Also, in 2020, we launched in Brazil, first in partnership with AOC to bring the AOCpartner, an 8K Roku TV to consumersmodel with TCL, and thennew Roku TV models with Philips. Building on our expansion in Latin America, we announced Roku TV models with Caixun in Chile and the launch of RCA Roku Express,TV models in Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua. In the United Kingdom, we announced Roku TV models with JVC (at Currys stores), Polaroid, and Sharp. And in Germany, we expanded our first streaming device in the country.Roku TV program with our third TV OEM partner, Coocaa. In these newerinternational markets, we will continue to focus on building scale first, increasing engagement, and ultimately driving monetization.
We are successfully growing The Roku Channel internationally. The Roku Channel is available on devices powered by the Roku OS in the United Kingdom, Canada, and Mexico. Mexico has become the channel’s largest international market. With strong scale and engagement, and the launch of our digital advertising business in 2022, we have begun to monetize in Mexico.
We engage in a wide variety of sales and marketing activities to continuously
drivegrow scale, engagement, and monetization and dedicate significant resources to this area. Our sales and marketing activities are primarily focused on building and expanding relationships with content
publishers,partners, advertisers, TV brands, retailers, and service operators, and driving sales of our
streaming players and audio products and
our licensed Roku TV
modelspartners’ products to consumers through retail distribution channels.
We have dedicated business development teams that develop and maintain relationships to promote and build awareness of the features and advantages of the Rokuour streaming platform among content publishers,partners, advertisers, TV brands, and service operators. Our data science team supports our sales and marketing efforts by analyzing data on our platform to increase effectiveness for our content publisherspartners and advertisers as well as for our consumer marketing campaigns. We enter into distribution agreements with our content publishers and license their content through our dedicated content relationship management team. Our relationship with content publisherspartners is typically client-direct. We secure direct accessThrough our dedicated content partner relationship management team, we enter into agreements with content partners to publishers’ video ad inventory asdistribute their apps on our platform, or license their content for The Roku Channel, or both. As part of our distribution agreements with AVOD apps, we typically secure direct access to a portion of the content partners’ video ad inventory for our monetization, and serve as an additional channel for content publishers to monetize their audience. Theseour sales efforts are differentiated and complementary to that of our content publishers.partners. Whereas our publisherscontent partners typically sell on a cross-platform basis and feature their brand and content in their sale, we focus on delivering a large OTTstreaming audience across many channelsapps and via other Roku branded experiences such as our home screen at once.once using our own data. We sell advertising to a wide range of advertisers helping them reach their goals across numerous key performance indicators.
We are developing relationships with more third-party ad-buying platforms (e.g., retail media networks, DSPs, and other strategic partners) to reach marketers buying programmatic advertising on such platforms and to create more demand opportunities for Roku ad inventory. Our sales teams and products are organized into
six groups that specialize in the unique needs of each area: (i) agency holding companies and Fortune 500 brands, (ii) independent agency and mid-market clients, (iii) content
publisherspartners and entertainment brands, (iv) performance and
direct to consumerdirect-to-consumer brands, (v) international markets, and (vi) local advertising.
We work with our
licensed Roku TV
brand partners to assist in all phases of the development of Roku TV models, including
development, planning, manufacturing, and marketing.
Similarly, we work with service operators on the planning and development of their co-branded players.In the United States, the majority of our streaming players, audio products and our licensed Roku TV modelspartners’ products are sold through traditional brick and mortar retailers, such as Best Buy, Target, and Walmart, including their online sales platforms, and online retailers such as Amazon, and to a lesser extent our website.website (excluding Roku TV models). We also sell products internationally through distributors and to retailers. In the years ended December 31, 2020 and December 31, 2019, sales through Amazon, Best Buy, and Walmart each accounted for more than 10% of our player segment revenue. These three retailers collectively accounted for 69% and 72%71% of our player segmentdevices revenue for the yearsyear ended December 31, 2020,2023 and 2019, respectively.67% of our devices revenue for the year ended December 31, 2022. We support retailers with an experienced sales management team and work closely with these retailers to assist with in-store marketing and product mix forecasting. We intend to continue to invest significant resources in our sales and marketing efforts.
We have historically seen seasonality in our business related to advertising and
streaming playerdevice sales. Our revenue and gross profit are traditionally strongest in the fourth quarter of each fiscal year and represent a
highhigher percentage of the total net revenue for such fiscal year due to higher consumer purchases and increased advertising during holiday seasons. Furthermore,
a significant percentage of our player sales through retailers in
preparation for the fourth quarter
of the fiscal year are pursuant to committed sales agreements with retailers for whichholiday season, we recognize significant discounts in the average selling prices
in the third quarterof our streaming device sales through retailers in an effort to grow our
active accounts,Active Accounts, which
willtypically reduce our
playerdevices gross
margin.margin or results in a devices gross loss in the fourth quarter.
Our research and development model relies on a combination of in-house staff and
out-sourced designoutsourced development and manufacturing partners to cost-effectively improve and enhance our platform, and to develop new
TVs, players, audio products,
TVs,smart home devices, features, and functionality. We work closely with content
publishers,partners, advertisers,
licensed Roku TV
brands,partners, and service operators to understand their current and future needs. We have designed a product development process that
capturesseeks to take input from our partners into account when making decisions about our future product and
integrates their feedback.service offerings. In addition, we solicit user feedback in the development of new features and enhancements to
the Rokuour platform.
We intend to continue to invest significantly invest in research and development to bring new devicesor improved products and services to market and enhance our platform and capabilities.
market.
We outsource the manufacturing of our products to our contract manufacturers,
using ouroriginal design
specifications.manufacturers, and other contractors and vendors. All of our products are manufactured
by our contract manufacturers in the People’s Republic of China, Southeast Asia, and Brazil. Our contracts do not obligate them to supply products to us in any specific quantity or at any specific price. Our
contract manufacturers procure components and assemble our products to demand forecast we establish based upon historical trends and analysis from our sales,
operations, and product management functions. The
contract manufacturers ship our products to our third-party warehouses in
California,the United States and to our distributors in the United Kingdom and Brazil where
theywe ship
playersour products directly to retailers, wholesale distributors, and
to end users.consumers.
Our business and our devicesproducts and platform are subject to numerous domesticU.S. federal, U.S. state, and foreign laws and regulations covering a wide variety of subject matters. These laws and regulations include general business regulations and laws, as well as regulations and laws specific to providers of Internet-deliveredinternet-delivered streaming services and Internet-connectedinternet-connected devices.
For example, in both the United States and abroad, the regulatory framework for privacy and data security issues is rapidly evolving. U.S. federal and state consumer protection regulators generally exercise oversight of consumer protections, often bringing enforcement actions for unfair acts or deceptive practices related to privacy and security. And an increasing number of states have passed, or are considering, legislation to govern consumer privacy. Likewise, foreign jurisdictions in which we operate impose different, and sometimes more stringent, consumer and privacy protections, compared to the United States. Consumer privacy laws, and regulators’ interpretations of these laws, may become more diverse and restrictive over time, increasing the challenges and costs associated with complying with these laws in all jurisdictions. Privacy laws also may limit the ability of advertisers to fully utilize our platform, which could have a negative impact on our business.
In addition, the internet is a vital component of our business and is subject to a variety of laws and regulations in jurisdictions throughout the world. We historically have relied on the openness and accessibility of the internet to conduct our business, and government regulations that impede the preservation of the open internet could harm our business. Regulators in the United States and abroad continue to evaluate policy changes that could affect the openness of the internet.
To the extent regulators allow network operators to restrict the flow of content over the internet, such operators may seek to extract fees from us or our content partners to deliver our traffic or may otherwise engage in blocking, throttling, or other discriminatory practices with respect to our traffic, which could adversely impact our business.
Finally, our content business is subject to a wide range of government regulations that may vary by jurisdiction. Some nations highly regulate media, including TV streaming. Others have (or may consider) regulations that mandate certain local content quotas or production requirements, for cultural preservation or other reasons. Because our business depends on the creation and production of content, and on the availability of third-party content, delivered over the internet, increased regulation of TV streaming or changes in laws or regulations governing internet transmission of content could adversely affect our business and the attractiveness of our platform. Additionally, these kinds of regulations may make operating in certain jurisdictions more expensive or restrictive.
New laws and regulations,
individually or in
these areas maythe aggregate, could increase our cost of doing business, impact our competitive position, or otherwise have an adverse effect on our business. The costs of compliance with these laws and regulations are substantial and are likely to increase in the future. Compliance with existing or future laws and regulations, including, but not limited to, those pertaining to internet and online services, data privacy and security, consumer protection, global trade,
environmental protection, employee health and safety, and taxes, could have an adverse impact on our business in subsequent periods. If we fail to comply with these laws and regulations, we may be subject to significant liabilities and other
penalties.In particular, our business is subject to foreign and domestic laws and regulations applicable to companies conducting business using the Internet. Both domestic and foreign jurisdictions vary widely as to how, or whether, existing laws governing areas such as privacy and data security, online platform liability, consumer protection, payment processing or sales and other taxes and intellectual property apply to the Internet and e-commerce, and these laws are continually evolving. Moreover, the laws governing these areas,penalties as well as those governing electronic contracts and Internet content and access restrictions, among other areas, are rapidly evolving. The laws in these areas are unsettled and future developments are unpredictable. Laws that leadharm to more stringent regulation of companies engaging in businesses using the Internet may have a negative impact on our business.
In the United States, the regulatory framework for privacy and security issues is rapidly evolving. State and federal consumer protection regulators generally exercise oversight of consumer privacy protections and the security of online services.reputation. For example, California recently adopted the California Consumer Privacy Act of 2018 (“CCPA”), which gives California residents expanded rights to access and require deletion of their personal information, opt out of certain personal information sharing, and receive detailedadditional information about how their personal information is used. The CCPA has prompted a number of proposals for new federal and state privacy legislation. State laws may also impose obligations on us in the event of a security breach or inadvertent disclosure of personal information. Foreign jurisdictions impose different, and sometimes more stringent, consumer and privacy protections, including the European Union (“EU”) General Data Protection Regulation (“GDPR”). The GDPR broadly regulates the processing of personal information about individuals in the EU and includes significant penalties for non-compliance. Such consumer privacy laws are constantly changing and may become more diverse and restrictive over time, challenging our ability to fully comply with these laws in all jurisdictions. Privacy laws also may limit the ability of advertisers to fully utilize our platform, which could have a negative impact on our business.
Tax regulations in domestic and international jurisdictions where we do not currently collect state or local taxes may subject us to the obligation to collect and remit such taxes, to additional taxes or to requirements intended to assist jurisdictions with their tax collection efforts. New legislation orgovernment regulation the application of laws from jurisdictions whose laws do not currently applyapplicable to our business or the application of existing laws and regulations to the Internet and e-commerce generally could resultassociated risks, see Item 1A, Risk Factors, elsewhere in significant additional taxes on our business. An increasing number of jurisdictions are considering or have adopted laws or administrative practices that impose new tax measures, including revenue-based taxes, targeting online commerce and the remote selling of goods and services. These include new obligations to collect sales, consumption, value added, or other taxes on online marketplaces and remote sellers, or other requirements that may result
in liability for third-party obligations. For example, Maryland recently passed legislation establishing a tax on certain advertising activities and in certain jurisdictions outside of the United States, including member states of the EU have proposed or enacted taxes on online advertising and marketplace service revenues. Our results of operations and cash flows could be adversely affected by additional taxes of this nature imposed on us prospectively or retroactively or additional taxes or penalties resulting from the failure to comply with any collection obligations. The continued growth and demand for e-commerce is likely to result in more laws and regulations that impose additional compliance burdens on e-commerce companies, and any such developments could harm our business.
In addition, the Internet is a vital component of our business and also is subject to a variety of laws and regulations in jurisdictions throughout the world. We expect to rely on the historical openness and accessibility of the Internet to conduct our business, and government regulations that impede or fail to preserve the open Internet could harm our business. To the extent regulatory agencies adopt rules that allow network operators to restrict the flow of content over the Internet, such operators may seek to extract fees from us or our content publishers to deliver our traffic or may otherwise engage in blocking, throttling or other discriminatory practices with respect to our traffic, which could adversely impact our business.
Our content publishers also are subject to a wide range of government regulations that may vary by jurisdiction. Because our business depends on the availability of third-party content delivered over the Internet, increased regulation of our content publishers or changes in laws or regulations governing Internet retransmission of third-party content could increase our expenses and adversely affect our business and the attractiveness of our platform.
Annual Report.
Our success depends in part upon our ability to protect our core technology and intellectual property. To establish and protect our proprietary rights, we rely on a combination of intellectual property rights, including patents, trademarks, copyrights, trade secret laws, license agreements, confidentiality procedures, employee disclosure and invention assignment agreements, and other contractual rights.
As of December 31,
2020,2023, we
havehad approximately
1951,300 issued patents and
200500 pending applications in the United States and foreign countries. We also license technology from third parties when we believe it will facilitate our product offerings or business.
For information about the intellectual property risks applicable to our business, see Item 1A, Risk Factors, elsewhere in this Annual Report.
The TV streaming industry is highly competitive and, as it continues to evolve, we will continue to face aggressivestrong competition in every aspect of our business. We compete with much larger companies which have resources and brand recognition that pose significant competitive challenges. In the face of this competition, we believe our success depends on building scale by growing our abilityActive Accounts, growing engagement by increasing the hours of content streamed through our platform, and growing the monetization of the activities that viewers engage in through our platform.
Our competitors include:
•companies that offer TV streaming devices that compete with Roku streaming devices and companies that license their operating systems for integration into smart TVs and other streaming products;
•TV brands that offer their own TV streaming solutions within their TVs as well as other devices such as game consoles, DVD players, Blu-ray players, and set-top boxes that leverage their own operating systems;
•mobile streaming platforms that enable users to acquirestream content on phones and tablets;
•companies that produce and aggregate TV streaming content with the goal of attracting wide audiences;
•companies that offer advertisers the opportunity to reach viewers on other content and advertising mediums, including on other ad-supported streaming services and social media apps;
•companies that offer users by deliveringother sources for news and entertainment, including broadcast and cable television networks, newspapers and magazines, social networks, and video games;
•companies that offer products that compete with our audio products or our smart home products and services; and
•companies that operate in the same locations as our offices or offer remote work positions that may be better able to attract and retain top talent in engineering, research and development, sales and marketing, operations, and other organizations.
We also compete with other entertainment providers, including other TV streaming companies and content publishers, in seeking high quality
content to license for our platform and for talent and programming concepts for original content projects. Increasingly, we also compete with these same publishers in seeking to sell advertising to support the distribution of streaming
devices at competitive prices, partnering with Roku TV brandscontent. A number of leading content publishers have launched new ad-supported subscription tiers, which offer consumers access to
bring co-branded smart TVs to market, and developing and monetizing our streaming platform with compelling content
promotional services and advertising.Our competitors include:
| •
| legacy pay TV service operators;
|
either for free or for a lower subscription fee. | •
| companies that offer TV streaming devices that compete with our streaming players and Roku TV models and companies that license their operating systems for integration into smart TVs and other streaming products;
|
| •
| TV brands that offer their own TV streaming solutions within their TVs and well as other devices like game consoles, DVD players, Blu-ray players and set-top boxes that leverage their own operating systems;
|
| •
| mobile streaming platforms, that enable users to stream content on phones and tablets;
|
| •
| companies that offer advertisers the opportunity to reach consumers on other content and advertising mediums; and
|
| •
| companies that operate in the same locations as our offices that may be better able attract and retain top talent in engineering, research and development, sales and marketing, operations and other organizations.
|
As the TV streaming market continues to develop, we may become subject to additional competition as we introduce or develop new products and services, as our existing products and services evolve, or as other companies introduce competing products and services.
Human Capital Management
As the leading TV streaming platform in the U.S. by hours streamed, we
We believe our success depends on our culture and our ability to attract and retain our employees. As of December 31,
2020,2023, we employed approximately
1,9253,150 full-time employees located in
nine15 countries. Only our employees in Brazil are represented by a labor union with respect to their employment. The majority of our employees
currently arehave adopted a hybrid work schedule (consisting of both in-person work and working
remotely as a result of the COVID-19 pandemic.from home).
We want our employees to be proud to work at Roku. Our entrepreneurial, execution focusedexecution-focused culture focuses onemphasizes recruiting talented individuals, encouraging teamwork, and expecting our employees to perform at a high level. We also emphasize integrity, transparency, and honesty in our internal and external conduct of business. All employees are required to comply fully with our Code of Conduct and Business Ethics, which sets forth our values, business culture, and practices.
Across Roku, teams are expected to communicate clearly, in real time. Because our employees are trusted and encouraged to make decisions,
our leadership communicates plans, milestones, and strategic context broadly, and
our employees are trusted to maintain the confidentiality of such information. Our employees are encouraged to
useleverage our broad talent base for diverse points of view when making decisions.
As we grow our business, our goal is to ensure that Roku continues to be a great place to work and thrive.
Diversity,
Equity, and Inclusion
Roku is
We are committed to being a diverse and inclusive organization. Since the launch of our formal diversity, equity, and inclusion (“DEI”) strategy in 2020, we have made considerable progress on elevating awareness of DEI, promoting dialogue and empathy, implementing employee resource groups, and expanding representation on The Roku Channel and the Roku platform.
Our dedicated Inclusion Strategy team partners across Roku’s global footprint to develop strategies and lead coordinated initiatives that advance inclusive employee and viewer experiences. Our four-part DEI framework includes four pillars: Employee Experience, Attract and Source, Leading Inclusively, and Customer Experience.
Employee Experience: We follow through on this commitmentfacilitate an inclusive employee experience through our annual pay equity analysis, designedlearning and development offerings, internal and external communications, employee resource groups (“ERG”), and mentoring. In 2023, we continued our U.S. pay equity analysis to help ensure we pay fairly and equitably across gender and ethnicity, year over year; our hiringyear. Our six voluntary and management trainings that incorporate topics on mitigating unconscious bias;employee-led ERGs are highly engaged and by havingfoster a diverse interviews panel that limit questions to those that are legally compliant and objectively tied to applicable job openings.During 2020,inclusive workplace, build internal community, encourage career growth and networking, and support social impact partnerships. In 2023, we furthered our commitment to diversity and inclusion by promoting a new Vice President of Inclusion Strategy and Talent Development who is building a growing team that is focusing on priorities in four key areas: Inclusive Employee Experiences, Inclusive Recruiting, Inclusive Communities & Social Impact, and Inclusive Customer Advocacy.
Inclusive Employee Experiences: Among other initiatives, we have launched an Employee Resource Group (ERG) Program and are currently developing seven ERGs. We also launched a series of educational employee-led dialogues that cover various topics of diversity ranging from ethnic diversity to neurodiversity and are providing diversity and inclusion training and curriculumdelivered DEI offerings in the areas of bias, leadinginclusive conversations, bridging gaps across differences, and allyship. Our DEI Talks series featured a diverse teams,group of tech and sourcing diverse talent.entertainment and media leaders. We also increased the frequency of DEI communications to amplify our commitment, both internally and externally.
Attract and Source: Our Inclusive Recruiting: EveryRecruiting Program Manager and DEI specialists embedded within our Talent Acquisition team directly contribute to our efforts to be inclusive. In addition, every member of our recruitingTalent Acquisition team is trained on how to source, engage, and recruit qualified diverse candidates. In fact, allcandidates from different backgrounds. To that end, our recruiters are equipped to discuss a diverseDEI best practices with hiring strategy with every hiring managermanagers to ensure we continue to widen the candidate pipeline for all roles. Our University Recruitingroles and Interncreate inclusive recruiting experiences. Furthermore, our U.S. university recruiting and intern programs weave diversity and inclusionembed DEI into their strategies so that we areour recruiting not only from diverse schools but also diversepipelines include historically black colleges and universities, Hispanic-serving institutions, and underrepresented clubs and programs across all schools. other schools where we recruit.
Our external relationships are also are focused on organizations that represent diversereflect underrepresented communities, including technical and non-technical women and ethnicunderrepresented minority organizations, as well as professional Veteran’s networks, to enable our hiring managers and recruiters to attend or speak at diverserelated conferences, share our job descriptions, and tell our employer brand story to a wider audience.
Leading Inclusively: Our leaders are instrumental in sustaining inclusive employee and customer experiences. We seek to increase opportunities for leaders to demonstrate inclusive leadership. Members of our executive management team volunteer to serve as executive sponsors for our ERGs, while additional leaders volunteer to be executive advocates or chairs. We are in the process of developing new social impact programs to support employeesalso building inclusive leadership awareness into our training and Roku in volunteerism, charitable activities,people manager resources and youth engagement and anticipate we will have more to share related to our commitment to leaving a positive impact on young people and our wider community in future periods.communications.Inclusive
Customer Advocacy:Experience: As a TV streaming platform for viewers in thewith both U.S. and certain international locations,viewers, we want tobelieve our customer experiences should reflect our users in our overall user experience and accessibility, content we license, and the channel on our platform. During 2020, we launched a policy designed to acknowledge key areas of diversity and identity thoughtfully, meaningfully, and inclusive of our diverse customer base, year-round. customers. We offer a slate of “inclusion zones” (including Black Voices, Pride, Latino Voices, Women’s Voices, and Asian and Pacific Islander Voices) on the Roku platform that highlight and celebrate related stories from various content providers.Training & Employee
Community Engagement and Social Impact
We have developed a Social Impact program that engages our local communities through employee volunteerism. Our program partners with organizations that provide opportunities for employees to mentor high school students through activities such as career panels, industry masterclasses, and hands-on science, technology, engineering, and math (STEM) challenges.
Learning and Talent Development
Our Learning and
Talent Development function provides our employees with the training and development needed to support our
strategic priorities and growth. Our employee
trainingdevelopment programs begin with a comprehensive
New Hire Orientation that coversnew hire onboarding experience covering our
culture, business, and business. Our Orientation is supplemented by checklists andthe resources for an employee’s first 90 days.employees need to increase our new hires’ speed to productivity. In addition to mandatory training covering Anti-Harassment, Anti-Discrimination,anti-harassment, anti-discrimination, and Privacy trainings,privacy, we offer employees a suite of highly encouraged suite of training offerings covering topics such as Effective Feedback, Effective Meetings,high-performance feedback, career development, change management, and Communication and Presentation Skills.communication skills. Managers also are provided an additional set of trainingswith training on Expectationsexpectations for Managers, Interviewingmanagers and Hiring, and Performance Managementhave access to a 1:1 leadership coaching program to support new and newly promoted leaders in how to managemanaging and leadleading effectively. OurIn addition, all employees also have free access to additional training inon-demand technical and non-technical subjectsskill development through LinkedIn Learning. We intend to continue to review, refresh, purchase, and/or custom buildand custom-build additional training materials to support theour global employees’ performance and development needs of our global employees.
needs.
Compensation and Benefits
Our total compensation program is designed to attract, retain, and reward talented professionals. As a result, we endeavor to pay competitive total compensation that is guided by market rates and tailored to account for the specific needs and responsibilities of a particular position as well as the unique qualifications of the individual employee. In determining each employee’s total compensation opportunity, we consider what theythat employee would be paid by another employer, what we would have to pay to replace them it they leavethat employee if the employee leaves Roku, and the amount we would pay to retain them. Wethat employee. Generally, we pay employees total compensation that is comprised of salary and equity awards rather than offeroffering specific benefits or perks that might be valued differently by different employees. We generally do not pay cash bonuses (other than to employees eligible for sales commissions) or have performance-based equity awards because our employees are expected to work at the highest level regardlesslevel.
We recognize that our employees are most likely to thrive when they have the resources to meet their needs and the time and support to succeed in their professional and personal lives. In support of
possible bonus payouts or awards.this, we offer a variety of benefits and wellness offerings to our employees around the world.
Our website address is www.roku.com. We make available, free of charge through our website, our annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and amendments to those reports, filed or furnished pursuant to Sections 13(a) or Section 15(d) of the Securities Exchange Act, of 1934, as amended, as soon as reasonably practicable after they have been electronically filed with, or furnished to, the Securities Exchange Commission (“SEC”). SEC. Investors and others should note that we announce material financial information to our investors using our investor relations website (ir.roku.com)(roku.com/investor), SEC filings, webcasts, press releases, and conference calls. We use these mediums to communicate with investors and the general public about our company, our products and services, and other issues. It is possible that the information we make available may be deemed to be material information. We therefore encourage investors, the media, and others interested in our company to review the information we post on our investor relations website. The SEC maintains
an internet site (http://www.sec.gov)a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding
issuerscompanies (including Roku) that file electronically with the SEC.
Information contained on or accessible through the websites listed above is not incorporated by reference nor otherwise included in this report,Annual Report, and any references to these websites are intended to be inactive textual references only.
Our business involves significant risks, some of which are described below. You should carefully consider the risks and uncertainties described below, together with all the other information in this
Annual Report,
on Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the related notes. If any of the following risks actually occurs, our business, reputation, financial condition, results of operations, revenue, and future prospects could be seriously harmed. In addition, you should consider the interrelationship and compounding effects of two or more risks occurring simultaneously. Unless otherwise indicated, references to our business being harmed in these risk factors will include harm to our business, reputation, financial condition, results of operations, revenue, and future prospects. In that event, the market price of our Class A common stock could decline, and you could lose part or all of your investment.
You should not interpret our disclosure of any of the following risks to imply that such risks have not already materialized.
Below is a summary of the principal factors that make an investment in our Class A common stock speculative or risky:
Risks Related to Our Business and Industry
| •
| the highly competitive nature of the TV streaming industry that is rapidly evolving;
|
| •the highly competitive nature of the TV streaming industry that is rapidly evolving;• | our ability to monetize our streaming platform;
|
| •the acceptance and growth of streaming TV advertising and advertising platforms;• | our ability to attract advertisers and advertising agencies to our demand-side advertising platform;
|
| •our ability to further monetize our streaming platform;• | our ability to develop relationships with TV brands and service operators;
|
| •our ability to successfully run our demand-side platform and work with other third-party demand sources;• | our ability to establish and maintain relationships with important content publishers;
|
| •our ability to develop, maintain, and expand relationships with licensed Roku TV partners, manufacturing partners, and service operators;• | popular or new content publishers not publishing their content on our streaming platform;
|
| •our ability to establish and maintain relationships with important content partners;• | maintaining an adequate supply of quality video ad inventory on our platform and selling the available supply;
|
| •popular or new content publishers not publishing their content on our streaming platform;• | content publishers electing not to participate in platform features that we develop;
|
| •the non-renewal or early termination of our agreements with content partners;• | irrelevant or unengaging advertising, marketing campaigns or other promotional advertising on our platform;
|
| •maintaining an adequate supply of quality video advertising inventory on our platform and effectively selling the available supply;• | our ability to attract users to and generate revenue from The Roku Channel;
|
| •content partners electing not to participate in platform features that we develop;• | users signing up for offerings and services outside of our platform;
|
| •irrelevant or unengaging advertising or media and entertainment promotional spending campaigns on our platform;• | the evolution of our industry and the impact of many factors that our outside of our control;
|
| •our operation of The Roku Channel;• | changes in consumer viewing habits;
|
| •users signing up for offerings and services outside of our platform;• | our and our Roku TV brand partners’ reliance on retail sales channels to sell products;
|
| •our and our licensed Roku TV partners’ ability to develop, maintain, and expand relationships with important retail sales channels that we and they rely on to sell our streaming devices and other products;• | our ability to build a strong brand and maintain customer satisfaction and loyalty;
|
| •our ability to build a strong brand and maintain customer satisfaction and loyalty;• | advertiser and/or advertising agency delayed payment or failure to pay;
|
| •advertiser or advertising agency delayed payment or failure to pay;• | maintaining adequate customer support levels;
|
| •maintaining adequate customer support levels;• | our ability to manage streaming device and other product introductions and transitions;
|
| •our introduction of new products and services;• | our and our Roku TV brand partners’ reliance on contract manufacturers and limited manufacturing capabilities;
|
| •our and our licensed Roku TV partners’ reliance on contract manufacturers and limited manufacturing capabilities;• | our ability to forecast manufacturing requirements and manage inventory;
|
| •our reliance on licensed Roku TV partners’ operations for the supply of Roku TV models;• | our ability to obtain key components from sole source suppliers;
|
| •our ability to forecast manufacturing requirements and manage our supply chain and inventory levels;• | interoperability of our streaming devices with content publishers’ offerings, technologies and systems;
|
| •decreased availability or increased costs for materials and components used in the manufacturing of our products and our licensed Roku TV partners’ products;• | detecting hardware errors or software bugs in our products before they are released to users;
|
| •our ability to obtain key components from sole source suppliers;• | component manufacturing, design or other defects that render our devices permanently inoperable;
|
| •interoperability of our products with content partners’ and other third parties’ offerings, technologies, and systems;• | our ability to obtain necessary or desirable third-party technology licenses;
|
•detecting hardware defects and software errors in our products before they are released to end users;
•component manufacturing, design, or other defects that may render our products permanently inoperable;
•our ability to obtain or maintain necessary or desirable third-party technology licenses;
•our use of artificial intelligence (“AI”) technologies in some of our products and services;
Risks Related to Operating and Growing Our Business
| •
| our history of operating losses;
|
| •our history of operating losses;• | volatility of our quarterly operating results that could cause our stock price to decline;
|
| •volatility of our quarterly operating results that could cause our stock price to decline;• | our ability to manage our growth;
|
| •
| our ability to successfully expand our international operations;
|
| •our ability to manage our growth;• | seasonality of our business and its impact our revenue and gross profit;
|
| •our ability to successfully expand our international operations;• | attracting and retaining key personnel and managing succession;
|
| •seasonality of our business and its impact on our revenue and gross profit;• | maintaining systems that can support our growth, business arrangements and financial rules;
|
| •attracting and retaining key personnel and managing succession;• | our ability to successfully complete acquisitions and investments and integrate acquired businesses;
|
| •maintaining systems that can support our growth, business arrangements, and financial rules;• | our ability to comply with the terms of our outstanding credit facility;
|
•our ability to successfully complete acquisitions and investments and integrate acquired businesses;
| • | our ability to secure funds to meet our financial obligations and support our planned business growth; |
•adverse developments affecting financial institutions, including bank failures;
Risks Related to Cybersecurity, Reliability, and Data Privacy
| •
| significant disruptions of information technology systems or data security breaches;
|
| •significant disruptions of information technology systems or data security incidents;• | legal obligations and potential liability related to our users’ personal information;
|
| •legal obligations and potential liability or reputational harm related to our collection, storage, and use of personal and confidential information related to the users of our products and services;• | our actual or perceived failure to adequately protect the personal and confidential information;
|
| •
| disruptions in computer systems or other services that results•disruptions in computer systems or other services that result in a degradation of our platform;
|
| • | changes in how network operators manage data that travel across their networks; |
Risks Related to Intellectual Property
| •
| litigation resulting in the loss of important intellectual property rights;
|
| •
| failure to protect or enforce our•intellectual property infringement claims and litigation resulting in significant costs or the loss of important intellectual property or proprietary rights;
|
| •failure or inability to protect or enforce our intellectual property or proprietary rights;• | our use of open source software;
|
| •our use of open-source software;• | our agreement to indemnify certain of our partners if our technology is alleged to infringe on third-parties’ intellectual property rights;
|
•our agreements to indemnify certain of our partners if our technology is alleged to infringe on third parties’ intellectual property rights;
Risks Related to Macroeconomic Conditions
| •
| the current and future impact of the COVID-19 pandemic on our business;
|
| •the impact of macroeconomic conditions, natural disasters, geopolitical conflicts, or other natural or man-made catastrophic events on our business;• | natural disasters or other catastrophic events;
|
Legal and Regulatory Risks
| •
| enactment of or changes to government regulation or laws related to our business;
|
| •
| changes in general economic conditions, geopolitical conditions, and/or U.S. trade policies that impact•enactment of or changes to government regulation or laws related to our business;
|
| •changes in U.S. or foreign trade policies, geopolitical conditions, and general economic conditions that impact our business;• | U.S. or international rules that permit ISPs to limit internet data consumption by users;
|
| •U.S. or international rules (or the absence of rules) that permit internet access network operators to degrade users’ internet service speeds or limit internet data consumption by users;• | changes to current or future laws, regulations or government actions that impact our partners;
|
| • | liability for content that is distributed through or advertising that is served through our platform; |
| • | our ability to maintain effective internal controls over financial reporting; |
| • | the impact of changes in accounting principles; |
| •compliance with laws and regulations related to the payment of income taxes and collection of indirect taxes;• | compliance with laws and regulations related to the collection of sales tax and payment of income tax;
|
| • | changes to U.S. or foreign taxation laws or regulations; |
| • | litigation, claims, regulatory inquiries, investigations, and other legal proceedings; |
Risks Related to Ownership of
ourOur Class A Common Stock
| •
| The dual class structure of our Class A common stock;
|
| •
| The volatility in the trading price•the dual class structure of our Class A common stock;
|
| •
| Potential dilution or a decline in our stock price caused by future sales or issuance of our capital stock or rights to purchase capital•volatility in the market price of our Class A common stock;
|
| •potential dilution or a decline in our stock price caused by future sales or issuance of our capital stock or rights to purchase capital stock;• | A decline in our stock prices caused by future sales by existing stockholders;
|
| •a decline in our stock price caused by future sales by existing stockholders;• | Dependency on favorable securities and industry analyst reports;
|
| •dependency on favorable securities and industry analyst reports;• | The significant legal, accounting and other expenses associated with being a publicly-traded company;
|
| •the significant legal, accounting, and other expenses associated with being a publicly traded company;• | The absence of dividends on our Class A or Class B common stock;
|
| •the absence of dividends on our Class A or Class B common stock;• | anti-takeover provisions in our charter; and
|
| •anti-takeover provisions in our charter and bylaws; and• | the limitations resulting from our selection of the Delaware Court of Chancery and the federal district courts of the United States as the exclusive forums for substantially all disputes between us and our stockholders.
|
•the limitations resulting from our selection of the Delaware Court of Chancery and the U.S. federal district courts as the exclusive forums for substantially all disputes between us and our stockholders.
Risks Related to Our Business and Industry
The TV streaming
industry is highly competitive and many companies, including large technology companies, content owners and aggregators, TV brands, and service operators, are actively focusing on this industry. If we fail to differentiate
ourselvesour streaming platform and compete successfully with these companies, it will be difficult for us to attract and retain users and our business will be harmed.
The TV streaming
industry is highly competitive and global. Our success depends in part on attracting
users to and retaining users on, and
the effective monetization of, our streaming platform. To attract and retain users, we need to be able to respond efficiently to changes in
consumeruser tastes and preferences and to offer our users access to the content they love on terms that they accept. Effective monetization requires us to continue to update the features and functionality of our streaming platform for users, content
publisherspartners, and advertisers. We also must effectively support popular sources of streaming content that are available on our platform, such as Amazon Prime Video, Disney+,
Discovery+, HBOHulu, Max,
Hulu, Peacock, Netflix, and YouTube. And we must respond rapidly to actual and anticipated market trends in the TV streaming industry.
Companies
Large technology companies such as Amazon, Apple, and Google offer TV streaming devices that compete with
Roku streaming devices made by us and our
streaming players.licensed Roku TV partners. In addition, Google licenses its Android operating system software for integration into smart TVs and service provider set-top boxes, and Amazon licenses its operating system software for integration into smart
TVs and sells Amazon-branded smart TVs. These companies have greater financial resources than we do and can subsidize the cost of their streaming devices
or licensing arrangements in order to promote their other products and services, which could make it harder for us to acquire new users, retain existing users,
increase Streaming Hours, and
increasemonetize our streaming
hours.platform. These companies could also implement standards or technology that are not compatible with our products or that provide a better streaming experience. These companies also
have greater resources to promote their brands through
traditional forms of advertising
such as TV commercials, as well as digital advertising or website product placement, and have greater resources to devote to such efforts than we do.
In addition, many TV brands offer their own TV streaming solutions within their TVs. Other devices, such as game consoles,
and many DVD and Blu-ray players, also incorporate TV streaming functionality. Similarly, some service operators,
such as Comcast and Charter Communications (and their joint venture, Xumo, LLC), offer TV streaming applications
and devices as part of their cable service plans and can leverage their existing
consumeruser bases, installation networks, broadband delivery networks, and name recognition to gain traction in
the TV
streaming market.streaming. If
consumersviewers of TV streaming content prefer alternative products to
ourRoku streaming
players and our partners' Roku TV models,devices, we may not be able to achieve our expected growth in
active accounts, streaming hours,Active Accounts, Streaming Hours, platform revenue, gross profit or ARPU.
We also compete for Streaming Hours with mobile streaming applications on smartphones and tablets, and users may prefer to view streaming content on such applications. Increased use of mobile or other platforms for TV streaming could adversely impact the growth of our Streaming Hours, harm our competitive position, and otherwise harm our business.
We expect competition in TV streaming from the large technology companies and service operators described above, as well as new and growing companies, to
continue to increase in the future. This increased competition could result in pricing pressure, lower revenue and gross profit, or the failure of
Roku streaming devices, our
players, Roku TV modelsplatform or our
platformother products to gain or maintain broad market acceptance. To remain competitive and maintain our position as a leading TV streaming platform, we need to continuously invest in our platform, product development, marketing, service and support, and device distribution infrastructure. In addition, evolving TV standards
such as 8K, HDR and unknown future developments may require further investments in the development of
Roku streaming devices, our
players, Roku TV models,platform and our
platform.other products. We may not have sufficient resources to continue to make the investments needed to maintain our competitive position. In addition,
mostmany of our competitors have longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical, sales, marketing, and other resources than us, which provide them with advantages in developing, marketing, or servicing new products and offerings. As a result, they may be able to respond more quickly to market demand, devote greater resources to the development, promotion, sales, and distribution of their products or their content, and influence market acceptance of their products better than we can. These competitors may also be able to adapt more quickly to new or emerging technologies or standards and may be able to deliver products and services at a lower cost. Increased competition could reduce our sales volume, revenue, and operating margins, increase our operating costs, harm our competitive position, and otherwise harm our business.
In July 2018,
To enhance our users’ experience, we introducedalso offer our Roku TV Wireless Speakers, designed specifically for use with Roku TV models, in September 2019, we launched our Roku Smart Soundbarown lines of Roku-branded smart home products and Roku Wireless Subwooferservices, including indoor and in September 2020, we launched our Roku Streambar.outdoor cameras, video doorbells, smart lighting, smart plugs, and home monitoring products, and audio products, including wireless speakers and subwoofers. As a result, of these developments, we may face additional competition from makersother brands of TVsmart home products and audio speakers and soundbars, as well as makers of other TV peripheral devices. While our audio products have not generated material amounts of revenue, ifproducts. If these products do not operate as designed or do not enhance the TVs powered by the Roku TVOS or other viewing experienceexperiences as we intend, our users’ overall viewing experience may be diminished, and this may impact the overall demand for our products and our partners’ Roku TV models or our other products.models.
Our future growth depends on the acceptance and growth of
OTTstreaming TV advertising and
OTT advertising platforms.
We operate in a highly competitive advertising industry and
we compete for revenue from advertising with other streaming platforms and services,
including social media and other digital platforms, as well as traditional media, such as radio, broadcast, cable and satellite TV, and satellite and internet radio. These competitors offer content and other advertising mediums that may be more attractive to advertisers than our streaming platform. These competitors are often very large and have more advertising experience and financial resources than we do, which may adversely affect our ability to compete for advertisers and may result in lower revenue and gross profit from advertising.
For example, Netflix, Disney+, and Amazon Prime Video have launched ad-supported tiers in their streaming services, which has further increased competition for streaming advertising revenue. If we are unable to increase our revenue from advertising by, among other things, continuing to improve our platform’s capabilities to further optimize and measure advertisers’ campaigns,
increaseincreasing our advertising inventory and
expand ourreach, and maintaining a strong advertising sales team and programmatic capabilities, our business and our growth prospects may be harmed. We may not be able to compete effectively or adapt to any such changes or trends, which would harm our ability to grow our advertising revenue and
would harm our business.
Many advertisers continue to devote a substantial portion of their advertising budgets to
advertising in traditional
advertising,media or on other digital platforms, such as
lineartraditional TV, radio,
print publications, and
print.social media. The future growth of our business depends on the growth of
OTTstreaming TV advertising and on advertisers increasing their
spendspending on advertising on our platform. Although traditional TV advertisers
showedhave shown growing interest in
OTTstreaming TV advertising,
during 2020, we cannot be certain that their interest will continue to increase or that they will not revert to traditional TV advertising
especiallyor shift their advertising spending to social media and other digital platforms (rather than to us). In addition, if
we are unable to compete with social media and other digital platforms to win business from advertisers and advertising agencies who have traditionally advertised on these platforms, such as direct-to-consumer and small or medium-sized businesses, our
users no longer stream TV or significantly reduce the amount of TV they stream either as a result of lifting of stay-at-home orders, the end of the COVID-19 pandemic or for other reasons.ability to grow our business may be limited. If advertisers, or their agency relationships, do not perceive meaningful benefits of
OTTstreaming TV advertising, the market may develop more slowly than we expect, which could adversely impact our operating results and our ability to grow our business.
Finally, there is political or regulatory pressure in some countries to limit streaming TV advertising (including limiting the advertising that may be associated with children’s content) or impose local content requirements on streaming TV services, which could pose a threat to our services.
We may not be successful in our efforts to further monetize our streaming platform, which may harm our business.
Our business model depends on our ability to generate platform revenue from advertisers and content
publishers.partners. We generate platform revenue primarily from
the sale of digital advertising
(including direct and
audience development campaigns that run across ourprogrammatic video advertising, media and entertainment promotional spending, and related services) and streaming
platformservices distribution (including subscription and
from content distribution services.transaction revenue shares, the sale of Premium Subscriptions, and the sale of branded app buttons on remote controls). As such, we are seeking to expand the number of
active accountsActive Accounts and increase
the number of hours that are streamed across our platformStreaming Hours in an effort to create additional platform revenue opportunities. As our user base grows and as we increase the amount of content offered and streamed across our platform, we must effectively monetize our expanding user base and streaming activity. The total number of
streaming hours,Streaming Hours, however, does not correlate with platform revenue on a period-by-period basis, primarily because we do not monetize every hour streamed
or every user on our platform. Moreover,
streaming hoursStreaming Hours on our platform are measured whenever a
player or a Roku
TVstreaming device is streaming content, whether a viewer is actively watching or not. For example, if a player is connected to a TV, and the viewer turns off the TV, steps away, or falls asleep and does not stop or pause the player, then the particular streaming
channelapp may continue to play content for a period of time determined by the streaming
channel. We believe that this also occurs acrossapp (although all Roku devices include a
wide variety of non-Roku streaming devices and other set-top boxes. Beginning in the third quarter of 2019 through the first quarter of 2020, we updated the Roku OS
with a feature that is designed to identify when content has been continuously streaming on
a channelan app for an extended period of time without user
interaction. This feature,interaction, which we refer to as “Are you still watching,” periodically prompts the user to confirm that they are still watching the selected
channelapp and closes the
channelapp if the user does not respond
affirmatively. We believe that the implementation of this feature across the Roku platform benefits us, our customers, channel partners and advertisers. Some of our leading channel partners, including Netflix, also have similar features within their channels. This Roku OS feature supplements these channel features. This feature has not had and is not expected to have a material impact on our financial performance.affirmatively).
Our ability to deliver moreadvertisements relevant advertisements to our users and to increase our platform’s value to advertisers and content publisherspartners depends on the collection of user engagement data, which may be restricted or prevented by a number of factors.factors, including the evolving data protection legal landscape. Users may decide to opt out or restrict our ability to collect personal viewing data or to provide them with more relevant advertisements. Content publisherspartners may also refuse to allow us to collect data regarding user engagement or refuse to implement mechanisms we request to ensure compliance with our legal obligations or technical requirements. For example, we are not able to fully utilize program level viewing data from many of our most popular channelsapps to improve the relevancy of advertisements provided to our users.
Other
channelsapps available on our platform, such
as Amazon Prime Video, Apple TV+, Hulu, and YouTube, are focused on increasing user engagement and time spent within their channelapps by allowing users to purchase additional content and streaming services within their channels. In addition,apps; when users purchase these additional services within these apps, we do not currently monetize content provided on non-certified channels, whichmay earn less revenue than when the services are not displayed in our channel store and must be added manually by the user, on our streaming platform.purchased directly from us. If our users spend most of their time within particular channelsapps where we have limited or no ability to place advertisements or leverage user information, or our users opt out from our ability to collect data for use in providing more relevant advertisements, we may not be able to achieve our expected growth in platform revenue or gross profit. Additionally, our distribution agreements with our most popular apps are renegotiated periodically; thus, even if we are currently able to monetize Streaming Hours within an app, we may not be able to do so in the future. If we are unable to further monetize our streaming platform, our business may be harmed.
Our efforts to monetize our streaming platform through ad-supported content may not continue to grow as we expect, and our platform revenue growth has been, and may continue to be, lower than expected due to advertisers significantly curtailing or pausing advertising spending due to inflationary pressures, recessionary fears or other reasons that are out of our control. In
addition, advertisers’ spending commitments, such as those we obtain in connection with annual TV Upfront presentations, are typically not fully binding, and the revenue we receive from such commitments may be less than the initially committed amount. This means that in order to materially increase the monetization of our streaming platform through the sale of video advertising, we will need
our users to
streamattract significantly more
ad-supported content. Our efforts to monetize our streaming platform through ad-supported content are still developing and may not continue to grow as we expect. Further, while we have experienced, and expect to continue to experience, growth in our revenue from advertising, our efforts to monetize our streaming platform through the distribution of AVOD content are still developing and our advertising revenue may not grow as we expect. This means of monetization will require us to continue to attract advertising dollars to our streaming platform as well as deliver
AVODad-supported content that
appeals to users.results in our users streaming significantly more ad-supported content. Accordingly, there can be no assurance that we will be successful in monetizing our streaming platform through the distribution of ad-supported content.
If
we are unable to attract advertisers or advertising agencies to our OneView Ad Platform or if we are not successful in running a demand-side
advertising platform
(“DSP”) or in working with other third-party demand sources, our business may be harmed.
In 2020, we announced the rebranding of the
Through OneView
Ad Platform, a demand-side platform through which(our proprietary DSP) and other third-party demand sources (such as third-party DSPs and supply-side platforms), advertisers and advertising agencies can programmatically purchase and manage their
OTT,streaming TV, desktop, and mobile advertising
campaigns. OneView leveragescampaigns both on and off the
DSP developed by dataxu, which we acquired in November 2019, and integrates the reach, inventory and capabilities of our proprietary advertising products and services.Roku platform. The market for programmatic
OTTstreaming TV ad buying is an
emergingevolving market, and our current and potential advertisers and advertising agencies may not
continue to shift to programmatic ad buying from other buying methods as quickly as we expect or at all. If the market for programmatic
OTTstreaming TV ad buying deteriorates or develops more slowly than we expect, advertisers and advertising agencies may not use OneView or
other third-party demand sources, and our business could be harmed. If we
may not attract prospective advertisers orare unable to expand our programmatic demand by maintaining and developing third-party demand relationships in a way that is competitive with other advertising
agencies to OneView, andplatforms, our business could be harmed. In addition,
we have limited experience running a DSP and if OneView
doesor other third-party demand sources do not have the functionality or services expected by advertisers or advertising agencies,
wethey may
not be able to attracttake their advertising spend to
OneView or our existing customers may not maintain or increase their spend on OneView. If we fail to adapt to our rapidly changing industry or to our customers evolving needs, advertisers and advertising agencies will not adopt OneView and our business may be harmed.a non-Roku platform. We also may not
be able to compete effectively with more established DSPs or be able to adapt to changes or trends in programmatic
OTTstreaming TV advertising, which would harm our ability to grow our advertising revenue and harm our business.
Our growth
will dependdepends in part on our ability to develop,
maintain, and expand
our relationships with
our licensed Roku TV
brand partners
in the United States and
international marketsmanufacturing partners and, to a lesser extent, service operators.
We license the Roku OS and our smart TV reference designs to certain TV brand and manufacturing partners for the development, manufacture, and commercialization of licensed Roku TV models. We have developed, and intend to continue to develop and expand, relationships with
these TV brand
partners and
to a lesser extent, service operators in both the United States and international markets. Our licensing arrangements are complex and time-consuming to negotiate and complete. Our current and potential partners include TV brands, cable and satellite companies and telecommunication providers.manufacturing partners. We continue to invest in the growth and expansion of our Roku TV program both in the United States and
Internationalinternational markets.
Our licensing program for service operators has historically been primarily focused on international markets and has not been growing in scale in recent years, as we have shifted the focusFor a number of
our international growth to the sale of Roku streaming players and Roku TV models.In the past few years, the sale of Roku TV models by our licensed Roku TV brand partners has materially contributed to growth in our active account growth, to our streaming hours,Active Accounts and toStreaming Hours, and supported our platform monetization efforts. This growth has primarily been in the United States;driven by North America; however, our Roku TV licensing program has been expanded to certain international markets.markets and has represented an increased share of new Active Accounts. We license the Roku OS and our smart TV reference designs to certain TV brand partners to manufacture co-branded smart TVs. We havedo not received,typically receive, nor do we typically expect to receive, license revenue from these arrangements, but we expect totypically incur operating expenses in connection with establishing and supporting these commercial agreements.
The primary economic benefits that we derive from these license arrangements have been and will likely continue to be indirect, primarily from growing our
active accounts,Active Accounts, increasing
Streaming Hours, and thereby enabling us to generate more streaming
hoursservices distribution and
generating advertising-related
revenuesrevenue on our platform. If these arrangements do not continue to
result in increased active accountsActive Accounts and streaming hours,Streaming Hours, and if that growth does not in turn lead to successfully monetizing that increased user activity, our business may be harmed.
The loss of a relationship with a
licensed Roku TV
brand or service operatorpartner (including as a result of our launch of Roku-branded TVs that are designed, made, and sold by us) could harm our results of operations, damage our reputation, increase pricing and promotional pressures from other partners and
retail distribution channels,
or increase our marketing
costs.costs, and result in the loss of revenue. If we are not successful in maintaining existing and creating new relationships with any of these third parties, or if we encounter technological, content licensing, or other impediments to
our development of these relationships, our ability to grow
or maintain our business could be adversely impacted.
We have also developed licensing relationships with certain service operators, primarily in international markets; however, this program has been decreasing in scale in recent years, and as a result we have shifted the focus of our international growth to the sale of Roku streaming devices and expanding our Roku TV licensing program. Based on the decreasing scale of our licensing program for service operators, including termination of these relationships, we expect that the number of Active Accounts generated from this program will continue to decline, which may impact the overall growth rate of our Active Accounts in international markets.
Our Roku TV licensing arrangements are complex and time-consuming to negotiate and complete. Our current and potential partners include TV brands, retailers, cable and satellite companies, and telecommunication providers. Under these license arrangements, we generally have limited
or no control over the amount and timing of resources these entities dedicate to the relationship.
In the past, our licensed Roku TV partners have failed to meet their forecasts and anticipated market launch dates for distributing Roku TV models, and they may fail to meet their forecasts or such launches in the future. If our
licensed Roku TV
brandpartners or service operator partners fail to meet their forecasts
or such launches for distributing licensed streaming devices or
chosechoose to deploy competing streaming solutions within their product lines, our business may be harmed.
We depend on a small number of content
publisherspartners for a majority of our
streaming hours,Streaming Hours, and if we fail to maintain these relationships, our business could be harmed.
Historically, a small number of content
publisherspartners have accounted for a significant portion of the hours streamed on our platform. In the
fiscal year ended December 31,
2020,2023, the top three streaming services represented
overalmost 50% of all hours streamed in the period. If, for any reason, we cease distributing
channelsapps that have historically streamed a large percentage of the aggregate
streaming hoursStreaming Hours on our platform, our
streaming hours, active accountsStreaming Hours, our Active Accounts, or
Roku streaming device sales may be adversely affected, and our business may be harmed.
If popular or new content publishers do not publish content on our platform, we may fail to retain existing users and attract new users.
We must continuously maintain existing relationships and identify and establish new relationships with content publishers to provide popular streaming
channelsapps, streaming app features, and
popular content. In order to remain competitive, we must consistently meet user demand for popular streaming
channelsapps, streaming app features, and
content;content, particularly as we launch new
players,streaming devices, introduce new
TVs powered by the Roku
TV models are introduced,OS, or
we enter new markets, including international markets. If we are not successful in helping our content publishers launch and maintain streaming
channelsapps and streaming app features that attract and retain a significant number of users on our streaming platform or if we are not able to do so in a cost-effective manner, our business will be harmed. Our ability to successfully help content publishers maintain and expand their
channelapp offerings on a cost-effective basis largely depends on our ability to:
| •
| effectively promote and market new and existing streaming channels;
|
| •effectively promote and market new and existing streaming apps;• | minimize launch delays of new and updated streaming channels; and
|
| •minimize launch delays of new and updated streaming apps; and• | minimize streaming platform downtime and other technical difficulties.
|
•minimize streaming platform downtime and other technical difficulties.
In addition, if service operators, including
paytraditional TV providers, refuse to grant our users access to stream certain
channelsapps or only make content available on devices they prefer, our ability to offer a broad selection of popular streaming
channelsapps or content may be limited. If we fail to help our content publishers maintain and expand their audiences on
the Rokuour platform or their
channelsapps are not available on our platform, our business may be harmed.
Most
The non-renewal or early termination of
our agreements with
our content
publishers are not long term and can be terminated by the content publishers under certain circumstances. Any disruption in the renewal of such agreementspartners may result in the removal of certain
channelsapps or app features from our streaming platform and may harm our
active accountstreaming device sales, Active Account growth, and engagement.
We enter into agreements with all our content publishers,partners, which have varying terms and conditions, including expiration dates.dates and rights to terminate under certain circumstances. Our agreements with content publisherspartners generally have terms of one to three years and can be terminated before the end of the term by the content publisherpartner under certain circumstances, such asincluding if we materially breach the agreement, become insolvent, enter bankruptcy, commit fraud, or fail to adhere to the content publishers’partners’ security or other platform certification requirements.
Upon expiration of these agreements, we are required to re-negotiate and renew them in order to continue providing content from these content publisherspartners on our streaming platform. We have in the past been unable, and in the future may not be able, to reach a satisfactory agreement with certain content publisherspartners before our existing agreements have expired. If we are unable to renew such agreements on a timely basis on mutually agreeable terms, or if a content partner terminates an agreement with us prior to its expiration, we may be required to temporarily or permanently remove certain channelsapps or app features from our streaming platform.
The loss of such
channelsapps or app features from our streaming platform for any period of time may harm our business. More broadly, if we fail to
maintain our relationships with the content publisherspartners on terms favorable to us, or at all, or if these content publisherspartners face problems in delivering their content across our platform, we may lose channelapp partners or users and our businessstreaming device sales, Active Account growth, and engagement may be harmed.
If we are unable to maintain an adequate supply of quality video ad inventory on our platform or
generate sufficient demand to effectively sell our available video ad inventory, our business may be harmed.
Our business model depends on our ability to grow video ad inventory on our streaming platform and sell it to advertisers. While The Roku Channel
serveshas historically served as a valuable source of video ad inventory for us to sell,
wethere is no guarantee that it will continue to do so in the future. If The Roku Channel is unable to secure content that is appealing to our users and advertisers, or is unable to do so on terms that provide a sufficient supply of ad inventory at reasonable cost, our supply of video ad inventory will be negatively impacted. We are also dependent on our ability to monetize video ad inventory within other ad-supported
channelsapps on our streaming platform. We seek to obtain the ability to sell such inventory from the content
publisherspartners of such
channels.apps. We may fail to attract content
publisherspartners that generate a sufficient quantity or quality of ad-supported content hours on our streaming platform or fail to obtain access to a sufficient quantity and quality of ad inventory from the publishers of such content. Our access to video ad inventory in ad-supported streaming
channelsapps on our platform varies greatly among
channels; accordingly,apps. Accordingly, we
domay not have access to
alla significant portion of the video ad inventory on our platform. For certain
channels,apps, including YouTube’s
ad supported channel,ad-supported app, we have no access to video ad inventory at this time and we may not secure access in the future.
Moreover, when existing SVOD services introduce new ad-supported tiers to their streaming services, we have in the past and in the future may not be able to reach agreement on access to video ad inventory on these tiers on mutually agreeable terms, or at all. The amount, quality, and cost of video ad inventory available to us can change at any time. If we are unable to grow and maintain a sufficient supply of quality video ad inventory at reasonable costs to keep up with demand, our business may be harmed.
Further, even if we have an adequate supply of quality video ad inventory, we may not be able to generate sufficient demand for such ad inventory or sell the ad inventory at our desired price. If we are unable to effectively sell our available video ad inventory, our business may be harmed.
If our content
publisherspartners do not participate in new features that we may introduce from time to time, our business may be harmed.
As our streaming platform and products evolve, we will continue to introduce new features, which may or may not be attractive to our content
publisherspartners or meet their requirements. For example, some content
publisherspartners have elected not to participate in our
cross-channel search feature, our integrated advertising framework,new home screen menu features or have imposed limits on our data gathering for usage within their
channels.apps. In addition, our streaming platform utilizes our proprietary Brightscript scripting language in order to allow our content
publisherspartners to develop and create
channelsapps on our streaming platform.
If we introduce new features or utilize a new scripting language in the future, such a change may not comply with ourCertain content
publishers' certification requirements. In addition, our content publisherspartners may find other languages, such as HTML5, more attractive to develop for and shift their resources to developing their
channelsapps on other platforms. If
key content
publisherspartners do not find our streaming platform simple and attractive to develop
channelsapps for, do not value and participate in all of the features and functionality that our streaming platform offers, or determine that our software developer kit or new features of our platform do not meet their
certification requirements, our business may be harmed.
If the advertising and
audience developmentmedia and entertainment promotional spending campaigns
and other promotional advertising on our platform
decrease, or the campaigns that run are not relevant or not engaging to our users, our
growth in active accounts and streaming hoursbusiness may be adversely impacted.
We have made, and are continuing to make, investments to enableengage with more advertisers and content publisherspartners, and enable them to deliver more relevant advertisement, audience developmentadvertising and media and entertainment promotional spending campaigns and other promotional advertising to our users. ExistingHowever, a small number of content partners historically have accounted for a significant portion of the media and entertainment promotional spending campaigns on our platform, and we believe recent consolidation among content partners has resulted in decreased media and entertainment promotional spending campaigns on our platform. If our content partners continue to decrease the media and entertainment promotional spending campaigns on our platform, our financial condition and operating results may suffer, and our business may be harmed.
In addition, existing and prospective advertisers and content publisherspartners may not be successful in serving ads and audience developmentmedia and entertainment promotional spending campaigns and sponsoring other promotional advertising that lead to and maintain user engagement. Those ads and campaigns may seem irrelevant, repetitive, or overly targeted and intrusive. We are continuously seeking to balance the objectives of our advertisers and content publisherspartners with our desire to provide an optimal user experience, but we may not be successful in achieving a balance that continues to attract and retain users, advertisers, and content publishers. partners.
If
we dothe advertising and media and entertainment promotional spending campaigns on our streaming platform are not
introduce relevant,
advertisers, audience development campaigns and other promotional adverting or such advertisements, audience development campaigns and other promotional advertising are overly intrusive,
or are too frequent and impede the use of our
streaming platform, our users may stop using our platform,
resulting in a reduction of our Active Accounts and Streaming Hours, which will harm our
business.business, financial condition and operating results.
We are subject to various risks in connection with our operation of The Roku
Channel may not continue to attract a large number of users and/or generate significant revenue from advertising, and our users may not purchase Premium Subscriptions.Channel.
We operate The Roku Channel, which offers
both ad-supported free access for users to a collection of films, television series,
live linear television, and other
content as well as Premium Subscriptions, which allowing our users to pay for ad-free content from various content publishers, all on one streaming channel.content. We have incurred, and will continue to incur, costs and expenses in connection with the development, expansion, and operation of The Roku Channel, which we monetize primarily through advertising. For example,
in the first quarter of 2021, we
previously acquired
global content
distribution rights, including rights to certain projects in development, from the mobile-first video distribution service known as Quibi, and
announced
thatmade The Roku Channel will become the home of such content. In addition, we acquired the entities comprising the This Old House business, which own and produce the “This Old House” and “Ask This Old House” TV programs and operate related business lines, to further the growth strategy and ad-supported content offerings in The Roku Channel. We also commission original content that we own and distribute on The Roku Channel. From time to time, we may remove underperforming content from The Roku Channel and record an impairment change related to such removal, as we did in the third quarter of 2023.
If our users do not continue to stream the free, ad-supported content we make available on The Roku Channel, we will not have the opportunity to monetize The Roku Channel through revenue generated from advertising. In order to attract users to the ad-supported content on The Roku Channel and drive streaming of ad-supported video on The Roku Channel, we must secure rights to stream content that is appealing to our users and advertisers. In part, we do this by directly licensing certain content from content owners, such as television and movie studios. The agreements that we enter into with these content owners have varying terms and provide us with rights to make specific content available through The Roku Channel during certain periods of time. Upon expiration of these agreements, we are required to re-negotiate and renew these agreements with the content owners, or enter into new agreements with other content owners, in order to obtain rights to distribute additional titles or to extend the duration of the rights previously granted. If we are unable to enter into content license agreements on acceptable terms to access content that enables us to attract and retain users of the ad-supported content on The Roku Channel, or if the content we do secure rights to stream including for example the content that we acquired through the Quibi transaction described above, is ultimately not appealing to our users and advertisers, usage of The Roku Channel may decline, and our business may be harmed. Further, even if we successfully monetize The Roku Channel in the United States, we may not be successful in monetizing The Roku Channel in international markets.
In addition, we produce content for distribution on The Roku Channel and other platforms. We have limited experience producing content, and we may not be successful in doing so in a cost-effective manner that is appealing to our users and advertisers and furthers the growth of The Roku Channel. We also take on risks associated with content production, such as completion and key talent risk. Furthermore, if the advertisements on The Roku Channel are not relevant to our users or such advertisements are overly intrusive and impede our users’ enjoyment of the available content, our users may not stream content and view advertisements on The Roku Channel, and The Roku Channel may not generate sufficient revenue from advertising to be cost effective for us to
operate, regardless of our ability to sell Premium Subscriptions.operate. In addition, we distribute The Roku Channel on platforms other than our own streaming platform, and there can be no assurance that we will be successful in attracting a large number of users
and/or generating significant revenue from advertising through the distribution of The Roku Channel on such other streaming platforms.
If our users sign up for offerings and services outside of our platform or through other
channelsapps on our platform, our business may be harmed.
We earn revenue by acquiring subscribers for certain of our content publisherspartners activated on or through our platform.platform, including Premium Subscriptions on The Roku Channel, which allow our users to pay for content from various content partners. If users do notreduce the degree to which they use our platform for these purchases or subscriptions for any reason, and instead increase the degree to which they pay for services directly with content publisherspartners or by other means thatfor which we do not receive attribution, for, our business may be harmed.
In addition, certain
channelsapps available on our platform allow users to purchase additional streaming services from within
their channels.those apps. The revenue we earn from these transactions is
generally not
always equivalent to the revenue we earn from
activationssales of such additional services on
ora stand-alone basis through our
platform that we receive full attribution credit for. Furthermore, for Premium Subscriptions, we only earn revenue for SVOD channels, including subscriptions to these servicesplatform. If users increase their spending on such in-app transactions at the expense of stand-alone purchases through
The Roku Channel. Accordingly, if users activate subscriptions for SVOD channels, including channels available as Premium Subscriptions, other than on our platform, our business may be harmed.
We operate in a rapidly evolving industry that will be impacted by many factors that our outside of our control, which makes it difficult to evaluate our business and prospects.
TV streaming is a rapidly evolving industry, making our business and prospects difficult to evaluate. The growth and profitability of this industry and the level of demand and market acceptance for our products and streaming platform are subject to a high degree of uncertainty. We believe that the continued growth of streaming as an entertainment alternative will depend on the availability and growth of cost-effective broadband internet access, the quality of broadband content delivery, the quality and reliability of new devices and technology, the cost for users relative to other sources of content, as well as the quality and breadth of content that is delivered across streaming platforms. Accordingly, the future evolution of TV streaming as an industry, which is likely to impact our success, is dependent many of the factors that are outside of our control.
Changes in consumer viewing habits could harm our business.
The manner in which consumers access streaming content is changing rapidly. As the technological infrastructure for internet access continues to improve and evolve, consumers will be presented with more opportunities to access video, music and games on-demand with interactive capabilities. Time spent on mobile devices is growing rapidly, in particular by young adults streaming content as well as content from cable or satellite providers available live or on-demand on mobile devices. In addition, personal computers, smart TVs, DVD players, Blu-ray players, gaming consoles and cable set-top boxes allow users to access streaming content. If other streaming or technology providers are able to respond and take advantage of changes in consumer viewing habits and technologies better than us, our business could be harmed.
New entrants may enter the TV streaming market with unique service offerings or approaches to providing video. In addition, our competitors may enter into business combinations or alliances that strengthen their competitive positions. If new technologies render the TV streaming market obsolete or we are unable to successfully compete with current and new competitors and technologies, our business will be harmed.
We and our licensed Roku TV brand partners depend on our retail sales channels to effectively market and sell our players and Roku TV models,respective products, and if we or our partners fail to maintain and expand effective retail sales channels, we or our partners could experience lower player or Roku TV modelproduct sales.
To continue to increasegrow our active accounts,Active Accounts, we must maintain and expand our retail sales channels.channels for our products and for the Roku products sold by our partners or licensees. The majority of our playersproducts and our TV brand partners'licensed Roku TV modelspartners’ products are sold through traditional brick and mortar retailers, such as Best Buy, Target, and Walmart, including their online sales platforms, and online retailers such as Amazon. To a lesser extent, we
We also sell playerscertain products directly through our website and internationally through distributors. Fordistributors and retailers such as Coppel in Mexico, Magazine Luiza in Brazil, MediaMarkt in Germany, and Currys in the year ended December 31, 2020, Amazon, Best Buy and WalmartUnited Kingdom. As we have only recently expanded to certain international markets, we may not have established a strong reputation or relationships with retailers for those markets as compared to our retail sales channels in total accounted for 69%the United States or our competitors in international markets.
Our retailers and our international distributors also sell products offeredthat compete with our products and our licensed Roku TV partners’ products, including house-branded televisions sold by our competitors.such retailers that utilize TV operating systems other than the Roku OS. We have no minimum purchase commitments or long-term contracts with any of these retailers or distributors, and there can be no assurance that we will reach agreements with our retailers and distributors on terms we find acceptable or that will be consistent with our past practices. We may be reliant on certain retailers or distributors. Amazon, Best Buy, and Walmart in total accounted for 71% and 67% of our devices revenue for the fiscal year ended December 31, 2023 and December 31, 2022, respectively. Furthermore, our licensed Roku TV partners may be reliant on the same retailers and distributors or other retailers and distributors for a significant portion of their unit sales of Roku TV models. If one or several retailers or distributors were to discontinue selling our playersproducts or our TV brand partners'licensed Roku TV models,partners’ products, choose not to prominently display those devicesproducts in their stores or on their websites, or close or severely limit access to their brick and mortar locations, because of shutdowns related to the COVID-19 pandemic, the volume of our streaming devicesproducts or our licensed Roku TV partners’ products sold could decrease, which would harm our business. IfThese risks may be exacerbated by our reliance on certain retailers or distributors, or when a major retailer in a jurisdiction commercializes televisions under brands that the retailer controls.
In addition, if any of our existing
licensed Roku TV
brandspartners choose to work exclusively with, or divert a significant portion of their business with us to, other operating system developers, this may
adversely impact our ability
to continue to license the Roku OS and our smart TV reference design to TV brands and
our ability to continue to grow
active accounts.Active Accounts and monetize the Roku OS. Traditional retailers have limited shelf and end cap space in their stores and limited promotional budgets, and online retailers have limited prime website product placement space. Competition is intense for these resources, and a competitor with more extensive product lines,
and stronger brand identity
and greater marketing resources, such as Amazon or Google, possesses greater bargaining power with retailers. In addition, one of our online retailers, Amazon, sells its own competitive streaming devices,
smart TVs, and
smart home devices, is able to market and promote these products more prominently on its website, and could refuse to offer or promote our
devicesproducts on its website. Any reduction in our ability to place and promote our
devices,products, or increased competition for available shelf or website placement, could require us to increase our marketing
or other expenditures to maintain our product visibility or
could result in reduced visibility for our products, which may harm our business. In particular, the availability of product placement during peak retail periods, such as the holiday season, is critical to our revenue growth, and if we are unable to effectively sell our
devicesproducts during these periods, our business would be harmed.
If our efforts to build a strong brand and maintain customer satisfaction and loyalty are not successful, we may not be able to attract or retain users, and our business may be harmed.
Building and maintaining a strong brand is important to attract and retain users, as potential users have a number of TV streaming choices. Successfully building a brand is a
time consumingtime-consuming and comprehensive endeavor, and
canour brand may be
positively and negatively impacted by
any number of factors. Certain factors
such as the quality or pricingthat are out of our
players or our customer service, are within our control. Other factors,control, such as the quality and reliability of
the Roku TV models
made by our licensed Roku TV partners and the quality of the content that our content
publishers provide, may be out of our control, yet users may nonetheless attribute those factors to us.partners provide. Our competitors may be able to achieve and maintain brand awareness and
market shareconsumer demand for their products more quickly and effectively than we can. Many of our competitors are larger companies and
promotemay have greater resources to devote to the promotion of their brands through traditional
forms of advertising,
such as print media and TV commercials, and have substantial resources to devote to such efforts. Our competitors may also have greater resources to utilize digital advertising, or website product
placement more effectively than we can.placement. If we are unable to execute on building a strong brand, it may be difficult to differentiate our business and streaming platform from our competitors in the marketplace,
thereforewhich may adversely affect our ability to attract and retain users
may be adversely affected and
harm our
business may be harmed.business.
Our streaming platform allows our users to choose from thousandsa wide variety of channels,apps, representing a variety of content from a wide range of content publishers.partners. Our users can choose and control which channelsapps they download and watch, and they can use certain settings to prevent channelsapps from being downloaded to ourRoku streaming devices. While we have policies that prohibit the publication of content that is unlawful, incites illegal activities, or violates third-party rights, among other things, we may distribute channelsapps that include controversial content. Controversies related to the content included on certain of the channelsapps that we distribute have resulted in, and could in the future result in, negative publicity, cause harm to our reputation and brand, or subject us to claims and may harm our business.
We are subject to payment-related risks and, if our advertisers or advertising agencies do not pay or dispute their invoices, our business may be harmed.
Many of our contracts with advertising agencies provide that if the advertiser does not pay the agency, the agency is not liable to us, and we must seek payment solely from the advertiser, a type of arrangement called sequential liability. Contracting with these agencies, which in some cases have or may develop higher-risk credit profiles, may subject us to greater credit risk than if we were to contract directly with advertisers.
This credit risk may vary depending on the nature of an advertising agency’s aggregated advertiser base. In addition, typically, we are contractually required to pay advertising inventory data suppliers within a negotiated period of time, regardless of whether our advertisers or advertising agencies pay us on time, or at all.
In addition,Further, we typically experience slow payment cycles by advertising agencies as is common in the advertising industry. While we attempt to balance payment periods with our suppliers and advertisers and advertising agencies, we are not always successful. As a result, we can often face a timing issue with our accounts payable on shorter cycles than our accounts receivables, requiring us to remit payments from our own funds, and accept the risk of credit losses.
We may also be involved in disputes with agencies and their advertisers over the operation of our streaming platform, the terms of our agreements, or our billings for purchases made by them through
on our streaming platform or through our DSP. If we are unable to collect or make adjustments to bills, we could incur credit losses, which could have a material adverse effect on our results of operations for the periods in which the write-offs occur. In the future, bad debt may exceed reserves for such contingencies, and our bad debt exposure may increase over time. Any increase in write-offs for bad debt could have a materially negative effect on our business, financial condition, and operating results. If we are not paid by our advertisers or advertising agencies on time or at all, our business may be harmed.
The quality of our customer support is important,
to our users and licensees, and if we fail to provide adequate levels of customer support, we could lose users,
advertisers, content partners, and
licensees,licensed Roku TV partners, which
wouldcould harm our business.
Our users
and licensees depend on our customer support organization to resolve
any issues relating to our
devices.products and our streaming platform. A high level of support is critical for the
successful marketing and salesuccess of our
devices.business. We currently outsource
the majority of our customer support operation to a third-party customer support
organization.organization which provides support to end users. In addition, we train our licensed Roku TV partners and service operator licensees to provide first-level customer support to users of Roku TV models and other devices. If we do not effectively train, update, and manage our third-party customer support organization to assist our users
and licensees, and if that support organization does not succeed in helping them quickly resolve issues or provide effective ongoing support, it could adversely affect our ability to
monetize our streaming platform, to sell our
devicesproducts to users and
could harm our reputation with potential new
userscustomers and our licensees.
We must
successfully manage streaming devicecontinue to innovate and
other product introductionsdevelop new and
transitionsexisting products and services to remain
competitive.competitive, and new products and services expose our business to new risks.
We must continually innovate and improve our products and services and develop new products and improved streaming devices and other products thatservices to meet changing consumer demands. Moreover, theThe introduction of a new streaming deviceproduct or other productservice is a complex task, involving significant expenditures in research and development, promotion, and sales channel development.development, and can expose our business to new risks. The introduction of new products and services or changes to our existing products and services may result in new or enhanced governmental or regulatory scrutiny, new litigation or claims, or other complications that could adversely affect our business, reputation, or financial results. For example, we have faced and may continue to face new intellectual property infringement claims related to new products and services we have introduced. In addition, our entrance into entirely new lines of business beyond our historical core business of TV streaming and advertising, such as our launch of Roku-branded smart home products (including home monitoring products) and shoppable ads that allow users to purchase advertised products and services directly from their Roku streaming devices, may change our risk profile and subject us to risks that differ from the risks we face as a result of our historical TV streaming business. In particular, the provision of home monitoring services is a highly regulated industry where various licensing requirements may apply in 2018, we introduced our Roku TV Wireless Speakers, designed specifically for use with Roku TV models, in 2019 we introduced our Roku Smart Soundbar and Roku Wireless Subwoofer, and in 2020 we launched our Roku Streambar. each jurisdiction where such services are offered.
Whether users will broadly adopt our new streaming devicesproducts or other productsservices is not certain. Our future success will depend on our ability to develop new and competitively priced streaming devicesproducts and other productsservices and add new desirable content and features to our streaming platform. Moreover, we must introduce new streaming devicesproducts and other productsservices in a timely and cost-effective manner, and we must secure production orders for thosenew products from our contract manufacturers. The development of new streaming devicesproducts and other productsservices is a highly complex process, and while our research and development efforts are aimed at solving increasingly complex problems, we do not expect that all of our projects will be successful.
The successful development and introduction of new
streaming devicesproducts and
productsservices depends on a number of factors, including:
| •
| the accuracy of our forecasts for market requirements beyond near term visibility;
|
| •the accuracy of our forecasts for market requirements beyond near-term visibility;• | our ability to anticipate and react to new technologies and evolving consumer trends;
|
| •our ability to anticipate and react to new technologies and evolving consumer trends;• | our development, licensing or acquisition of new technologies;
|
| •our development, licensing, or acquisition of new technologies;• | our timely completion of new designs and development;
|
| •our timely completion of new designs and development;• | the ability of our contract manufacturers to cost-effectively manufacture our new products;
|
| •our ability to timely and adequately redesign or resolve design or manufacturing or security issues;• | the availability of materials and key components used in manufacturing;
|
| •our ability to identify and contract with an appropriate manufacturer;• | tariffs and trade and export restrictions by the U.S. or foreign governments which could impact the pricing and availability of such devices and depress consumer demand; limit the ability of our contract manufacturers to obtain key parts, components, software, and technologies; lead to shortages; and
|
| •the ability of our contract manufacturers to cost-effectively manufacture our new products;• | our ability to attract and retain world-class research and development personnel.
|
•the availability of materials and key components used in manufacturing;
•tariffs, trade, sanctions, and export restrictions by the U.S. or foreign governments;
•the ability of our contract manufacturers to produce quality products and minimize defects, manufacturing mishaps, and shipping delays;
•our ability to obtain required licenses and comply with other regulatory requirements; and
•our ability to attract and retain world-class research and development personnel.
If any of these or other factors materializes, we may not be able to develop and introduce new products
or services in a timely or cost-effective manner, and our business may be harmed.
We do not have
our own manufacturing capabilities and primarily depend upon a limited number of contract manufacturers, and our operations could be disrupted if we encounter problems with our contract manufacturers.
We do not have any internal manufacturing capabilities and rely on a limited number of contract manufacturers to build our players, smart
soundbars, wireless subwoofershome products, and
our wireless speakers.Roku-branded TVs. Our contract manufacturers are vulnerable
to: | •capacity constraints;• | reduced component availability,
|
| •reduced component availability;• | production disruptions or delays, including from strikes, mechanical issues, quality control issues, natural disasters, and public health crises, such as the pandemic caused by the outbreak of the coronavirus, known as COVID-19; and
|
| •production, supply chain, or shipping disruptions or delays, including from labor disputes, strikes, mechanical issues, quality control issues, natural disasters, geopolitical conflicts, and public health crises; and• | the impact of U.S. or foreign tariffs or trade restrictions on components, finished goods, software, or other products;
|
| •the impact of U.S. or foreign tariffs, trade, or sanctions restrictions on components, finished goods, software, other products, or data transfers.• | increases in U.S. tariffs on imports of our players; and
|
| •
| foreign tariffs on U.S. parts or components for finished players or other Roku products that are assembled in Asia.
|
As a result, we have limited control over delivery schedules, manufacturing yields, and costs, particularly when components are in short supply or when we introduce new streaming devices or other products. For example, during the quarter ended March 31, 2020, one of our contract manufacturers experienced extended factory closures related to the spread of COVID-19 resulting in supply chain disruptions for our players and elevated air freight costs to meet demand.
We also have limited control over our contract manufacturers’ quality systems and controls, and therefore must rely on them to manufacture our
players and other products to our quality and performance standards and specifications. Delays, component shortages,
quality issues, and other manufacturing and supply problems
in the past have impaired, and could
in the future impair, the retail distribution of our
players and other products and ultimately our brand. Furthermore, any adverse change in our contract
manufacturer’smanufacturers’ financial or business condition could disrupt our ability to supply our
players or other products to our retailers and distributors.
We also rely upon our contract manufacturers and other contractors to perform some of the development work on our products. The contract manufacturers or other contractors may be unwilling or unable to successfully complete desired development or fix defects or errors in a timely manner. Delays in development work by contract manufacturers or contractors could delay launch of new or improved products.
Our contracts with our contract manufacturers generally domay not contain terms that protect us against development, manufacturing, and supply disruptions or risks. For example, such contracts may not obligate themour contract manufacturers to supply our players or other products in any specific quantity or at any specific price. In the eventIf our contract manufacturers are unable to fulfill our production requirements in a timely manner, if their costs increase because of inflationary pressures, U.S. or international tariffs, orsanctions, export or import restrictions, or if they decide to terminate their relationship with us, our order fulfillment may be delayed or terminated, and we would have to attempt to identify, select, and qualify acceptable alternative contract manufacturers.
Alternative contract manufacturers may not be available to us when needed or may not be in a position to satisfy our production requirements at commercially reasonable prices, to our quality and performance standards on a timely basis, or at all. Any significant interruption in manufacturing at our contract manufacturers for any reason could require us to reduce our supply of players or other products to our retailers and distributors, which in turn would reduce our revenue, or to incur higher freight costs than anticipated, which would negatively impact our playerdevices gross margin.
In addition, our contract
manufacturer’smanufacturers’ facilities,
and the facilities of our contract manufacturers’ suppliers, are located in
Southeast Asia, the People’s Republic of China and Brazil andvarious geographic areas that may be subject to political, economic, labor, trade,
public health, social, and legal uncertainties,
thatincluding Taiwan, Vietnam, China, and Brazil, and such uncertainties may harm or disrupt our relationships with these
parties.parties or their ability to perform. For example, if the tensions between Taiwan and China escalate and impact the operations of our contract manufacturers and their Taiwanese suppliers, our supply chain and our business could be adversely affected. We believe that the international location of these facilities increases supply risk, including the risk of supply interruptions, tariffs, and trade restrictions on exports or imports.
Furthermore, any manufacturing issues affecting the quality of our products, including players and audio products, could harm our business.If our contract manufacturers fail for any reason to continue manufacturing our players or other products in required volumes and at high quality levels, or at all, we would have to identify, select and qualify acceptable alternative contract manufacturers. Alternative contract manufacturers may not be available to us when needed, or at all, or may not be
in a position to satisfy our production requirements at commercially reasonable prices, to our quality and performance standards, or at all. Any significant interruption in manufacturing at a contract manufacturer could require us to reduce our supply of players or other products to our retailers and distributors, which in turn would reduce our revenue, active account growth or streaming hour growth.
Certain Roku TV brands do not have manufacturing capabilities and primarily depend upon contract manufacturers, and theThe supply of Roku TV models to the market could be disrupted if theyour licensed Roku TV partners encounter problems with their internal operations or with their contract manufacturers, assemblers, or component suppliers.
Certain
Some of our licensed Roku TV brands do notpartners have internal manufacturing capabilities, andwhile others rely primarily relyor exclusively upon contract manufacturers to build the Roku TV models that theyour licensed Roku TV partners sell to retailers. Their contractRegardless of whether their manufacturing capabilities are internal or contracted, our licensed Roku TV partners’ manufacturers may be vulnerable to capacity constraints and reduced component availability,availability; increases in U.S. tariffs on imports of Roku TV models,models; future possible changes in U.S. regulations on exports of U.S. technologiesexports: restrictions, by the United States or otherwise, on dealings with certain countries, companies, or parties, foreignimported inputs; tariffs on U.S. parts or components for Roku TV models that are assembled outsidemodels; and supply chain disruptions and shipping delays.
Our licensed Roku TV partners’ control over delivery schedules, manufacturing yields, and costs, particularly when components are in short supply, may be limited.
For those licensed Roku TV partners with contract manufacturers or suppliers, the problems are exacerbated because the contract manufacturer is a third party, and the licensed Roku TV partner does not have direct visibility into or control over the operations. Delays, component shortages,
factory shutdowns due to the COVID-19 pandemic and other manufacturing and supply problems could impair the
retailmanufacture or distribution of
their Roku TV models.
A significant interruptionInterruptions in the supply of Roku TV models to retailers and distributors
or increases in the pricing of Roku TV models at times have negatively affected, and could
adversely affect in
turn, reduce our active accountsthe future, the volume of Roku TV models sold at retail, resulting in slower Active Accounts and
streaming hours.Streaming Hours growth.
Furthermore, any manufacturing,
design, or other issues affecting the quality
or performance of
our Roku TV brand partners’ Roku TV models could harm our brand and our business.
If we fail to accurately forecast our manufacturing requirements
for our products and manage our inventory with our contract manufacturers, we could incur additional costs, experience manufacturing delays, and lose revenue.
We bear
supply riskrisks of excess and insufficient inventories under our contract manufacturing arrangements.
For example, our contract manufacturers order materials and components in advance in an effort to meet our projected needs for our products. Lead times for the materials and components that our contract manufacturers order on our behalf through different component suppliers
may vary significantly and depend on numerous factors
outside of our control, including the specific supplier, contract terms,
shipping and
freight, market demand for a component at a given
time.time, and trade and government relations. Lead times for certain key materials and components incorporated into our
players or other products are currently lengthy
requiringand may require our contract manufacturers to order materials and components
severalmany months in advance. If we overestimate our production requirements, our contract manufacturers may purchase excess components and build excess inventory. If our contract manufacturers, at our request, purchase excess components
that are unique to our products or build excess products, we could be required to pay for these excess components or products. In the past, we have agreed to reimburse our contract manufacturers for purchased components that were not used as a result of our decision to discontinue a certain model
of player or the use of particular components. If we incur costs to cover excess supply commitments,
this would harm our
business.business may be harmed.
Conversely, if we underestimate our
player or other product requirements, our contract manufacturers may have inadequate
material or component inventory, which could interrupt the manufacturing of our
players or other products,
result in insufficient quantities available to meet demand, and result in delays or cancellation of orders from retailers and distributors. In addition, from time to time we have experienced unanticipated increases in demand that resulted in the need to ship
playersour products via air freight, which is more expensive than ocean freight, and adversely affected our
playerdevices gross margin during such periods of high demand
for(for example, during end-of-year
holidays.holidays). If we fail to accurately forecast our manufacturing requirements, our business may be harmed.
Our
playersproducts incorporate key components from sole source suppliers, and if our contract manufacturers are unable to
sourceobtain sufficient quantities of these components on a timely basis,
due to fabrication capacity issues or other material supply constraints, we will not be able to deliver our
playersproducts to our retailers and distributors.
We depend on sole source suppliers for key components in our players. Ourproducts. For example, each of our streaming players and TVs powered by the Roku OS may utilize a specific system on chip or SoC,(or SoC), Wi-Fi silicon productsproduct, and Wi-Fi front-end modulesmodule, each of which may be available from various manufacturers, depending on the player,only a single manufacturer and for which we do not have a second source.
Although this approach allows us to maximize playerproduct performance on lower cost hardware, reduce engineering development and qualification costs, and develop stronger relationships with our strategic suppliers, this also creates supply chain risk. These sole-source suppliers could be constrained by fabrication capacity issues or material supply issues, such as U.S. or foreign tariffs, war or other government or trade relations issues, other export or import restrictions on U.S. parts or components for finished playersproducts that are used in final assembly of their components or(or on the finished players themselves. products themselves), or shortages of key components.
There is also
thea risk that the strategic supplier may stop producing such components, cease operations,
or be acquired by or enter into exclusive arrangements with our competitors or other companies,
put contract manufacturers on allocation because of semiconductor shortages, or become subject to U.S. or foreign sanctions or export control restrictions or penalties.
Such suppliers have experienced, and may also facein the future experience, production, shipping, or logistical constraints arising from macroeconomic conditions or other circumstances, such as inflationary pressures, geopolitical conflict, and supply chain disruptions. Such interruptions and delays have in the COVID-19 pandemic. Any such interruption or delaypast and may in the future force us to seek similar components from alternative sources, which may not always be available.available, and which may cause us to delay product introductions and incur air freight expense. Switching from a sole-source supplier wouldmay require that we adapt our software, and redesign our playersproducts to accommodate new chips and components, and wouldmay require us to re-qualify our playersproducts with regulatory bodies, such as the U.S. Federal Communications Commission (“FCC”), which would be costly and time-consuming.
Our reliance on sole-source suppliers involves a number of additional risks, including risks related to:
| •
| supplier capacity constraints;
|
| •supplier capacity constraints;• | price increases;
|
| •price increases, including increases related to inflationary pressures;• | timely delivery;
|
| •timely delivery;• | component quality; and
|
| •component quality; and• | delays in, or the inability to execute on, a supplier roadmap for components and technologies.
|
•delays in, or the inability to execute on, a supplier roadmap for components and technologies.
Any interruption in the supply of sole-source components for our
playersproducts could adversely affect our ability to meet scheduled
playerproduct deliveries to our retailers and distributors, result in lost sales and higher expenses, and harm our business.
Our players and Roku TV models must
If our products do not operate
effectively with various offerings, technologies, and systems from
our content
publisherspartners and other third parties that we do not
control. If our streaming devices do not operate effectively with those offerings, technologies and systems,control, our business may be harmed.
The Roku OS is designed for performanceto perform using relatively low-cost hardware, which enables us to drive user growth with our players andvia Roku TV modelsstreaming devices offered at a low cost to consumers.users. However, this hardware must be interoperable with all channelsapps and other offerings, technologies, and systems from our content publishers,partners, including virtual multi-channel video programming distributors.distributors, and other third parties. We have no control over these offerings, technologies, and systems beyond our channelapp certification requirements, and if our players and Roku TV modelsstreaming devices do not provide our users with a high-quality experience on those offerings on a cost-effective basis or if changes are made to those offerings that are not compatible with our players or Roku TV models,streaming devices, we may be unable to increase active accountActive Account growth and user engagement weor may be required to increase our hardware costs, and our business will be harmed.
We plan to continue to introduce new products regularly, including, for example, the Roku-branded TVs we launched in 2023 and our recently announced Roku Pro Series TVs, and we have experienced that it takes time to optimize such products to function well with these offerings, technologies and systems. In addition, many of our largest content publisherspartners have the right to test and certify our new products before we can publish their channels on these devices.apps. The certification processes can be time consumingtime-consuming and introduce third-party dependencies into our product release cycles. If our content publisherspartners do not certify new products on a timely basis or require us to make changes in order to obtain certifications, our product release plans may be adversely impacted, we may not be able to offer certain products to all licensed Roku TV partners or we may not continue to offer certain channels.apps. To continue to grow our active accountsActive Accounts and user engagement, we will need to prioritize development of ourRoku streaming devices to work better with new offerings, technologies, and systems.systems, including our smart home products and services. If we are unable to maintain consistent operability of ourRoku streaming devices that is on parity with or better than other platforms, our business could be harmed.
In addition, any future changes to offerings, technologies, and systems from our content
publishers, such as virtual service operators,partners may impact the accessibility, speed, functionality, and other performance aspects of
ourRoku streaming devices. We may not successfully develop
Roku streaming devices that operate effectively with these offerings, technologies, or systems. If it becomes more difficult for our users to access and use these offerings, technologies, or systems, our business could be harmed.
Our
streaming devicesproducts are
technically complex and may contain
undetected hardware
errors ordefects and software
bugs,errors, which could manifest themselves in ways that could harm our reputation and our business.
Our streaming devicesproducts and thosethe products of our licenseeslicensed Roku TV partners are technically complex and have contained and may in the future contain undetectedhardware defects or software bugs or hardware errors. These bugsdefects and errors can manifest themselves in any number of ways in our devicesproducts or our streaming platform, including through diminished performance, security vulnerabilities, data loss or poor quality, in logs or interpretation of data,device malfunctions, or even permanently disabled devices.products. Some errors in our devices may only be discovered after a deviceproduct has been shipped and used by users and may in some cases only be detected under certain circumstances or after extended use. We also update the Roku OS and our software on a regular basis, and, despite our quality assurance processes, we could introduce bugssoftware errors in the process of any such update.
The introduction of a serious software
bugerror could result in
devicesproducts becoming permanently disabled. We offer a limited
one-year warranty
for our products, in
the United Statesaccordance with applicable law, however, providing software updates, product support, and
any suchother activities could cause us to be responsible for issues with products for an extended period of time. Any defects discovered in our
devicesproducts after commercial release could result in loss of revenue or delay in revenue recognition, loss of customer goodwill and users, and increased service costs, any of which could harm our business, operating results, and financial condition. We could also face claims for product or information liability, tort or breach of warranty, or other violations of laws or regulations. In addition, our contracts with
our end users contain provisions
relating to warranty disclaimers and liability limitations, which may not be upheld. Defending a lawsuit, regardless of its merit, is costly and may divert management’s attention and adversely affect the market’s perception of Roku and our products. In addition, if our insurance coverage proves inadequate or future coverage is unavailable on acceptable terms or at all, our business could be harmed.
Components used in our products may fail as a result of manufacturing, design, or other defects
that were unknown to us or over which we have no control and
may render our
devicesproducts permanently inoperable.
We rely on third-party component suppliers to provide certain functionalities needed for the operation and use of our products. Any errors or defects in such third-party technology could result in errors
or defects in our products that could harm our business. If these components have a manufacturing, design, or other defect, they
cancould cause our products to fail and
could render them permanently inoperable. For example, the typical means by which our users connect their home networks to our players is by way of a Wi-Fi access point in the home network router. If the Wi-Fi receiver
or transmitter in
oura player fails
then our playerand cannot detect a home network’s Wi-Fi access point,
and ourthe player will not be able to display or deliver any content to the TV screen. As a result, we may have to
recall and replace
these playersdefective products, which could be at
our solea considerable cost and expense. Should we have a widespread problem of this kind, our reputation in the market could
also be adversely
affected and our replacement of these players would harm our business.affected.
If we are unable to obtain
or maintain necessary or desirable third-party technology licenses, our ability to develop new
products or streaming
players or platform enhancements may be impaired.
We utilize
or enable certain industry standard and other commercially available
off-the-shelf technology in
the development of our
playersproducts and streaming
platform.platform that is licensed by third parties. As we continue to introduce new features or improvements to our
playersproducts and
on our streaming platform, we may be required to license additional technologies from third parties. These third-party licenses may be unavailable to us on commercially reasonable terms, if at all. If we are unable to obtain
or maintain necessary third-party licenses, we may be required to obtain substitute technologies with lower quality or performance standards, or at a greater cost, any of which could harm the competitiveness of our
players,products, streaming platform, and our business.
We are incorporating AI technologies into some of our products and services, which may present operational and reputational risks.
We have incorporated and intend to continue incorporate AI technologies, such as generative AI, into our products and services. As with many innovations, AI presents risks and challenges that could adversely impact our business. For example, AI technologies can create accuracy issues, unintended biases, and discriminatory outcomes, or may create content that appears correct but is inaccurate or flawed. If the recommendations, content, or analyses that AI applications produce are or are alleged to be deficient or inaccurate, we could be subjected to competitive harm, potential legal liability, and brand or reputational harm. The legal and regulatory landscape surrounding AI technologies is rapidly evolving and uncertain, including in the areas of intellectual property, cybersecurity, and privacy and data protection. For example, there is uncertainty around the validity and enforceability of intellectual property rights related to the use, development, and deployment of AI technologies. Compliance with new or changing laws, regulations or industry standards relating to AI may impose significant operational costs and may limit our ability to develop, deploy or use AI technologies. There can be no assurance that the measures we have taken to mitigate the potential risks related to generative AI will be sufficient. Failure to appropriately respond to this evolving landscape may result in legal liability, regulatory action, or brand and reputational harm.
Risks Related to Operating and Growing Our Business
We have incurred operating losses in the past,
expectand although we have achieved profitability in certain prior quarters, we may continue to incur operating losses in the future and may
nevernot be able to achieve
profitability again in the near term or
maintain profitability.at all.
We
began operationshave incurred operating losses in
2002the past, and we
have experienced netmay incur operating losses
and negative cash flows from operations in
each year since inception.the future. Although we achieved profitability in certain prior quarters, we may not be able to achieve profitability again in the near term or at all. As of December 31,
2020,2023, we had an accumulated deficit of
$332.4 million and for the year ended December 31, 2020 we experienced a net loss of $17.5$1,297.6 million.
We expect ourOur operating expenses
tohave increased in the past and may increase
again in the future as we
continue to expand our
operations.operations and invest in growth and new areas. If our revenue and gross profit do not grow at a greater rate than our operating expenses, we
willmay not be able to achieve
and maintain profitability.profitability again. We expect
our profitability to
incur significant lossesfluctuate in the future for a number of reasons, including without limitation the other risks and uncertainties described herein. Additionally, we may encounter unforeseen operating or legal expenses, difficulties, complications, delays, and other factors that may result in losses in future periods.
If our expenses exceed our revenue, we may never achieve or maintain profitability and our business may be harmed.Our quarterly operating results may be volatile and are difficult to predict, and our stock price may decline if we fail to meet the expectations of securities analysts or investors.
Our revenue, gross profit, and other operating results could vary significantly from quarter-to-quarter and year-to-year and may fail to match our past performance due to a variety of factors, including many factors that are outside of our control. Factors that may contribute to the variability of our operating results and cause the market price of our Class A common stock to fluctuate include:
| •
| the entrance of new competitors or competitive products or services, whether by established or new companies;
|
| •
| our ability to retain and grow our active account base, increase engagement among new and existing users, and monetize our streaming platform;
|
| •the entrance of new competitors or competitive products or services, whether by established or new companies;• | our ability to maintain effective pricing practices, in response to the competitive markets in which we operate or other macroeconomic factors, such as inflation or increased taxes;
|
| •our ability to retain and grow our Active Accounts, increase engagement among new and existing users, and monetize our streaming platform;• | our revenue mix, which drives gross profit;
|
| •our ability to maintain effective pricing practices in response to the competitive markets in which we operate or other macroeconomic factors, such as increased taxes or inflationary pressures, such as those the market is currently experiencing, and our ability to control costs, including our operating expenses;• | supply of advertising inventory on our advertising platform and advertiser demand for advertising inventory;
|
| •our revenue mix, which drives gross profit;• | seasonal, cyclical or other shifts in revenue from advertising or player sales;
|
| •supply of advertising inventory on our advertising platform and advertiser demand for advertising inventory on our advertising platform;• | the timing of the launch of new or updated products, channels or features;
|
| •seasonal, cyclical, or other shifts in revenue from advertising or product sales;• | the addition or loss of popular content or channels;
|
| •the timing of the launch of new or updated products, apps, or features;• | the expense and availability of content to license for The Roku Channel;
|
| •the addition or removal of content or apps from our platform;• | the ability of retailers to anticipate consumer demand;
|
| •the expense and availability of content to license or produce for The Roku Channel;• | an increase in the manufacturing or component costs of our players or the manufacturing or component costs of our TV brand licensees for Roku TV models;
|
| •the ability of retailers to anticipate consumer demand;• | delays in delivery of our players or our partners’ Roku TV models, or disruptions in our or our licensees’ supply or distribution chains, including any disruptions caused by the COVID-19 pandemic, tariffs, or other trade restrictions or disruptions; and
|
| •an increase in the manufacturing or component costs of our products or partner-branded products;• | an increase in costs associated with protecting our intellectual property, defending against third-party intellectual property infringement allegations or procuring rights to third-party intellectual property.
|
•delays in delivery of our products or partner-branded products, or disruptions in our or our partners’ supply or distribution chains; and
•an increase in legal costs, including costs associated with protecting our intellectual property, defending against third-party intellectual property infringement allegations, or procuring rights to third-party intellectual property.
Our gross margins vary across our devices and platform offerings. Our playerdevices segment (which generates revenue has a lowerfrom the sale of streaming players, Roku-branded TVs, smart home products and services, audio products, and related accessories, as well as revenue from licensing arrangements with service operators) experienced negative gross margin compared tomargins for the fiscal year ended December 31, 2023, and our platform segment (which generates revenue derived through our arrangements withfrom the sale of digital advertising content(including direct and programmatic video advertising, media and entertainment promotional spending, and related services) and streaming services distribution billing,(including subscription and licensing activities.transaction revenue shares, the sale of Premium Subscriptions, and the sale of branded app buttons on remote controls)) experienced positive gross margin for the fiscal year ended December 31, 2023. Gross margins on our playersstreaming devices vary across player models and can change over time as a result of product transitions, pricing and configuration changes, component costs, playerdevice returns, and other cost fluctuations.
In addition, our gross margin and operating margin percentages, as well as overall profitability, may be adversely impacted as a result of a shift in device, geographic, or retail sales channel mix, component cost increases, price competition, or the introduction of new streaming devices,products, including those that have higher cost structures with flat or reduced pricing. We have in the past and may in the future strategically reduce our playerdevices gross margin or record negative gross margin on devices in an effort to increase the number of active accountsActive Accounts and grow our gross profit.
As a result, our
playerdevices segment revenue may not increase as rapidly as it has historically, or at all, and, unless we are able to continue to increase our platform
segment revenue and grow the number of
active accounts,Active Accounts, we may be unable to grow gross profit and our business will be harmed.
For example, in the past, global supply chain disruptions have resulted in shipping delays, increased shipping costs, component shortages, and increases in component prices, which negatively affected our devices gross margin. If a reduction in gross margin does not result in an increase in our
active accountsActive Accounts or
an increase
in our platform revenue and gross profit, our financial results may suffer, and our business may be harmed.
In addition, our platform segment has experienced in the past, and may experience in the future, lower gross margins than we anticipate. If our platform gross margins are lower than we anticipate, our financial results may suffer, and our business may be harmed.
If we have difficulty managing our growth in operating expenses, our business could be harmed.
We have experienced significant growth in our research and development, sales and marketing, support services, operations, and general and administrative functions in recent years and
expect tomay continue to expand
certain of these activities. Our historical growth has placed, and
expectedany future growth will continue to place, significant demands on our management, as well as our financial and operational resources, to:
| •
| manage a larger organization;
|
| •manage a larger organization;• | hire more employees, including engineers with relevant skills and experience;
|
| •hire more employees, including engineers with relevant skills and experience;• | expand internationally;
|
| •expand internationally;• | increase our sales and marketing efforts;
|
| •
| expand the capacity to manufacture and distribute our players;
|
| •increase our sales and marketing efforts;• | broaden our customer support capabilities;
|
| •expand the capacity to manufacture and distribute our products;• | support a larger number of TV brand and service operators;
|
| •broaden our customer support capabilities;• | implement appropriate operational and financial systems; and
|
| •expand our product offerings;• | maintain effective financial disclosure controls and procedures.
|
•support our licensed Roku TV partners and service operators;
•expand and improve the content offering on our platform;
•implement appropriate operational and financial systems; and
•maintain effective financial disclosure controls and procedures.
If we fail to manage our growth effectively, including if we grow our business too rapidly, we may not be able to execute our business strategies, which could harm our business and adversely affect our financial condition, results of operations, or cash flows.
We have previously undertaken restructuring plans to adjust our investment priorities and manage our operating expenses, and we may do so again in the future. For example, in 2023, we approved measures to lower our year-over-year operating expense growth rate by consolidating our office space utilization, performing a strategic review of our content portfolio, reducing outside services expenses, and slowing our year-over-year headcount expense growth rate through workforce reductions and limiting new hires, among other measures.
We have incurred, and may in the future incur, material costs and charges in connection with restructuring plans and initiatives, and there can be no assurance that any restructuring plans and initiatives will be successful. Any restructuring plans may adversely affect our internal programs and our ability to recruit and retain skilled and motivated personnel, may result in a loss of continuity, loss of accumulated knowledge, or inefficiency during transitional periods, may require a significant amount of employees’ time and focus, and may be distracting to employees, which may divert attention from operating and growing our business. For more information, see Note 17 to the consolidated financial statements in Item 8 of this Annual Report.
If we fail to achieve some or all of the expected benefits of any restructuring plans or are unable to manage our growth and expansion plans effectively, which may be impacted by factors outside of our control, our business,
willoperating results, and financial condition could be
harmed.adversely affected.
We may be unable to successfully expand our international operations, and our international expansion plans, if implemented, will subject us to a variety of risks that may harm our business.
We currently generate the vast majority of our revenue in the United States and have limited experience marketing, selling, licensing, and supporting our devicesproducts and running or monetizing our streaming platform outside the United States. In addition, we have limited experience managing the administrative aspects of a global organization. While we intend to continue to explore opportunities to expand our business in international markets in which we see compelling opportunities, we may not be able to create or maintain international market demand for our devicesproducts and streaming platform.platform services. Moreover, we face intense competition in international markets, especially because some of our competitors have already successfully introduced their products into new markets we are entering and have greater experience managing a global organization.
In the course of expanding our international operations, and operating overseas, in addition to the risks we face in the United States, we will beare subject to a variety of risks that could adversely affect our business, including:
| •
| differing regulatory requirements, including country-specific data privacy and security laws and regulations, consumer protection laws and regulations, tax laws, trade laws, labor regulations, tariffs, export quotas, custom duties on cross-border movements of goods or data flows, extension of limits on TV advertising minutes to OTT advertising, local content requirements, data or data processing localization requirements, or other trade restrictions;
|
| •differing legal and regulatory requirements in foreign jurisdictions, including country-specific laws and regulations pertaining to data privacy and data security, consumer protection, tax, telecommunications, trade (including tariffs, quotas, and sanctions), labor, environmental protection, censorship and other content restrictions, use of AI technologies, copyright and intellectual property, and local content and advertising requirements, among others;• | compliance with laws such as the Foreign Corrupt Practices Act, UK Bribery Act and other anti-corruption laws, U.S. or foreign export controls and sanctions, and local laws prohibiting corrupt payments to government officials;
|
| •exposure to increased corruption risk and compliance with laws such as the U.S. Foreign Corrupt Practices Act, UK Bribery Act, and other anti-corruption laws, U.S. or foreign export controls and sanctions, and local laws prohibiting improper payments to government officials and requiring the maintenance of accurate books and records and a system of sufficient internal controls;• | compliance with various privacy, data transfer, data protection, accessibility, consumer protection and child protection laws in the European Union (“EU”) and other international markets that we operate in;
|
| • | slower consumer adoption and acceptance of streaming devices and services in other countries; |
| •different or unique competitive pressures as a result of, among other things, competition with other devices that consumers may use to stream TV or existing local traditional TV services and products, including those provided by incumbent TV service providers and local consumer electronics companies;• | competition with other devices that consumers may use to stream TV or existing local traditional pay TV services and products, including those provided by incumbent pay TV service providers;
|
| •
| greater difficulty supporting and localizing our streaming devices and streaming platform, including delivering support and training documentation in languages other than English;
|
| •greater difficulty supporting and localizing Roku streaming devices and our streaming platform, including delivering support and training documentation in languages other than English;• | our ability to deliver or provide access to popular streaming channels or content to users in certain international markets;
|
| •our ability to deliver or provide access to popular streaming apps or content to users in certain international markets;• | different or unique competitive pressures as a result of, among other things, the presence of local consumer electronics companies and the greater availability of free content on over-the-air channels in certain countries;
|
| • | availability of reliable broadband connectivity and wide area networks in areas targeted for expansion; |
| •challenges and costs associated with staffing and managing foreign operations;• | challenges inherent in efficiently staffing and managing an increased number of employees over large geographic distances, including the need to implement appropriate systems, policies, compensation and benefits, and compliance programs;
|
| •differing legal and court systems, including limited or unfavorable intellectual property protection;• | difficulties in understanding and complying with local laws, regulations and customs in foreign jurisdictions;
|
| •unstable political and economic conditions, social unrest, or economic instability, whatever the cause, including due to pandemics, natural disasters, wars, terrorist activity, foreign invasions (such as the Russian invasion of Ukraine and the Israel-Hamas war), tariffs, trade disputes, local or global recessions, diplomatic or economic tensions (such as the tension between China and Taiwan), long-term environmental risks, or climate change;• | differing legal and court systems, including limited or unfavorable intellectual property protection;
|
| •adverse tax consequences, such as those related to changes in tax laws (including increased tax rates, the imposition of digital services taxes, and the adoption of global corporate minimum taxes and anti-base-erosion rules), changes in the interpretation of existing tax laws, and the heightened scrutiny by tax administrators of companies that have cross-border business activities;• | unstable political and economic conditions whatever the cause, including pandemics, impacts from the United Kingdom’s withdrawal from the EU (commonly referred to as “Brexit”), tariffs, trade wars, local or global recessions, or long-term environmental risks;
|
| •the imposition of customs duties on cross-border data flows for streaming services, in the event that the World Trade Organization fails to extend the current moratorium on such duties;• | international political or social unrest or economic instability, including U.S.-China tensions, and other political, security, or economic tensions between countries in which we do business or which serve as sources for Roku products;
|
| •any pandemics or epidemics, which could result in decreased economic activity in certain markets, changes in the use of our products or platform, or decreased ability to import, export, ship, or sell our products to supply such services to existing or new customers in international markets;• | adverse tax consequences such as those related to changes in tax laws or tax rates or their interpretations could impact our judgment in determining our tax provision and effective tax rate;
|
| •inflationary pressures, such as those the global market is currently experiencing, which may increase costs for materials, supplies, and services;• | the imposition of customs duties on cross-border data flows for streaming services, which are currently prohibited under the WTO’s e-commerce moratorium, but could be permitted if certain WTO Members continue to oppose extension of the moratorium when it is considered at the WTO’s MC-12 Ministerial Meeting, which was postponed due to the COVID-19 pandemic and is scheduled to take place in 2021;
|
| •fluctuations in currency exchange rates, which could impact the revenue and expenses of our international operations and expose us to foreign currency exchange rate risk (see the section titled “Foreign Currency Exchange Rate Risk” in Item 7A of this Annual Report for additional information);• | digital services taxes, which have been imposed or are under consideration by several European and other countries, which would lead to taxes on certain digital services even though the providers would not be subject to tax under existing international tax rules and treaties;
|
| •restrictions on the repatriation of earnings from certain jurisdictions; and• | the COVID-19 pandemic or any other pandemics or epidemics could result in decreased economic activity in certain markets, decreased use of our products or platform, or in our decreased ability to import, export, ship, or sell our products to supply such services to existing or new customers in international markets;
|
| •working capital constraints.• | fluctuations in currency exchange rates could impact our revenue and expenses of our international operations and expose us to foreign currency exchange rate risk;
|
| •
| restrictions on the repatriation of earnings from certain jurisdictions;
|
| •
| future possible changes in U.S. regulations on exports of U.S. technologies or dealings with certain countries or parties, including expanding export control restrictions on China and Hong Kong; and
|
| •
| working capital constraints.
|
In addition, we may face challenges in successfully deploying our business model in international markets. Three core areas of focus define our business model: first, we grow scale by increasing our Active Accounts; second, we grow engagement by increasing the hours of content streamed through our platform; and, third, we grow monetization of the activities that users engage in through our platform. Even if we are able to increase our Active Accounts in international markets, we may be unable to effectively grow our Streaming Hours or monetize user activity in those markets. Further, as of December 31, 2023, our ARPU was lower in international markets than in the United States. If we invest substantial time and resources to expand our international operations and are unable to do so successfully and in a timely manner, our business and financial condition may be harmed.
Our revenue and gross profit are subject to seasonality, and if our sales during the holiday seasonseasons fall below our expectations, our business may be harmed.
Seasonal
consumer shopping patterns significantly affect our business. Specifically, our revenue and gross profit are traditionally strongest in the fourth quarter of each fiscal year and represent a high percentage of the total net revenue for such fiscal year due to higher consumer purchases and increased advertising during holiday seasons. Furthermore,
a significant percentage of our player sales through retailers in
preparation for the fourth quarter
are pursuant to committed sales agreements with retailers for whichholiday season, we recognize significant discounts in the average selling prices
in the third quarterof our products through retailers in an effort to grow our
active accounts,Active Accounts, which
willtypically reduce our
playerdevices gross
margin.margin in the fourth quarter.
Given the seasonal nature of advertising and our deviceproduct sales, accurate forecasting is critical to our operations. We anticipate that this seasonal impact on revenue and gross profit is likely to continue, and any shortfall in expected fourth quarter revenue due to a decline in the effectiveness of our promotional activities, actions by our competitors, reductions in consumer discretionary spending, curtailed advertising spending, disruptions in our supply or distribution chain,chains, tariffs or other restrictions on trade, shipping or air freight delays, or for any other reason, would cause our full year results of operations to suffer significantly.
For example, macroeconomic uncertainties and inflationary pressures negatively affected consumer electronics sales during the holiday season in 2023. In addition, delays or disruptions at U.S. ports of entry couldhave in the past, and may in the future, adversely affect our or our distributors’licensed Roku TV partners’ ability to timely deliver players and co-branded Roku TV modelsproducts to retailers during the holiday season. seasons.
A substantial portion of our expenses are
personnel related, includingpersonnel-related (including salaries, stock-based compensation, and
benefits,benefits) and
facilities relatedfacilities-related, none of which are seasonal in nature. Accordingly, in the event of a revenue shortfall, we would be unable to mitigate the negative impact on gross profit and operating margins, at least in the short term, and our business would be harmed.
If we fail to attract and retain key personnel, effectively manage succession, or hire, develop, and motivate our employees, we may not be able to execute our business strategy or continue to grow our business.
Our success depends in large part on our ability to attract and retain key personnel on our senior management team and in our engineering, research and development, sales and marketing, operations, and other organizations. In particular, our founder, President and Chief Executive Officer, Anthony Wood, is critical to our overall management, as well as the continued development of our
devicesproducts and streaming platform, our culture, and our strategic direction. We do not have long-term employment or non-competition agreements with any of our key personnel. The loss of one or more of our executive officers or the inability to promptly identify a suitable successor to a key role could have an adverse effect on our business.
Our ability to compete and grow depends in large part on the efforts and talents of our employees.
Labor is subject to external factors that are beyond our control, including our industry’s highly competitive market for skilled workers and leaders, cost inflation, workforce participation rates, and unstable political conditions. Our employees, particularly engineers and other product developers, are in
high demand, and we devote significant resources to identifying, hiring, training, successfully integrating, and retaining these employees.
Because we face significant competition for personnel, particularly in the San Francisco Bay Area where our headquarters is located, toTo attract top talent, we
have had to offer, and believe we will need to continue togenerally offer competitive compensation packages before we can validate the productivity of those employees.
In addition, many companies now offer a remote or hybrid work environment, which may increase the competition for employees from employers outside of our traditional office locations. To retain employees, we
alsohave in the past and may
in the future need to increase our employee compensation levels
or other benefits in response to
competition.competition and other business and macroeconomic factors. The loss of employees or the inability to hire additional skilled employees
is necessary to support our growth could result in significant disruptions to our business, and the integration of replacement personnel could be time-consuming and expensive and cause disruptions.
We believe a critical component to our success and our ability to retain our best people is our culture. As we continue to grow, we may find it difficult to maintain our entrepreneurial, execution-focused culture. In addition,
many of our employees may be able to receive significant proceeds from sales of our equity in the public markets, which may reduce their motivation to continue to work for us. Moreover, the equity ownership of many of our employeespast or any additional workforce reductions could
create disparities in wealth among our employees, which may harm
our cultureemployee morale and
relations among employeesnegatively impact employee recruiting and
our business.retention.
We need to maintain operational and financial systems that can support our expected growth, increasingly complex business arrangements, and rules governing revenue and expense recognition, and any inability or failure to do so could adversely affect our financial reporting, billing, and payment services.
We have a complex business that is growing in size and complexity both in the United States and in international jurisdictions. To manage our growth and our increasingly complex business operations, especially as we move into new markets internationally or acquire new businesses, we will need to maintain and may need to upgrade our operational and financial systems and procedures, which requires management time and may result in significant additional expense. Our business arrangements with our content partners, advertisers, licensed Roku TV brand partners, and other licensees, and the rules that govern revenue and expense recognition in our business, are increasingly complex.
To manage the expected growth of our
operations and increasing complexity, we must maintain operational and financial systems, procedures, and controls and continue to increase systems automation to reduce reliance on manual operations. An inability to do so will negatively affect our financial reporting, billing, and payment services. Our current and planned systems, procedures, and controls may not be adequate to support our complex arrangements and the rules governing revenue and expense recognition for our future operations and expected growth. Delays or problems associated with any improvement or expansion of our operational and financial systems and controls could adversely affect our relationships with our users, content publishers,partners, advertisers, advertisement agencies, licensed Roku TV brand partners, or other licensees; cause harm to our reputation and brand; and could also result in errors in our financial and other reporting.
We may pursue acquisitions, which involve a number of risks, and if we are unable to address and resolve these risks successfully, such acquisitions could harm our business.
We have in the past and may in the future acquire businesses, products, or technologies to expand our offerings and capabilities, user base, and business. We have evaluated, and expect to continue to evaluate, a wide array of potential strategic transactions; however, we have limited experience completing or integrating acquisitions. Any acquisition could be material to our financial condition and results of operations, and any anticipated benefits from an acquisition may never materialize.
Acquisitions could also result in dilutive issuances of equity securities or the incurrence of debt, which could adversely affect our operating results, may cause unfavorable accounting treatment, may expose us to claims and disputes by third parties, including intellectual property claims, and may not generate sufficient financial returns to offset additional costs and expenses related to the acquisitions.
In addition, the process of integrating acquired businesses, products, or technologies may create unforeseen operating difficulties and
expenditures.expenditures, in particular when the acquired businesses, products, or technologies involve areas of operation in which we have limited or no prior experience. Acquisitions of businesses, products, or technologies in international markets would involve additional risks, including those related to integration of operations across different cultures and languages, currency risks, and the particular economic, political, and regulatory risks associated with specific countries. We may not be able to address these risks successfully, or at all, without incurring significant costs, delays, or other operational problems, and if we were unable to address such risks successfully, our business could be harmed.
We have outstanding debt and our credit facility provides our lender with a first-priority lien against substantially all of our assets and contains financial covenants and other restrictions on our actions that may limit our operational flexibility or otherwise adversely affect our financial condition.
We entered into a credit agreement among us, as borrower, the lenders and issuing banks from time to time party thereto, and Morgan Stanley Senior Funding, Inc., or the Agent providing for a (i) a four-year revolving credit facility in the aggregate principal amount of up to $100.0 million, (the “Revolving Credit Facility”), (ii) a four-year delayed draw term loan A facility in the aggregate principal amount of up to $100.0 million, (the “Term Loan A Facility”) and (iii) an uncommitted incremental facility subject to certain conditions (collectively, the “Credit Agreement”). The Credit Agreement contains a number of affirmative and negative covenants, which may restrict our current and future operations, particularly our ability to respond to certain changes in our business or industry or take future actions. The Credit Agreement also contains a financial covenant requiring us to maintain a minimum adjusted quick ratio of at least 1.00 to 1.00, tested as of the last day of any fiscal quarter on the basis of the prior period of our four consecutive fiscal quarters. Pursuant to the Credit Agreement, we granted the Agent a security interest in substantially all of our assets. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Senior Secured Term Loan A and Revolving Credit Facilities.”
In November 2019, we borrowed $100.0 million aggregate principal amount pursuant to the Term Loan A Facility and in March 2020, we borrowed $69.3 million aggregate principal amount of revolving loans pursuant to the Revolving Credit Facility. In May 2020, we entered into the Equity Distribution Agreement, pursuant to which we sold 4.0 million shares of our Class A common stock at an average selling price of $126.01 per share, for aggregate gross proceeds of $504.0 million, a portion of which was used to repay the $69.3 million outstanding under our Revolving Credit Facility. We also have outstanding letters of credit as of December 31, 2020 totaling $30.8 million against the Revolving Credit Facility.
As of December 31, 2020, we were in compliance with all of the financial covenants of the Credit Agreement. However, if we fail to comply with the covenants, make payments as specified in the Credit Agreement, or undergo any other event of default contained in the Credit Agreement, the Agent could declare an event of default, which would give it the right to terminate the commitments to provide additional loans and declare any borrowings outstanding, together with accrued and unpaid interest and fees, to be immediately due and payable. In addition, the Agent would have the right to proceed against the assets we provided as collateral pursuant to the Credit Agreement. If the outstanding debt under the
Credit Agreement is accelerated, we may not have sufficient cash or be able to sell sufficient assets to repay it, which would harm our business and financial condition.
When we borrowed pursuant to the Revolving Credit Facility, we chose a variable interest rate based on London Inter-bank Offered Rate (“LIBOR”) as the benchmark for establishing the applicable interest rate. LIBOR is the subject of national, international and other regulatory guidance and proposals for phase out. The future of LIBOR at this time is uncertain and any changes in the methods by which LIBOR is determined or regulatory activity related to LIBOR’s phaseout could cause LIBOR to perform differently than in the past or cease to exist. The consequences of the developments cannot be entirely predicted and could have an adverse impact on the value of our LIBOR-linked financial obligations, such as an increase in the cost of our credit agreement indebtedness.
We may require additional capital to meet our financial obligations and support planned business growth, and this capital might not be available on acceptable terms or at all.
We intend to continue to make significant investments to support planned business growth and may require additional funds to respond to business challenges, including the need to develop new devicesproducts and enhance our streaming platform, continue to expand the content on our platform, maintain adequate levels of inventory to support our retail partners’ demand requirements, improve our operating infrastructure, or acquire complementary businesses, personnel, and technologies. Our primary uses of cash include operating costs such as personnel-related expenses and capital spending. Our future capital requirements may vary materially from those currently planned and will depend on many factors including our growth rate and the continuing market acceptance of our products and streaming platform, the Roku OS and players along with the timing and effort related to the introduction of new platform features, players,products, the hiring of experienced personnel, the expansion of sales and marketing activities, as well as overall economic conditions. We may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through future issuances of equity or convertible debt securities, our then existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences, and privileges superior to those of holders of our Class A common stock. Any debt financing we secure could involve additional restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. If we were to violate such restrictive covenants, we could incur penalties, increased expenses, and an acceleration of the payment terms of our outstanding debt, which could in turn harm our business.
We
In addition, we currently have no committed source of financing, and may
not be ableneed to obtain
additional financing
via a credit facility in the future. Any future credit agreements we may enter into could require a lien on
terms favorable to us, if at all.our assets or contain financial covenants and other restrictions that may limit our operational flexibility or otherwise adversely affect our financial condition. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly impaired, and our business may be harmed.
We maintain cash deposits in excess of federally insured limits. Adverse developments affecting financial institutions, including bank failures, could adversely affect our liquidity and financial performance.
We maintain domestic cash deposits in Federal Deposit Insurance Corporation (“FDIC”) insured banks that exceed the FDIC insurance limits. We also maintain cash deposits in foreign banks where we operate, some of which are not insured or are only partially insured by the FDIC or similar agencies. Bank failures, events involving limited liquidity, defaults, non-performance, or other adverse developments that affect financial institutions, or concerns or rumors about such events, may lead to liquidity constraints. For example, in 2023, Silicon Valley Bank failed and was taken into receivership by the FDIC. The failure of a bank, or other adverse conditions in the financial or credit markets impacting financial institutions at which we maintain balances, could adversely impact our liquidity and financial performance. There can be no assurance that our deposits in excess of the FDIC or other comparable insurance limits will be backstopped by the U.S. or applicable foreign government, or that any bank or financial institution with which we do business will be able to obtain needed liquidity from other banks, government institutions, or by acquisition in the event of a failure or liquidity crisis.
Risks Related to Cybersecurity, Reliability, and Data Privacy
Significant disruptions of our information technology systems or data security incidents could harm our reputation, cause us to modify our business practices, and otherwise adversely affect our business and subject us to liability.
We are
increasingly dependent on information technology systems and infrastructure to operate our business. In the ordinary course of our business, we collect, store, process, and transmit large amounts of sensitive corporate, personal, and other information, including intellectual property, proprietary business information, user payment card information,
user video and audio recordings, other user
information, employee information, and other confidential information. It is critical that we do so in a secure manner to maintain the confidentiality, integrity, and availability of such information. Our obligations under applicable laws, regulations, contracts, industry standards, self-certifications, and other documentation may include maintaining the confidentiality, integrity, and availability of personal information in our possession or control, maintaining reasonable and appropriate security safeguards as part of an information security program, and
limits oncomplying with requirements regarding the use
and/or cross-border transfer of such personal information. These obligations create potential legal liability to regulators, our business partners, our users, and other relevant stakeholders and
also impact the attractiveness of our
subscription serviceservices to existing and potential users.
We have outsourced certain elements of our operations (including elements of our information technology infrastructure) to third parties, or may have incorporated technology into our platform, that collects, processes, transmits,
and stores our users’ or others’ personal information (such as payment card information)information and user video and audio recordings), and as a result, we manage a number of third-party vendors and other partners who may or could have access to our information technology systems (including our computer networks) or to our confidential information. In addition, many of those third parties in turn subcontract or outsource some of their responsibilities to third parties. As a result, our information technology systems, including the functions of third parties that are involved in or have access to those systems, isare very large and complex.
While all information technology operations are inherently vulnerable to inadvertent or intentional security breaches, incidents, attacks, and exposures, the size, complexity, accessibility, and distributed nature of our information technology systems, and the large amounts of sensitive or personal information stored on those systems, make such systems potentially vulnerable to unintentional or malicious, internal, and external threats on our technology environment. Vulnerabilities can be, and have been, exploited from inadvertent or intentional actions of our employees, third-party vendors, business partners, or by malicious third parties. Attacks
For example, despite our efforts to secure our information technology systems and the data contained in those systems, including our efforts to educate or train our employees, we and our third-party vendors have experienced, and remain vulnerable to, data security incidents, including data breaches, phishing attacks, improper employee access of this natureconfidential data, and inadvertent employee disclosure of confidential data. Malicious attacks are increasing in their frequency, levels of persistence, sophistication and intensity, and are being conducted by sophisticated and organized groups and individuals with a wide range of motives (including, but not limited to, industrial espionage) and expertise, including organized criminal groups, “hacktivists,” nation states, and others. For example, despite our efforts to secure ourThe geopolitical conflicts stemming from the Russian invasion of Ukraine and the current unrest in the Middle East have increased the risk of malicious attacks on information technology operations globally, including for companies headquartered in the United States, that could materially disrupt our systems and the data contained in those systems, including any effortsoperations, supply chain, and ability to educate or trainproduce, sell, and distribute our devices and services.
Most of our employees
we remain vulnerable to phishing attacks.now have a hybrid work schedule (consisting of both in-person work and working from home). Although we have and may in the future, implement remote workingimplemented work from home protocols, and offer work-issued devices to employees, the actions of our employees while working remotelyfrom home may have a greater effect on the security of our systems and the data we process, including by increasing the risk of compromise to our systems, intellectual property, or data arising from employees’ combined use of personal and private use of devices, accessing our systems or data using wireless networks that we do not control, or the ability to transmit or store company-controlled data outside of our secured network. These risks have been heightened by the dramatic increase in the numbers of our employees who have been and are continuing to work from home as a result of government guidelines and internal policies that have been put in place in response to the COVID-19 pandemic.
In addition to the threat of unauthorized access or acquisition of sensitive or personal information or intellectual property, other threats could include the deployment of harmful malware, ransomware attacks, denial-of-service attacks, social engineering, and other means to affect service reliability and threaten the confidentiality, integrity, and availability of information. Some of these external threats may be amplified by the nature of our third-party web hosting, cloud computing, or network-dependent streaming services or suppliers. Our systems likelyregularly experience directed attacks on at least a periodic basis that are intended to interrupt our operations; interrupt our users’, content publishers’partners’, and advertisers’ ability to access our platform; extract money from us; and/or view or obtain our data (including without limitation user or employee personal information or proprietary information). Although we have implemented certain systems, processes, and safeguards intended to protect our information technology systems and data from such threats and mitigate risks to our systems and data, we or intellectual property. We cannot be certain that threat actors will not have a material impact on our systems or services in the future. Our safeguards intended to prevent or mitigate certain threats may not be sufficient to protect our information technology systems and data due to the developing sophistication and means of attack in the threat landscape. landscape as well as the impact that third-party vendors and third-party products may have on our cybersecurity.
Recent developments in the threat landscape include an increased number of cyber extortion and ransomware attacks, with increases in the amount of ransom demands and the sophistication and variety of ransomware techniques and methodology.
Ransomware or other cybersecurity attacks affecting our third-party vendors also may impact our ability to operate our business, such as when our information technology or human resources vendors experience an outage of their systems, which renders services to downstream customers unavailable. Additionally, our third-party vendors or business partners’
information technology systems, or hardware/software provided by such third parties for use in our information technology systems, may be vulnerable to similar threats and our business could be affected by those or similar third-party relationships.
Open-source software, which may be incorporated into our systems or products, inherently presents a large attack surface and may contain vulnerabilities of which we are not aware and which we cannot control or fully mitigate. We cannot assure you that we will not be impacted by ransomware, cybersecurity attacks, or other vulnerabilities in the future.
We maintain insurance policies to cover certain losses relating to our information technology systems. However, there may be exceptions to our insurance coverage such that security incidents may not be covered by our insurance policies, mayand not cover some or all aspects of a security incident may be covered even where coverage exists. Insurance policies will also not protect against the reputational harms caused by a major security incident. Even where an incident is covered by our insurance, the insurance limits may not cover the costs of complete remediation and redress that we may be faced with in the wake of a security incident.
The successful assertion of one or more large claims against us that exceeds our available insurance coverage, or results in changes to our insurance policies (including premium increases or the imposition of large deductible or co-insurance requirements), could have an adverse effect on our business. In addition, we cannot be sure that our existing insurance coverage and coverage for errors and omissions will continue to be available on acceptable terms or that our insurers will not deny coverage as to any future claim. Though it is difficult to determine what harm may directly result from any specific interruption or breach, any failure to maintain performance, reliability, security, and availability of our network infrastructure to the satisfaction of our users, business partners, regulators, or other relevant stakeholders may harm our reputation and our ability to retain existing users and attract new users. Because of our prominence in the TV streaming industry, we believe we may be a particularly attractive target for threat actors.
Our platform also incorporates licensed software from third parties, including open-source software, and we may also be vulnerable to attacks that focus on such third-party software. Any attempts by threat actors to
disrupt our streaming platform, our streaming devices, smart home products, website, computer systems, or our mobile apps, if successful, could harm our business, subject us to liability, be expensive to remedy, cause harm to our systems and operations, and damage our reputation. Efforts to prevent threat actors from entering our computer systems or exploiting vulnerabilities in our devicesproducts are expensive to implement and may not be effective in detecting or preventing intrusion or vulnerabilities.
Such unauthorized access to our data could damage our reputation and our business and could expose us to the risk of contractual damages, litigation, and regulatory fines and penalties that could harm our business. The risk of harm to our business caused by security incidents may also increase as we expand our product and service offerings and as we enter into new markets. Implementing, maintaining, and updating security safeguards requires substantial resources now and will likely be an increasing and substantial cost in the future.
Significant disruptions of our third-party vendors’
and/or commercial partners’ information technology systems or other similar data security incidents could adversely affect our business operations
and/or result in the loss, misappropriation,
and/or unauthorized access, use or disclosure of, or the prevention of access to, sensitive or personal information, which could harm our business. In addition, information technology system disruptions, whether from attacks on our technology environment or from computer viruses, natural disasters, terrorism, war,
foreign invasions, and
telecommunicationtelecommunications and electrical failures, could result in a material disruption of our product development and our business operations.
There is no way of knowing with certainty whether we have experienced any data security incidents that have not been discovered. While we have no reason to believe that we have experienced a data security incident that we have not discovered, attackers have become very sophisticated in the way they conceal their unauthorized access to systems, and many companies that have been attacked are not aware that they have been attacked. Any event that leads to unauthorized access, use, or disclosure of personal information, including but not limited to personal information regarding our users, could disrupt our business, harm our reputation, compel us to comply with applicable federal and/or state breach notification laws and foreign law equivalents, subject us to time consuming,time-consuming, distracting, and expensive litigation, regulatory investigation and oversight, mandatory corrective action, require us to verify the correctness of database contents, or otherwise subject us to liability under laws, regulations, and contractual obligations, including those that protect the privacy and security of personal information. This could result in increased costs to us and result in significant legal and financial exposure and/or reputational harm.
For example, in the wake of a data breach involving payment card data, we may be subject to substantial penalties and related enforcement for failure to adhere to the technical or operational security requirements of the Payment Card Industry (“PCI”) Data Security Standards (“DSS”) imposed by the PCI Council to protect cardholder data. Penalties arising from PCI DSS enforcement are inherently uncertain as penalties may be imposed by various entities within the payment card processing chain without regard to any statutory or universally mandated framework. Such enforcement could threaten our relationship with our banks, card brands we do business with, and our third-party payment processors.
In addition, any actual or perceived failure by us, or our vendors, or our business partners to comply with our privacy, confidentiality, or data security-related legal or other obligations to third parties, or any further security incidents or other unauthorized access events that result in the unauthorized access, release, or transfer of sensitive information which(which could include personal information,information), may result in governmental investigations, enforcement actions, regulatory fines, litigation, or public statements against us by advocacy groups or others, and could cause third parties, including current and potential partners, to lose trust in us including(including existing or potential users’ perceiving our platform, system, or networks as less desirabledesirable) or we could be subject to claims by third parties that we have breached our privacy- or confidentiality-related obligations, which could materially and adversely affect our business and prospects. There can be no assurance that the limitations of liability in our contracts would be enforceable or adequate or would otherwise protect us from liabilities or damages. Moreover, data security incidents and other inappropriate access can be difficult to detect, and any delay in identifying them may lead to increased harm of the type described above. While we have implemented security measures intended to protect our information technology systems and infrastructure, as well as the personal and proprietary information that we possess or control, there can be no assurance that such measures will successfully prevent service interruptions or further security incidents.
Data protection laws around the world often require “reasonable”, “appropriate”“reasonable,” “appropriate,” or “adequate” technical and organizational security measures, and the interpretation and application of those laws are often uncertain and evolving, and there can be no assurance that our security measures will be deemed adequate, appropriate, or reasonable by a regulator or court. Moreover, even security measures that are deemed appropriate, reasonable, and/or in accordance with applicable legal requirements may not be able to protect the information we maintain. In addition to potential fines, we could be subject to mandatory corrective action due to a data security incident, which could adversely affect our business operations and result in substantial costs for years to come.and reputational harm.
We and our service providers and partners collect, process, transmit, and store the personal and confidential information, of our users, which creates legal obligations and exposes us to potential liability.
We collect, process, transmit, and store
personal or confidential information about
a variety of individuals including our users
(and their devices), other consumers, employees, job applicants and
their devices,partners, and
we rely on
third partythird-party service providers to collect, process, transmit, and store personal
or confidential information
of our users, including(including our users’ payment card
data.data and video and audio recordings). We collect such information from individuals located both in the United States and abroad and may store or process such information outside the country in which it was collected. Further, we,
and our service providers
as well asand our business partners use tracking technologies, including cookies, device identifiers, and related technologies, to help us manage and track our users’ interactions with our platform, devices, website, and partners’ content
toand deliver relevant advertising and personalized content for ourselves and on behalf of our partners on our
devices.products.
We collect information about the interaction of users with our platform, devices, website, advertisements, and content publishers’partners’ streaming channels.apps. To deliver relevant advertisements effectively, we must successfully leverage this data, as well as data provided by third parties. Our ability to collect and use such data could be restricted by a number of factors, including users’users having the ability to refuse consent to or opt out from our, our service providersproviders’, or our advertising partners’ collection and use of this data, restrictions imposed by advertisers, content publisherspartners, licensors, and service providers, changes in technology, and developments in laws, regulations, and industry standards. For example, certain EUEuropean Union (“EU”) laws and regulations prohibit access to or storage of information on a user’s device (such as cookies and similar technologies that we use for advertising) that is not “strictly necessary” to provide a user-requested service or used for the “sole purpose” of a transmission unless the user has provided unambiguous, affirmative consent, and users may choose not to provide this consent to collection of information which is used for advertising purposes.
Additionally, certain device manufacturers or operating system providers may restrict the deployment of cookies and similar technologies, or otherwise restrict the collection of personal information through these or other tools, via our applications. Any restrictions on our ability to collect or use data could harm our ability to grow our revenue, particularly our platform revenue which depends on engaging the relevant recipients of advertising campaigns.
Various federal, state, and foreign laws and regulations as well as industry standards and contractual obligations govern the collection, use, retention, protection, disclosure, cross-border transfer, localization, sharing, and security of the data we receive from and about our users, employees, and other individuals. The regulatory environment for the collection and use of personal information by device manufacturers, online service providers, content distributors, advertisers, and publishers is evolving in the United States and internationally.
Privacy
and consumer rights groups and government bodies
including(including the
U.S. Federal Trade Commission (“FTC”), state attorneys general, the European Commission,
European and
EuropeanUK data protection authorities,
and the Brazilian national data protection authority), have increasingly scrutinized privacy issues with respect to devices that identify or are identifiable to a person (or household or device) and personal information collected through the internet, and we expect such scrutiny to continue to increase. The
United States,U.S. federal government, U.S. states, and foreign governments have enacted
and(or are
consideringconsidering) laws and regulations that could significantly restrict industry participants’ ability to collect, use, and share personal information, such as by regulating the level of consumer notice and consent required before a company can place cookies or other tracking
technologies.technologies or collect categories of personal information deemed sensitive. For example, the EU General Data Protection Regulation (“GDPR”)
became effective in May 2018 and imposes detailed requirements related to the collection, storage, and use of personal information related to people located in the EU
or(or which is processed in the context of EU
operationsoperations) and places
new data protection obligations and restrictions on organizations, and may require us to make further changes to our policies and procedures in the future beyond what we have already done.
Further, In addition, in the wake of Brexit, there has been uncertainty with regard to the regulation of data protection in the United Kingdom. AlthoughKingdom’s withdrawal from the EU (“Brexit”), the United Kingdom enactedhas adopted a Data Protection Act in May 2018,framework similar to the GDPR. The EU has recently confirmed that the UK data protection framework as being “adequate” to receive EU personal data. We are monitoring recent developments regarding amendments to the UK data protection framework and the EUimpact this may declare the United Kingdom’s privacy laws as adequate for receiving personal information from the EU, a level of uncertainty remains regarding how data transfers to and from the United Kingdom will be regulated after Brexit. We made changes tohave on our data protection compliance program to prepare for the GDPR andbusiness.
We will continue to monitor the implementation and evolution of data protection regulations, but if we are not compliant with GDPR or other data protection laws or regulations if and when implemented, we may be subject to significant fines and penalties (such as restrictions on personal information processing) and our business may be harmed. For example, under the GDPR, fines of up to EUR 20 million euros or 4% of the annual global revenue of a noncompliant company, whichever is greater,higher, as well as data processing restrictions, could be imposed for violation of certain of the GDPR’s requirements. Other countries have also proposed or passed legislation with obligations similar
Data protection laws continue to
that ofproliferate throughout the
GDPR.world and such laws likely apply to our business. The U.S. data protection legal landscape also continues to evolve, with various states such as California and Nevada having enacted broad-based data privacy and protection legislation and with states and the federal government continuing to consider additional data privacy and protection legislation. The potential effects of this legislation are far-reaching and may require us to modify our data processing practices and policies and to incur substantial costs and expenses in an effort to comply. Effective October 1, 2019, Nevada amended its existing Security of Personal Information Law (“SPI Law”) to
now require, among other things, that certain businesses provide a designated request address to intake requests from consumers to opt out ofFor example, the sale of their personal data. The California Consumer Privacy Act went into effect in January 2020 and gives California residents certain rights with respect to their personal information such as rights to access and require deletion of their personal information, opt out of the sale of their personal information, and receive detailed information about how their personal information is used. The CCPA also(“CCPA”) provides for civil penalties for violations, as well as a private right of action for data breaches that may increase data breach litigation. The CCPA was amended and the California Office of the Attorney General published final regulations to implement portions of the CCPA. In November 2020, the California Privacy Rights Act (“CPRA”) was passed into law, which amended the CCPA and goes into effectbecame effective on January 1, 2023 (with a ‘look-back’“look-back” to January 1, 2022). The CPRA builds on the CCPA, and amongstamong other things,requires the establishment of a dedicated agency to regulate consumer privacy issues.
Data protection laws continueand enforce the CCPA.
Furthermore, rules governing new technological developments, such as developments in generative AI, remain unsettled. Several national and local governments have proposed or enacted measures related to
proliferate throughout the
worlduse of AI technologies in products and
such laws likely applyservices. For example, in the EU, there is a proposed regulation related to AI that is proceeding towards adoption. If adopted, this regulation could impose new and substantial obligations related to the use of AI-related systems. In the United States, there similarly is growing interest among federal, state, and local policymakers with respect to potential legislation, regulation and/or guidance to address perceived concerns with the rapid uptake of AI technologies. The rules and regulations adopted by policymakers over time may require us to make changes to our
business. For example, Brazil’s General Data Protection Law (“LGPD”) came into effect on August 15, 2020. The LGPD bears many substantive similarities to the GDPR such as extra-territorial reach, enhanced privacy rights for individuals, data transfer restrictions and mandatory breach notification obligations. It carries penalties of up to 2% of a company’s Brazilian revenue.business practices.
We are continuing to assess the impact of new and proposed data privacy and protection laws and proposed amendments to existing laws on our business.
Applicable data privacy Among other things, such restrictions are likely to increase the number of users to whom we cannot serve targeted advertising, and security laws may also obligate usare likely to employ security measures that are appropriaterestrict our ability to the nature of the data we collect and process and, among other factors, the risks attendant tocertain types of information deemed sensitive under these new laws. The Canadian province of Quebec has also recently enacted a data protection law, known as Bill 64, that may similarly restrict our data processing activities in orderactivities.
In addition, each U.S. state and most U.S. territories, each EU member state, and the United Kingdom, as well as many other foreign nations, have passed laws requiring notification to
protectregulatory authorities, affected users, or others within a specific timeframe when there has been a security breach involving, or other unauthorized access to or acquisition or disclosure of, certain personal information
from unauthorized accessand impose additional obligations on companies. Additionally, our agreements with certain users or
disclosure, or accidental or unlawful destruction, loss, or alteration. We have implementedpartners may require us to notify them in the event of a security
measures that we believebreach. Such statutory and contractual disclosures are
appropriate, but a regulatorcostly, could
deemlead to negative publicity, may cause our users to lose confidence in the effectiveness of our security measures,
not to be appropriate given the lack of prescriptive measures in certain data protection laws. Given the evolving nature of security threats and
evolving safeguards, we cannot be sure that our chosen safeguards will protect against security threats to our business including the personal information that we process. However, even security measures that are appropriate, reasonable, and/or in accordance with applicable legal requirements may
not be able to fully protect our information technology systems and the data contained in those systems, or our data that is contained in third parties’ systems. Moreover, certain data protection laws impose on us responsibility for our employees and third parties that assist with aspects of our data processing. Our employees’ or third parties’ intentional, unintentional, or inadvertent actions may increase our vulnerability or exposerequire us to
expend significant capital and other resources to respond to or alleviate problems caused by the actual or perceived security
threats, such as phishing attacks,breach. Compliance with these obligations could delay or impede the development of new products and
we may
remain responsible for successful access, acquisition or other disclosure of our data despite the quality and legal sufficiency of our security measures.cause reputational harm.
As part of our data protection compliance program, we have implemented data transfer mechanisms to provide for the transfer of personal information from the European Economic Area (the “EEA”) or the United Kingdom to the United States. However, there areAfter a period of uncertainty concerning certain unsettled legal issues regardingmechanisms for data transfers to the United States, on July 10, 2023, the European Commission adopted an adequacy of thesedecision concerning a new framework for data transfer mechanisms, the resolution of which may adversely affect our ability to transfer personal informationtransfers from the EEA to the United States. On July 16, 2020,States, known as the European CourtEU-U.S. Data Privacy Framework (“EU-U.S. DPF”).
That decision recognizes that the Model Clauses remain valid, and left unaddressed some issues regarding supplementary measures thatUnited States ensures an adequate level of protection for personal information transferred from the EEA to organizations participating in the EU-U.S. DPF. The United Kingdom has made a similar determination, providing a means by which data transfers may need to be taken to support transfers. We are currently awaiting regulatory guidance from EU Data Protection Authoritiestake place between the U.S. and the US Department of Commerce onUnited Kingdom. That framework is known as the impact of this ruling on broader international data transfer compliance for companies, including guidance on specific supplementary measures that all companies would be required to implement in additionUK Extension to the Model Clauses. This may involve changes that require significant timeEU-U.S. DPF, and resources to implement, including through adjusting our operations, conducting requisite data transfer assessments, and revising our contracts. Our ability to continue to transfer personal information outside of the EU may become significantly more costly and may subject us to increased scrutiny and liability under the GDPR, and we may experience operating disruptions if we are unable to conduct these transfersit went into effect on October 12, 2023. Roku is currently evaluating participation in the future. EU-U.S. DPF and the UK Extension.
In addition, cloud service providers upon which our services depend are experiencing heightened scrutiny from EU regulators, which may lead to significant shifts or unavailability of cloud services to transfer personal information outside the EU, which may significantly impact our costs or ability to operate.
We continue to assess the available regulatory guidance, determinations, and enforcement actions from EU Data Protection Authorities and the U.S. Department of Commerce on international data transfer compliance for companies, including guidance on specific supplementary measures in addition to the Model Clauses as well as specific data sharing that may be deemed a cross-border transfer for which appropriate safeguards must be implemented. Our ability to continue to transfer personal information outside of the EU may become significantly more costly and may subject us to increased scrutiny and liability under the GDPR or other legal frameworks, and we may experience operating disruptions if we are unable to conduct these transfers in the future.
We will continue to review our business practices and may find it necessary or desirable to make changes to our personal information processing to cause our transfer and receipt of EEA residents’ personal information to conform to applicable European law. The regulation of data privacy in the EU continues to evolve, and it is not possible to predict the ultimate effect of evolving data protection regulation and implementation over time. Member states also have some
flexibility to supplement the GDPR with their own laws and regulations and may apply stricter requirements for certain data processing activities.
In addition, some countries are considering or have enacted
‘data localization’“data localization” laws requiring that user data regarding users in their
countryrespective countries be maintained,
stored, or processed in their
country.respective countries. Maintaining local data centers in individual countries could increase our operating costs significantly. We expect that, in addition to the
business“business as
usualusual” costs of compliance, the evolving regulatory interpretation and enforcement of laws such as the GDPR and
CCPA,CPRA, as well as other domestic and foreign data protection laws, will lead to increased operational and compliance costs and will require us to continually monitor and, where necessary, make changes to our operations, policies, and procedures. Any failure or perceived failure to comply with privacy-related legal obligations, or any compromise of security of user data, may result in governmental enforcement actions, litigation, contractual
indemnityindemnities, or public statements against us by consumer advocacy groups or others. In addition to potential liability, these events could harm our business.
We publish privacy policies, notices, and other documentation regarding our collection, processing, use, and disclosure of personal information, credit card information, and/orand other confidential information. Although we endeavor to comply with our published policies, certifications, and documentation, we may at times fail to do so or may be perceived to have failed to do so.
Moreover, despite our efforts, we may not be successful in achieving compliance if our employees,
representatives, agents, vendors, or
vendorsother third parties fail to comply with our published policies, certifications, and documentation. Such failures can subject us to potential international, local, state, and federal action if they are found to be deceptive, unfair, or misrepresentative of our actual practices.
We have incurred, and will continue to incur, expenses to comply with privacy and security standards and protocols imposed by law, regulation, industry standards, and contractual obligations. Increased regulation of data collection, use, and security practices, including self-regulation and industry standards, changes in existing laws, enactment of new laws, increased enforcement activity, and changes in interpretation of laws, could increase our cost of compliance and operation, limit our ability to grow our business, or otherwise harm our business.
Our actual or perceived failure to adequately protect personal information and confidential information that we (or our service providers or business partners) collect, store or process could trigger contractual and legal obligations, harm our reputation, subject us to liability and otherwise adversely affect our business including our financial results.
In the ordinary course of our business, we collect, store and process personal information (including payment card information) and/or other confidential information of our employees, our partners, and our users. We use third-party service providers and subprocessors to help us deliver our services. These vendors may store or process personal information, payment card information and/or other confidential information of our employees, our partners, or our users. We collect such information from individuals located both in the United States and abroad and may store or process such information outside the country in which it was collected.
A variety of state, national, and foreign laws and regulations apply to the collection, use, retention, protection, disclosure, security, transfer, cross-border transfer, localization, and other processing of personal information. These privacy and data protection-related laws and regulations are evolving, with new or modified laws and regulations proposed and implemented frequently and existing laws and regulations subject to new or different interpretations. In addition, each state and the District of Columbia, Guam, Puerto Rico, the U.S. Virgin Islands, EU member states, and the United Kingdom, as well as some other foreign nations, have passed laws requiring notification to regulatory authorities, to affected users, and/or others within a specific timeframe when there has been a security breach involving certain personal information as well as impose additional obligations for companies. Additionally, our agreements with certain users or partners may require us to notify them in the event of a security breach. Such statutory and contractual disclosures are costly, could lead to negative publicity, may cause our users to lose confidence in the effectiveness of our security measures and require us to expend significant capital and other resources to respond to and/or alleviate problems caused by the actual or perceived security breach. Compliance with these obligations could delay or impede the development of new products and may cause reputational harm.
Litigation resulting from security breaches may adversely affect our business. Unauthorized access to our platform, systems, networks, or physical facilities could result in litigation with our users or other relevant stakeholders. These proceedings could force us to spend money in defense or settlement, divert management’s time and attention, increase our costs of doing business, and/or adversely affect our reputation. We could be required to
fundamentally change our business activities and practices or modify our products and/or platform capabilities in response to such litigation, which could have an adverse effect on our business. Any actual or perceived inability to adequately protect the privacy of individuals’ information in our possession, custody or control may render our products or services less desirable and could harm our reputation and business. Any costs incurred as a result of this potential liability could harm our business.
Any significant disruption in our computer systems or those of third parties we utilize in our operations could result in a loss or degradation of service on our platform and could harm our business.
We rely on the expertise of our engineering and software development teams as well as the teams of our service providers and partners for the performance and operation of the Roku OS, streaming platform, smart home products, and computer systems. For example, our smart home product line is reliant on (among other things) the engineering and software development teams and information technology systems of the service providers we use to assist in the design, manufacture, and maintenance of those products. Service interruptions, errors in our software, or the unavailability of computer systems used in our operations could diminish the overall attractiveness of our devicesproducts and streaming platform to existing and potential users.users or otherwise disrupt our business. We utilize computer systems located either in our facilities or those of third-party server hosting providers and third-party internet-based or cloud computing services. Although we generally enter into service level agreements with these parties, we exercise no control over their operations, which makes us vulnerable to any errors, interruptions, or delays that they may experience.
In the future, we may transition additional features of our services from our managed hosting systems to cloud computing services, which may require significant expenditures and engineering resources. If we are unable to manage such a transition effectively, we may experience a loss or degradation in services, operational delays, andor inefficiencies until the transition is complete. Upon the expiration or termination of any of our agreements with third-party vendors, we may not be able to replace their services in a timely manner or on terms and conditions, including service levels and cost, that are favorable to us, and a transition from one vendor to another vendor could subject us to operational delays and inefficiencies until the transition is complete. In addition, fires, floods, earthquakes, wars, foreign invasions, terrorist activity, power losses, telecommunications failures, break-ins, and similar events could damage these systems and hardware or cause them to fail completely.
As we do not maintain entirely redundant systems, a disrupting event could result in prolonged downtime of our operations,
products, or services, could result in liabilities to our customers or third parties, and could adversely affect our business.
Our property insurance and cyber liability insurance may not be sufficient to fully cover our losses or may not cover a particular event at all. Any disruption in the services provided by these vendors could have adverse impacts on our business reputation, customer relations, and operating results.
If any aspect of our computer systems or those of third parties we utilize in our operations fails, it may lead to downtime or slow processing time, either of which may harm the experience of our users. We have experienced, and may in the future experience, service disruptions, outages, and other performance problems due to a variety of factors, including infrastructure changes, human or software errors, and capacity constraints. We expect to continue to invest in our technology infrastructure to maintain and improve the user experience and platform performance. To the extent that we or our third-party service hosting
providerproviders do not effectively address capacity constraints, upgrade or patch systems as needed, and continually develop technology and network architecture to accommodate increasingly complex services and functions, increasing numbers of users, and actual and anticipated changes in technology, our business may be harmed.
Changes in how network operators manage data that travel across their networks could harm our business.
Our business relies upon the ability of our users to access high-quality streaming content through the internet. As a result, the growth of our business depends on our users’ ability to obtain and maintain
low-cost, high-speed access to the internet
at reasonable cost, which relies in part on
theinternet service network operators’ continuing willingness to upgrade and maintain their equipment as needed to sustain a robust internet infrastructure as well as their continued willingness to preserve the open and interconnected nature of the internet. We exercise no control over network operators, which makes us vulnerable to any errors,
interruptionsdisruptions, or delays in their
operations.operations, as well as any decision they may make to prioritize the delivery of certain network traffic at the expense of other traffic. Any material disruption or degradation in internet services could harm our business.
To the extent that the number of internet users continues to increase, network congestion could adversely affect the reliability of our streaming platform. We may also face increased costs of doing business, or decreased demand for our services, if network operators engage in discriminatory practices with respect to streamed video content in an effort to monetize access to their networks or customers by data providers.
Certain laws intended to prevent network operators from engaging in discriminatory practices with respect to streaming video content have been implemented in many countries, including in the EU. In
other countries, laws in this area may be nascent or non-existent. Furthermore, favorable laws may change. Given the
past, internet service providers have attempted touncertainty around these laws and the rules that implement
them, including changing interpretations, amendments, or repeal, coupled with potentially significant political and economic power of network operators, we could experience discriminatory or anti-competitive practices, such as usage-based pricing, bandwidth caps,
zero rating of competing services by ISPs, and traffic “shaping” or
throttling. To the extent network operators were to create tiers of internet access service and either charge us for access to these tiers or prohibitthrottling, that could impede our
content offerings from being available on some or all of these tiers,growth, result in a decline in our quality of service,
could decline, our operating expenses could increase andcause us to incur additional expense, or otherwise impair our ability to attract and retain users,
could be impaired, eachall of which
wouldcould harm our business.
In addition, most network operators that provide
consumersusers with access to the internet also
provide these consumers withoffer users multichannel video
programming.programming, and some network operators also own streaming services. These network operators have an incentive to use their network
infrastructure in a manner adverse to the continued growth and success of other companies seeking to distribute similar video programming. To the extent that network operators are able to provide preferential treatment to their own data and content, as opposed to ours, our business could be harmed.
Risks Related to Intellectual Property
Litigation
and claims regarding intellectual property rights could result in the loss of rights important to our
devicesproducts and streaming platform, cause us to incur significant legal costs, or otherwise harm our business.
Some internet, technology, and media companies, including some of our competitors, own large numbers of patents, copyrights, and trademarks, which they may use to assert claims against us. Third parties have asserted, and may in the future assert, that we have infringed, misappropriated, or otherwise violated their intellectual property rights. As we grow and face increasing competition, the possibility of intellectual property rights claims against us will grow. Plaintiffs who have no relevant product revenue may not be deterred by our own issued patents and pending patent applications in bringing intellectual property rights claims against
us.us and may seek to challenge the validity or enforceability of our own patents and patents applications. The cost of patent litigation or other proceedings, even if resolved in our favor, has been
or couldand is expected to be substantial. Some of our competitors may be better able to sustain the costs of such litigation or proceedings because of their substantially greater financial resources. Patent litigation and other proceedings may also require significant management time and divert
managementmanagement’s attention from our
business.other business concerns or otherwise adversely affect our business and operating results. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could impair our ability to compete in the marketplace. The occurrence of any of the foregoing could harm our business.
As a result of intellectual property infringement claims, or to avoid potential claims, we may choose or be required to seek licenses from third parties. These licenses may not be available on commercially reasonable terms, or at all.all, thereby hindering our ability to sell or use the relevant technology, or requiring redesign of the allegedly infringing solutions to avoid infringement, which could be costly, time‐consuming, or impossible. Even if we are able to obtain a license, the license would likely obligate us to pay license fees or royalties or both, and the rights granted to us might be nonexclusive, with the potential for our competitors to gain access to the same intellectual property. In addition, the rights that we secure under intellectual property licenses may not include rights to all of the intellectual property owned or controlled by the licensor, and the scope of the licenses granted to us may not include rights covering all of the products and services provided by us and our licensees. Furthermore, an adverse outcome of a dispute may require us toto: pay damages, potentially including treble damages and attorneys’ fees, if we are found to have willfully infringed a party’s intellectual property; cease making, licensing, or using technologies that are alleged to infringe or misappropriate the intellectual property of others; expend additional development resources to redesign our products; enter into potentially unfavorable royalty or license agreements in order to obtain the right to use necessary technologies, content, or materials; and to indemnify our partners and other third parties.
For example, we have in the past elected to develop and implement specific design changes to address potential risks that certain products could otherwise become subject to exclusion or cease and desist orders arising from patent infringement and other intellectual property claims brought in the U.S. International Trade Commission. In addition, any lawsuits regarding intellectual property rights, regardless of their success, could be expensive to resolve and would divert the time and attention of our management and technical personnel.
If we fail
to, or are unable to, protect or enforce our intellectual property or proprietary rights, our business and operating results could be harmed.
We regard the protection of our patents, trade secrets, copyrights, trademarks, trade dress, domain names, and other intellectual property or proprietary rights as critical to our success. We strive to protect our intellectual property rights by relying on federal, state, and common law rights, as well as contractual restrictions. We seek to protect our confidential proprietary information, in part, by entering into confidentiality agreements and invention assignment agreements with all of our employees, consultants, contractors, advisors, and any third parties who have access to our proprietary know-how, information, or technology.
However, we cannot be certain that we have executed such agreements with all parties who may have helped to develop our intellectual property or who had access to our proprietary information, nor can we be certain that our agreements will not be breached. Any party with whom we have executed such an agreement could potentially breach that agreement and disclose our proprietary information, including our trade secrets, and
we may not be able to discover such breaches, and if we do, we may not be able to obtain adequate remedies for such breaches. We cannot guarantee that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Detecting the disclosure or misappropriation of a trade secret and enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, time-consuming, and could result in substantial costs, and the outcome of such a claim is unpredictable.
Further, the laws of certain foreign countries do not provide the same level of protection of corporate proprietary information and assets such as intellectual property, trademarks, trade secrets, know-how, and records as the laws of the United States. For instance, the legal systems of certain countries, particularly certain developing countries, do not favor the
enforcement of patents and other intellectual property protection. As a result, we may encounter significant problems in protecting and defending our intellectual property or proprietary rights abroad. Additionally, we may also be exposed to material risks of theft or unauthorized reverse engineering of our proprietary information and other intellectual property, including technical data, manufacturing processes, data sets, or other sensitive information.
Our efforts to enforce our intellectual property rights in such foreign countries may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop, which could have a material adverse effect on our business, financial condition, and results of operations. Moreover, if we are unable to prevent the disclosure of our trade secrets to third parties, or if our competitors independently develop any of our trade secrets, we may not be able to establish or maintain a competitive advantage in our market, which could harm our business.
There can be no assurance that the particular forms of intellectual property protection that we seek, including business decisions about when to file patents and when to maintain trade secrets, will be adequate to protect our business. We have filed and will in the future file patent applications on inventions that we deem to be innovative. There is no guarantee that our patent applications will issue as granted patents, that the scope of the protection gained will be sufficient or that an issued patent may subsequently be deemed invalid or unenforceable.
PatentU.S. patent laws, and
the scope of coverage afforded by them, have
recently been subject to significant changes, such as the change to “first-to-file” from “first-to-invent” resulting from the Leahy-Smith America Invents Act. This change in the determination of inventorship may result in inventors and companies having to file patent applications more frequently to preserve rights in their inventions, which may favor larger competitors that have the resources to file more patent applications. Another change to the patent laws may incentivize third parties to challenge any issued patent in the United States Patent and Trademark Office (“USPTO”), as opposed to having to bring such an action in U.S. federal court.
Foreign patent laws may also continue to develop and significantly impact our ability to protect or maintain our intellectual property. Any invalidation of a patent claim could have a significant impact on our ability to protect the innovations contained within our
devicesproducts and platform and could harm our business.
The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment, and other provisions to maintain patent applications and issued patents. We may fail to take the necessary actions and
to pay the applicable fees to obtain or maintain our patents. Noncompliance with these requirements can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to use our technologies and enter the market earlier than would otherwise have been the case.
We pursue the registration of our domain names, trademarks, and service marks in the United States and in certain locations outside the United States. We are seeking to protect our trademarks, patents, and domain names in an increasing number of jurisdictions, a process that is expensive and time-consuming and may not be successful or which we may not pursue in every jurisdiction in which we conduct business.
Despite the cost and time we spend monitoring, we may or may not be able to detect infringement by third parties. Our competitive position may be harmed if we cannot detect infringement and enforce our intellectual property rights quickly or at all. In particular, our actions to monitor and enforce our trademarks against third parties may not prevent counterfeit versions of our products or products bearing confusingly similar trademarks to ours from entering the marketplace, which could divert sales from us, tarnish our reputation, or reduce the demand for our products. In some circumstances, we may choose to not pursue enforcement because an infringer has a dominant intellectual property position or for other business reasons.
Litigation may be necessary to enforce our intellectual property or proprietary rights, protect our trade secrets, or determine the validity and scope of proprietary rights claimed by others. Any litigation of this nature, regardless of outcome or merit, could result in substantial costs, adverse publicity, or diversion of management and technical resources, any of which could adversely affect our business and operating results. If we fail to maintain, protect, and enhance our intellectual property or proprietary rights, our business may be harmed.
Our use of
open sourceopen-source software could impose limitations on our ability to commercialize our
devicesproducts and our streaming
platform.platform or could result in public disclosure of competitively sensitive trade secrets.
We incorporate open sourceopen-source software in our streaming platform.proprietary software. From time to time, companies that incorporate open sourcehave incorporated open-source software into their products and services have faced claims challenging the ownership of open sourcecertain open-source software and/or compliance with open sourceopen-source software license terms. Therefore, we could be subject to similar suits by parties claiming ownership of what we believe to be open sourceopen-source software or our noncompliance with open source licensingthe open-source software license terms.
Although we have processes and procedures designed to help monitor our use of open sourceopen-source software, these processes and procedures may not be followed appropriately or may fail to identify risks. Additionally, the terms of many open sourceopen-source software licenses have not been interpreted by U.S. courts, and there is a risk that such licenses could be construed in a manner that could impose unanticipated conditions or restrictions on our products or technology or impose unanticipated obligations that could require the saledisclosure of trade secrets. Some open‐source software is governed by licenses containing conditions that any person who distributes or uses a modification or derivative work of software that was subject to an open‐source license make the modified version subject to the same open‐source license. Distributing or using software that is subject to this kind of open‐source license can lead to a requirement that certain aspects of our devices.solutions be distributed or made available in source code form. In such event, we could be required to make portions of our proprietary software generally available under similar open-source software license terms to third parties, including competitors, at low or no cost, to seek licenses from third parties in order to continue offering our devices,products, to re-engineer our devicesproducts, or to discontinue the sale of our devicesproducts in the event re-engineering cannot be accomplished on a timely basis or at all, any of which could harm our business.
Further, use of open‐source software can involve greater risks than those associated with use of third‐party commercial software, as open‐source licensors generally do not provide warranties, assurances of title, performance, non‐infringement, or controls on the origin of the software. Open‐source software typically lacks support, and authors of such open‐source software may abandon further development and maintenance. Open‐source software may contain security vulnerabilities and other liabilities, and we may be subject to additional security risk by using open‐source software. We have established processes to help alleviate these risks, but there can be no assurance that these processes will alleviate all risks with the open‐source software we incorporate.
Under our agreements with many of our content
publishers,partners, licensees, distributors, retailers, contract
manufacturermanufacturers, and suppliers, we are required to provide indemnification in the event our technology is alleged to infringe upon the intellectual property rights of third parties.
In certain of our agreements we indemnify our content
publishers,partners, licensees, distributors, retailers, manufacturing partners, and suppliers. We have in the past, and may in the future, incur significant expenses defending these partners if they are sued for patent
or other property infringement based on allegations related to our technology. If a partner were to lose a lawsuit and in turn seek indemnification from us, we also could be subject to significant monetary liabilities. In addition, because the devices sold by our licensing partners and
licensed Roku TV
brandspartners often involve the use of third-party technology, this increases our exposure to litigation in circumstances where there is a claim of infringement asserted against the streaming device in question, even if the claim does not pertain to our technology.
Liability under our indemnification commitments may not be contractually limited.
Risks Related to Macroeconomic Conditions
The ongoing COVID-19 pandemic has impacted
Macroeconomic uncertainties have in the past and may continue to adversely impact our business, results of operations, and we are unable to predict the extent to which the pandemicfinancial condition.
Macroeconomic uncertainties, including increased inflation and
related effects will continue to impact our business.Beginninginterest rates, recessionary fears, financial and credit market fluctuations, changes in the first quarter of 2020 and continuing into 2021, there has been widespread global impact fromeconomic policy, bank failures, labor disputes, the COVID-19 pandemic, and our business has been,global supply chain constraints have in the past, and willmay continue to, be, impacted by the pandemic and resulting economic consequences. The spread of COVID-19 has caused us to take precautionary measures intended to help minimize the risk of the virus to our employees, including mandatory work-from-home policies, suspending non-essential business travel and canceling physical participation in meetings, events and conferences. We may take further actions as required by government authorities or that we determine are in the best interests of our employees, TV brand partners, content publishers, advertisers, retail and distribution partners, contract manufacturers, services venders and supply chain. There is no certainty that such measures will be sufficient to mitigate the risks posed by the COVID-19 pandemic, and an extended period of remote work arrangements could disrupt our business, introduce business and operational risks, including cybersecurity risks, and could make it more difficult for us to effectively manage our business.
The COVID-19 pandemic and the precautionary measures that we have taken in response have had a mixedadversely impact on our business during the year ended December 31, 2020. When staying-at-home restrictions were first issued in the first quarter of 2020, we saw an acceleration in both streaming hours, which has moderated since peaking in early in the second quarter, and account activations. In our platform segment, we experienced increases in trials of and subscriptions to SVOD content, growth in the consumption of AVOD content, and increased purchases of TVOD content. During the second quarter of 2020, we experienced delays in the start of some video advertising campaigns and an increase in advertising campaign cancellations. We also have encountered supply chain disruptions related to our players that resulted in elevated air freight costs to replenish inventory and meet increased demand. Additionally, at times some of our retail partners have had to close or severely limit access to their brick-and-mortar locations, resulting in reduced sale of devices in these locations. For example, during the holiday season our partners saw fewer shoppers in their brick-and-mortar locations. Further, our management team has focused on addressing the impacts of the COVID-19 pandemic on our business, which has required and will continue to require, a significant investment of their time and resources, and has diverted their attention away from othermany aspects of our business. In lightFor example, our business is dependent on consumer discretionary spending and advertising spending, both of the COVID-19 pandemic, during 2020 our management team took stepswhich are susceptible to slow the rate of growthchanges in macroeconomic conditions, such as growing inflation, rising interest rates, recessionary fears, and economic uncertainty. Sustained or worsening inflation or an economic downturn may result in fewer consumer purchases of our operating expenses and capital expenditures. Our management team also monitored our liquidity and in May 2020, we entered into an Equity Distribution Agreement with Morgan Stanley & Co. LLC and Citigroup Global Markets Inc., as sales agents (the “Equity Distribution Agreement”), pursuant to which we sold 4.0 million sharesproducts or the products of our Class A common stock at an average selling price of $126.01 per share, for aggregate gross proceeds of $504.0 million, a portion of which was used to repay $69.3 million that we drew down on our Revolving Credit Facility in March 2020. Our management team will continue to evaluate our investments and initiatives for 2021 and will continue to monitor our liquidity as the COVID-19 pandemic continues to evolve.
The extent to which the COVID-19 pandemic ultimately impacts our business will depend on future developments, which are uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity, the actions taken by governmental authorities to contain the virus or treat its impacts, the development and rollout of effective vaccines, possible variants of the virus that render vaccines ineffective, and how quickly and to what extent economic and operating conditions normalize. As staying-at-home restrictions are eased consumers may spend less time streaminglicensed Roku TV whichpartners (which could reduce our streaming hours and number of active accounts and also could negatively impact our platform revenue if we experienceActive Account growth) and reduced advertising spending (which could impact our monetization efforts). We believe advertising budgets in a decrease in salesvariety of advertising or transactional revenue shares from content
publishers. We also may incur significant operating costs and be exposed to increased liability risks as a result of the COVID-19 pandemic, both now and increasingly as once staying-at-home restrictions are lifted and employees begin to return to our offices,industries have been pressured by factors such as the cost of collecting additional information (including healthinflation, rising interest rates, and medical information) aboutrelated market uncertainty, which has led to reduced advertiser spending, which has adversely affected our employees, contractors and visitors atplatform revenue. Any continued pullback in consumer discretionary spending or advertising spending could adversely affect our facilities; and testing supplies and personal protective equipment for on-site staff.future operating results. In addition, witha significant reduction in the increase in remote working during the COVID-19 pandemic, we may not be able to maintain the same levelsupply of control over the security of our systems or the personal information that we collect, store and process, particularly as cyber attackers appear to increasingly attempt to compromise systems and data in an effort to exploit this pandemic. Even after the COVID-19 pandemic itself has subsided, we may continue to experience impacts to our business as a result of any global economic impact,original entertainment content, including as a result of an ongoing recession. For instance,macroeconomic factors or labor disputes (such as the 2023 strikes called by the Writers Guild of America and SAG‐AFTRA), could in turn reduce the demand for advertising and media and entertainment promotional spending campaigns on our platform, and have a prolonged economic downturn may resultmaterial adverse effect on our growth in the purchase of fewer streaming devices which could lead to a reduction in account activationsActive Accounts and streaming hours, and also couldStreaming Hours or negatively impact our revenue. Our platform business alsoresults of operations.
The extent to which macroeconomic uncertainties may be negatively impacted by decreases in total advertising spend, if advertising budgets do not continue to shift to OTT advertising or if acquiring content thatimpact our users want to watch becomes more difficult or costly for us or our content partners as the amount of new content decreases due to the COVID-19 pandemic. A prolonged economic downturn could also impact the overalloperational and financial condition of our TV brand partners, content publishers, advertisers, retailers, contract manufacturer, services vendersperformance remains uncertain and supply chain all of whom wewill depend on in order to operatemany factors outside our business. As a result, the current level of uncertainty over the economiccontrol. These direct and operationalindirect impacts of the COVID-19 pandemic means the impact onmay negatively affect our business cannot be reasonably estimated at this timeand operating results.
Natural disasters,
geopolitical conflicts, or other
natural or man-made catastrophic events could disrupt and impact our business.
Occurrence of any catastrophic event, including an earthquake, flood, tsunami, or other weather event, power loss, internet failure, software or hardware malfunctions, cyber-attack,cyber attack, war or foreign invasion (such as the Russian invasion of Ukraine and the Israel-Hamas war), terrorist attack and other geopolitical conflicts (such as Yemen’s Houthi attacks in the Red Sea), medical epidemic or pandemic (such as the COVID-19 pandemic), government shutdown orders, other man-made disasters, or other catastrophic events could disrupt our, our business operations.partners’ and customers’ business operations or result in disruptions in the broader global economic environment. Any of these business disruptions could require substantial expenditures and recovery time in order to fully resume operations.
In particular, our principal offices are located in California, and our contract manufacturermanufacturers and some of our suppliers are located in Asia, both of which are regions known for seismic activity, making our operations in these areas vulnerable to natural disasters or other business disruptions in these areas. Our insurance coverage may not compensate us for losses that may occur in the event of an earthquake or other significant natural disaster.
In addition, our offices and facilities, and those of our contract manufacturers, suppliers, and licensed Roku TV partners, could be vulnerable to the effects of climate change (such as sea level rise, drought, flooding, wildfires, and increased storm severity) that could disrupt our business operations. For example, in California, increasing intensity of drought and annual periods of wildfire danger increase the probability of planned power outages. Further, acts of terrorism could cause disruptions to the internet or the economy as a whole.
If our streaming platform was to fail or be negatively impacted as a result of a natural disaster or other event, our ability to deliver streaming content, including advertising, to our users would be impaired. Disruptions in the operations of our contract
manufacturermanufacturers, suppliers, or licensed Roku TV partners as a result of a disaster or other catastrophic event could delay the manufacture and shipment of our
playersproducts or
otherthe products
of our licensed Roku TV partners, which could impact our business. If we are unable to develop adequate plans to ensure that our business functions continue to operate during and after a
natural disaster or other catastrophic event and to execute successfully on those plans in the event of a disaster or catastrophic event, our business would be harmed.
Legal and Regulatory Risks
If government regulations or laws relating to the internet, video, advertising, or other areas of our business change, we may need to alter the manner in which we conduct our business, or our business could be harmed.
We are subject to
or affected by general business regulations and laws, as well as regulations and laws specific to the internet and online services,
which may includeincluding laws and regulations related to data privacy and security, consumer protection, data localization, law enforcement access to data, encryption, telecommunications, social media, payment processing, taxation,
trade, intellectual property, competition, electronic contracts, internet access, net neutrality, advertising, calling and texting, content restrictions, protection of children, and accessibility, among others. We cannot guarantee that we have been or will be fully compliant in every jurisdiction. Litigation and regulatory proceedings are inherently uncertain, and the
federal, state, and foreign laws and regulations governing issues such as data privacy and security, payment processing, taxation, net neutrality,
liability of providers of online services, video, telecommunications, e-commerce tariffs, and consumer protection related to the internet continue to develop.
For example, laws relating to the liability of providers of online services for activities of their users and other third parties have been tested by a number of claims, including actions based on invasion of privacy and other torts, unfair competition, copyright and trademark infringement, and other theories based on the nature and content of the materials searched, the advertisements posted, actions taken or not taken by providers in response to user activity or the content provided by users. Congress has also enacted legislation related to liability of providers of online services and may continue to legislate in this area. The CCPA and Nevada SPI Law also apply to entities that do business in California and Nevada, respectively, and
impose a number of requirements on internet and online services. Moreover, as internet commerce and advertising continue to evolve, increasing regulation by federal, state, and foreign regulatory authorities becomes more likely.
As we develop new services and devices and improve our streaming platform, we may also be subject to new laws and regulations specific to such technologies. For example, in developing
ourthe reference design of TVs powered by the Roku
TV reference design,OS, we were required to understand, address, and comply with an evolving regulatory framework for developing, manufacturing, marketing, and selling TVs. If we fail to adequately address or comply with such regulations regarding the manufacture and sale of TVs, we may be subject to fines or sanctions, and
we or our
licenseeslicensed Roku TV partners may be unable to sell
TVs powered by the Roku
TV modelsOS at all, which
wouldcould harm our business and our ability to grow our user base.
Laws relating to data privacy and security, data localization, law enforcement access to data, encryption, consumer protection, children’s online protection, and similar activities continue to proliferate, often with little harmonization between jurisdictions and limited guidance. A number of existing bills are pending in the U.S. Congress and other government bodies that contain provisions that would regulate, for example, how companies can use cookies and other tracking technologies to collect, use, and share user information. TheCertain state laws, such as the CCPA, the CPRA, and the Virginia Consumer Data Protection Act, also imposesimpose requirements on certain tracking activity. The EU already has existing laws which are due for update in 2021, requiring advertisers or companies like ours to, for example, obtain unambiguous, affirmative consent from users for the placement of cookies or other tracking technologies and the delivery of relevant advertisements. IfIn addition, the EU has adopted the Digital Services Act, which is legislation that updates the liability and safety rules for digital platforms, products, and services. The EU also recently adopted the Data Act, which seeks to enhance interoperability and facilitate data sharing and reuse across products and services.
Regulatory investigations and enforcement actions could also impact our business operations. For example, we and other companies in the media, entertainment, and advertising technology industries have been subject to government investigation by regulatory bodies with regard to our compliance with data privacy and security laws. Advocacy organizations have also filed complaints with data protection authorities against businesses with streaming apps and advertising technology, arguing that certain of these companies’ practices do not comply with the CCPA or other regulations. Such investigations or enforcement actions may require us to alter our practices. Further, if we or the third parties that we work with, such as contract payment processing services, content
publishers,partners, vendors, or developers, violate or are alleged to violate applicable privacy or security laws,
laws concerning access to data, industry standards, our contractual obligations, or our policies, such violations and alleged violations may also put our users’ information at risk and could in turn harm our business and reputation and subject us to potential liability. Any of these consequences could cause our users, advertisers, or
publisherscontent partners to lose trust in us, which could harm our business. Furthermore, any failure on our part to comply with these laws may subject us to liability and reputational harm.
Our use of data to deliver relevant advertising and other services on our platform places us and our content publisherspartners at risk for claims under various unsettled laws, including the Video Privacy Protection Act (“VPPA”). Some of our content publisherspartners have been engaged in litigation over alleged violations of the VPPA relating to activities on our platform in connection with advertising provided by unrelated third parties. The Federal Trade Commission has also
In addition, in recent years revised2019, the FTC initiated a review of its rules implementing the Children’s Online Privacy Protection Act (“COPPA”), which limits the collection by operators of online services of personal information from children under the age of 13. Following this review, in December 2023, the FTC issued a formal Notice of Proposed Rulemaking that proposes specific revisions to the COPPA Rules”)rule and seeks additional public input.Among other topics, the FTC has proposed rule changes that would prohibit targeted advertising to children absent express opt-in consent from parents, strengthen data security requirements for children’s personal information, and limit the period during which children’s personal information can be retained. The review has not been concluded and could result in broadening the applicability of COPPA and other changes.
There have also been proposals in the U.S. Congress to amend and expand COPPA. Changes to the COPPA Rules, including the types of information that are subject to these regulations, and it is currently examining whether additional changes are appropriate. Such actionslegislation or rules could limit the information that we or our content publisherspartners and advertisers may collect and use through certain content publishers,and the content of advertisements and in relation to certain channelapp partner content. The CCPACPRA and certain other state privacy laws also imposesimpose certain opt in and opt out requirements forbefore certain information about minors.minors can be collected. California also has adopted a new law known as the Age Appropriate Design Code Act, which has a stated purpose of protecting “the well being, data, and privacy of children using online platforms.” A federal district court in California granted a preliminary injunction preventing that law from going into effect during the pendency of litigation challenging it on constitutional grounds, andthe California Attorney General has since asked a federal appeals court to lift that injunction. At the same time, since adoption of the California law, similar legislation has been introduced for consideration in other U.S. states. The EU and many of its member states, among other jurisdictions, also have rules that limit processing of personal information, including children’s data, and that impose specific requirements intended to protect children online. We and our content publisherspartners and advertisers could be at risk for violation or alleged violation of these and other privacy, advertising, children’s online protection, or similar laws. Changes in
U.S. or foreign trade policies, geopolitical conditions, general economic conditions,
geopolitical conditions, U.S. trade policies and other factors beyond our control may adversely impact our business and operating results.
Our business is subject to risks generally associated with doing business abroad, such as U.S. and foreign governmental regulation in the countries in which we operate and the countries in which our contract manufacturermanufacturers, component suppliers, and component suppliersother business partners are located. Our operations and performance depend significantly on global, regional, and U.S. economic and geopolitical conditions.
For example,
there has been discussion and dialogue regarding potential significant changes to U.S. trade policies, legislation, treaties and tariffs. For example, in November 2018,tensions between the United States
Mexico, and
Canada signedChina have led to the United
States-Mexico-Canada Agreement (“USMCA”) which supersedes the North American Free Trade Agreement. The USMCA has been ratified by the respective legislaturesStates’ imposition of
eacha series of
the three countries. Congress approved the USMCA intariffs, sanctions, and other restrictions on imports from China and sourcing from certain Chinese persons or entities, as well as other business restrictions. Following Russia’s invasion of Ukraine, the United
States-Mexico-Canada Agreement Implementation Act (H.R.5430) in January 2020 (the “Act”), and the President signed the Act into law. The USMCA agreement entered into force on July 1, 2020, although there are some remaining issues with respect to ensuring that Mexico’s and Canada’s laws and regulations to ensure that both are fully in compliance with the USMCA obligations and commitments, and there may be further changes to interim regulations regarding customs procedures, rules of origin, and other provisions that could affect products sourced from Mexico or Canada, and their eligibility for duty-free entry into the U.S., Mexican, and Canadian markets.The previous U.S. Administration threatened tougher trade terms with China, the European Union,States and other countries includingimposed economic sanctions and severe export control restrictions against Russia and Belarus, and the impositionUnited States and other countries could impose wider sanctions and export restrictions and take other actions should the conflict further escalate. In addition, the effects of substantially higher U.S. Section 301 tariffsBrexit on roughly $320 billionEU-UK political, trade, economic, and diplomatic relations continue to be uncertain and such impact may not be fully realized for several years or more. Continued uncertainty and friction may result in regulatory, operational, and cost challenges to our international operations.
These and other trade disputes, geopolitical tensions, or political uncertainty can disrupt supply chains and increase the cost of
imports from China. In response, China imposed higher Chinese tariffsour and our partners’ products, and have a negative impact on
a large amount of U.S. exports to China,consumer confidence, which could
affect
the prices of U.S. origin parts or components ofimpair our products assembled in China. In January 2020, the U.S.future growth and China signed a “Phase One” trade deal pursuant to which, among other things, the U.S. will modify its Section 301 tariff actions. As part of the Phase One agreement, the U.S. canceled additional Section 301 duties that were originally scheduled to go into effect in December 2019 on certain imported products, including certain ofadversely affect our products, and reduced the duties on certain other imported products, including televisions assembled in China by Roku TV brand partners, from 15% ad valorem to 7.5%. While the new U.S. Administration has promised a detailed review of U.S. policies toward China, it is unclear what the outcomes of the review will be or whether it could lead to additional U.S. tariffs, export controls, or sanctions.
At this time, it is unknown whether the Phase One deal will last or whether there will be sufficient progress on Phases Two and Three to lead to a further reduction in U.S.-China trade tensions: whether additional Section 301 tariffs will be imposed on Roku products, imported from China and, if so, how long U.S. tariffs on Chinese goods will remain in effect or whether even higher tariffs will be imposed, or new regulatory proposals to restrict trade will be adopted. There are also pressures on the new U.S. Administration to retaliate against China over China’s actions in Hong Kong and Xinjiang Province, which could lead to additional U.S., Chinese and other tariffs, or a resumption of trade hostilities, exposing us to increased tariffs in the U.S. and Chinese markets. Finally, there are questions whether international trade agreements will be negotiated or existing free trade agreements re-negotiated; whether new trade or tariff actions will be announced by the new Administration; or the effect that any such action would have, either positively or negatively, on our industry or our business or licensees. If any new legislation and/or regulations are implemented, or if existing trade agreements are renegotiated or terminated, or if tariffs are imposed on foreign-sourced or U.S. goods, it may be inefficient and expensive for us to alter our business operations, in order to adapt to or comply with such changes, and higher prices could depress consumer demand. Such operational changes could have a material adverse effect on our business, financial condition, and results of operations or cash flows.
On January 15, 2021, the U.S. Trade Representative found that Vietnam’s currency practices violate Section 301operations.
Table of the Trade Act of 1974 but deferred any decision whether to take any specific actions in connection with its findings, leaving the decision whether to impose higher U.S. tariffs or other trade restrictions to the new U.S. Administration. This decision could lead to increased tariffs on products assembled in Vietnam, but none have been announced as of this time. In addition, on October 2, 2020, the Office of the U.S. Trade Representative (USTR) initiated an investigation under Section 301 of the Trade Act of 1974 regarding Vietnam’s acts, policies, and practices related to the import and use of illegally harvested timber. While no decision has been reached yet in this investigation, as with China, USTR's Section 301 investigations of Vietnam could lead to retaliatory tariffs on U.S. imports from Vietnam if the U.S. concerns cannot be resolved through negotiations. Such tariffs may not be limited to products directly involved in the acts, policies, and practices found to violate Section 301 (e.g. tropical timber) and thus could affect other, unrelated products, including those sourced by us or our suppliers and licensees.
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Also, various countries, in addition to the United States, regulate the import and export of certain
products, commodities, software, and technology, including
through import and export licensing requirements, and have enacted laws that could limit our ability to distribute our products or collaborate on technology with our commercial or strategic partners, or could limit
the ability of our commercial
and/or strategic
partners’ abilitypartners to implement our products in those countries. Changes in our products or future changes in export and import regulations may create delays in the introduction of our products in international markets,
disrupt supply chains, prevent our commercial
and/or strategic partners with international operations from deploying our products globally, or, in some cases, prevent the export or import of our products to certain countries, governments, or persons altogether.
In particular, the U.S. government continues to expand export control restrictions on China and Hong Kong, which may limit the company’s ability to collaborate with and transfer technology to partnersAny changes in
the region. Cross-border data transmissions are currently exempt from customs duties under the WTO’s temporary e-commerce moratorium on customs duties on electronic transmissions, but the moratorium faces opposition from certain WTO Members when it comes up for renewal at the WTO Ministerial Meeting, which was originally scheduled for June 2020. It has been postponed because of COVID-19 but may take place in 2021. Other potential barriers include the further proliferation of digital services taxes which potentially could expose certain digital services to new taxes, U.S. or foreign
sanctions or related sanctions legislation, increased export and import restrictions stemming from governmental policies or U.S.-China “de-coupling,” or changes in the countries, governments, persons or technologies targeted by such regulations, restrictions, and sanctions. Any change in export or import regulations,
the imposition of customs duties, or other restrictions on intangible goods
such(such as cross-border data
flows,flows) could result in decreased use of our products by, or in our decreased ability to export or sell our products
and services to, existing or new customers in
U.S. or international markets or hamper our ability to source
products, components, and parts from certain suppliers.suppliers or lead to potential supply chain disruptions and business or reputational harms. Any decreased use of our products or limitation on our ability to export, import, or sell our products or services, or source parts and/or components, wouldcould harm our business.
Further, following
Although we attempt to ensure that we, our retailers, and partners comply with the
resultapplicable import, export, and sanctions laws, we cannot guarantee full compliance by all. Actions of
a referendumour retailers and partners are not within our complete control, and our products could be re-exported to sanctioned persons or countries, or provided by our retailers to third persons in
2016,contravention of our requirements or instructions or the
United Kingdom formally left the EU on January 31, 2020. The effects of Brexit have been and are expected to continue to be far-reaching. Brexit and the perceptions as to its impact may adversely affect business activity and economic conditions globally and could continue to contribute to instability in global financial markets. Brexit could also have the effect of disrupting the free movement of goods, services, and people between the United Kingdom and the EU.laws. In addition,
Brexit could leadthere are inherent limitations to
legal uncertaintythe effectiveness of any policies, procedures and
potentially divergent nationalinternal controls relating to such compliance, and there can be no assurance that such procedures or internal controls will work effectively at all times or protect us against liability under anti-corruption, sanctions or other laws
and regulations as the United Kingdom determines which EU laws to replacefor actions taken by us, our retailers or
replicate. The full effects of Brexit are uncertain. Given these possibilities and others we may not anticipate, as well as the lack of comparable precedent, the full extent to whichpartners. Any such potential violation by us, our
business, results of operations, and financial condition could be adversely affected by Brexit is uncertain.The supply chains of our contract manufacturers and many of our licensees may source products, parts or components from China and other countries in the Asia-Pacific region. There are many uncertainties around the COVID-19 pandemic, including scientific and health issues, the unknown duration and extent of economic disruption in China and other markets in the region, and the impact on the Chinese, U.S., and global economies. As a result, the COVID-19 pandemic may result in further supply shortages of our productsretailers, or our licensees’ products,partners could have negative consequences, including government investigations, enforcement actions, monetary fines, or civil and/or criminal penalties, and delays in shippingour reputation, brand, and transportation services that negatively impact our ability or our licensees’ ability to import, export, ship, or sell streaming devices to customers in revenue may be harmed.
U.S.
and international markets. Any decrease, limitations or delays on our or our licensees’ ability to produce, import, export, ship, or sell our streaming devices would harm our business.United States or international rules (or the absence of rules) that permit ISPsinternet access network operators to degrade users’ internet speeds or limit internet data consumption by users, including unreasonable discrimination in the provision of broadband internet access services, could harm our business.
Our products and services depend on the ability of our users to access the internet. We believe that the continued growth of streaming as an entertainment alternative will depend on the availability and growth of cost-effective broadband internet access (including mobile broadband internet access), the quality and reliability of broadband content delivery, and broadband service providers’ ability to control the delivery speed of different content traveling on their networks. Laws, regulations, or court rulings that adversely affect the popularity or growth in use of the internet, including decisions that undermine open and neutrally administered internet access,
or that disincentivize internet access network operators’ willingness to invest in upgrades and maintenance of their equipment, could decrease customer demand for our service offerings, may impose additional burdens on us, or could cause us to incur additional expenses or alter our business model.
In February Some jurisdictions have adopted regulations governing the provision of internet access service. Substantial uncertainty exists in the United States and elsewhere regarding such provisions.
For example, in 2015, the FCC adopted open internet rules
intended to
protect the ability of consumers and content producers to send and receive non-harmful, lawful information on the internet, known as the Open Internet Order. The Open Internet Order prohibited broadbandprevent internet access
service providers from: (i)network operators from unreasonably restricting, blocking,
degrading, or charging for access to
legalcertain products and services offered by us and our content
applications, services or non-harmful devices; (ii) throttling, impairing or degrading performance based on content, applications, services or non-harmful devices; and (iii) charging more for favorable delivery of content or favoring self-provisioned content over third-party content (collectively, the “prohibited activities”). The Open Internet Order also prohibited broadband internet access service providers from unreasonably interfering with consumers’ ability to select, access and use the lawful content, applications, services or devices of their choosing as well as edge providers’ ability to make lawful content, applications, services or devices available to consumers.partners. In January 2018, the FCC released a new order, known as the Restoring Internet Freedom Order (the “Order”), that repealed most of the blocking, throttling, and paid prioritization restrictions adopted in the Open Internet Order. The Order reclassified broadband internet access service as a non-common carrier “information service” and repealed rules that had prohibited broadband internet access service providers from conducting the “prohibited activities” but continued to require broadband internet access service providers to be transparent about their policies and network management practices, and subjected discriminatory practices to case-by-case assessment under antitrust and consumer protection laws. Most portions of the Order went into effect in April 2018 and the remainder went into effect in June 2018. Numerous judicial challenges to the Order were filed, and in October 2019, the Court of Appeals for the District of Columbia Circuit upheld nearly all of the Order, but reversed the FCC's decision to prohibit all state and local regulation targeted at broadband internet access service, requiring case by case determinations as to whether state and local regulation conflicts with the FCC'sthose rules. The court also requiredIn September 2023, the FCC formally proposed to reexamine three issues fromrestore the Order where it found insufficient analysis but allowed the Order to remain in effect pending2015 open internet rules and re-establish the FCC’s review. The original parties were denied a rehearing by the full U.S. Courtrole in overseeing broadband providers, although some representatives of Appeals for the D.C. Circuit in February 2020 and the period to seek review by the Supreme Court has ended. On remand, the FCC reaffirmed its existing approach in October 2020; however, four petitioners sought reconsideration of the FCC’s decision in February 2021. The FCC, now newly organized following the inauguration of President Joe Biden, has yet to issuebroadband providers have already stated that they may challenge such a decision in response to these petitions. To the extent the courts, the agencies or the states do not uphold or adopt sufficient safeguards to protect against discriminatory conduct,court.
If network operators may seekwere to extract fees fromengage in restricting, blocking, degrading, or charging for access, it could impede our growth, result in a decline in our quality of service, cause us or our
content publishers to deliver our trafficincur additional expense, or otherwise engageimpair our ability to attract and retain users, any of which could harm our business. Several states and foreign countries in blocking, throttling or other discriminatory practices, and our business could be harmed.
Several stateswhich we operate also have adopted or are considering rules governing the provision of internet access. In addition, in some jurisdictions (including the United States), network neutrality legislationoperators are pursuing proposals that would require or regulation. For example, California’s legislation codifies portionsenable them to impose fees on content providers related to delivery of the FCC’s rescinded Open Internet Order. The U.S. Department of Justice filed suit in September 2018 to block implementation of the California law, and the California Attorney General agreed to delay implementation of the state law until the litigation is resolved. While the Department of Justice withdrew its challenge of the California net neutrality law in February 2021, the status of state net neutrality legislation remains uncertain because several broadband service provider trade associations also have sued California to invalidate its net neutrality law on grounds that the law is preempted by the Order, among other claims. Several states in addition to California have enacted net neutrality legislation and several governors have signed executive orders requiring broadband internet access service providers contracting with state agencies to adhere to network neutrality principles. The regulatory framework for network neutrality thus remains unsettled and is subject to ongoing federal litigation as well as federal and state legislative and regulatory activity.
traffic.
As we expand internationally, government regulation protecting the non-discriminatory provision of internet access may be nascent or non-existent. In those markets where regulatory safeguards against unreasonable discrimination are nascent or non-existent and where local network operators possess substantial market power, we could experience anti-competitive practices that could impede our growth, cause us to incur additional expenses, or otherwise harm our business. Future regulations or changes in laws and regulations
or(or their existing interpretations or
applicationsapplications) could also hinder our operational flexibility, raise compliance costs, and result in additional liabilities for us, which may harm our business.
Broadband internet providers are subject to government regulation and enforcement actions, and changes in current or future laws, regulations or enforcement actions that negatively impact our distributors or content publishers could harm our business.
Upon the effective date
Table of the FCC’s Restoring Internet Freedom Order, the FTC became the federal agency primarily responsible for regulating broadband privacy and data security in the United States. The FTC follows an enforcement-focused approach to regulating broadband privacy and security. Future FTC enforcement actions could cause us or our content publishers to alter advertising claims or alter or eliminate certain features or functionalities of our products or services which may harm our business. At the FCC, many broadband internet providers provide traditional telecommunications services that are subject to FCC and state rate regulation of intrastate telecommunications services, and are recipients of federal universal service fund payments, which are intended to subsidize telecommunications services in areas that are expensive to serve. Changes in rate regulations or in universal service funding rules, either at the federal or state level, could affect these broadband internet providers’ revenue and capital spending plans. In addition, various international regulatory bodies have jurisdiction over non-United States broadband internet providers. The Nevada SPI Law and the CCPA also apply to broadband internet providers that do business in Nevada and California, respectively. To the extent these broadband internet providers are adversely affected by laws or regulations regarding their business, products or service offerings, our business could be harmed.Contents
If we are found liable for content that is distributed through or advertising that is served through our platform, our business could be harmed.
As a distributor of content, we face potential liability for negligence, copyright, patent, or trademark infringement, public performance royalties or other claims based on the nature and content of materials that we distribute.
TheWe rely on the statutory safe harbors, as set forth in the Digital Millennium Copyright Act (the “DMCA”)
is intended, in part, to limit the liability of eligible service providers for caching, hosting or linking to, user content that includes materials that infringe copyrights or other rights. We rely on the protections provided by the DMCA in conducting our business. Similarly,, Section 230 of the Communications Decency Act (“Section 230”)
protects online distribution platforms, such as ours, from actions taken underin the United States, and the E-Commerce Directive in Europe, for protection against liability for various
laws that might otherwise impose liability on the platform provider for what content creators develop or the actions they take or inspire.However, thecaching, hosting, and linking activities. The DMCA, Section 230, and similar statutes and doctrines thaton which we rely on or may rely on in the future in the United States or international jurisdiction where we may operate, are subject to uncertain judicial interpretation and regulatory and legislative amendments. For example, the FCC Chair under President Trump said the FCC would seek comment on a petition for rulemaking filed by the National Telecommunications and Information AdministrationAny legislation or court rulings that sought to limit the scopeapplicability of protection provided to online distribution platforms under Section 230. Since then, however, the acting FCC Chair appointed by President Biden has said the FCC will not seek comment on the NTIA petition. Regulatory or legislative changes, whether in the United States or in international jurisdictions where we may operate, may ultimately
these safe harbors could require us to take a different approach towardstoward content moderation on our platform, which could diminish the depth, breadth, and variety of content that we offer, and, in so doing, reduceinhibit our ability to generate advertising, revenue or user base.
otherwise adversely affect our business.
Moreover,
the DMCA and Section 230 provide protections primarily in the United States. Ifif the rules around these statutes and doctrines change, if international jurisdictions refuse to apply similar protections, or if a court were to disagree with our application of those rules to our business, we could incur
liabilityliabilities and our business could be harmed. If we become liable for these types of claims as a result of the content that is streamed over or the advertisements that are served through our platform, then our business may suffer. Litigation to defend these claims could be costly and the expenses and damages arising from any liability could harm our business. Our insurance may not be adequate to cover these types of claims or any liability that may be imposed on us.
In addition, regardless of any legal protections that may limit our liability for the actions of third parties, we may be adversely impacted if copyright holders assert claims, or commence litigation, alleging copyright infringement against the developers of channelsapps that are distributed on our platform.
While our platform policies prohibit streaming content on our platform without distribution rights from the copyright holder, and we maintain processes and systems for the reporting and removal of infringing content, in certain instances our platform has been misused by unaffiliated third parties to unlawfully distribute copyrighted content. If content owners or distributors are
influenced by the existence of types of claims or proceedings and are deterred from working with us as a consequence,
thisit could impair our ability to maintain or expand our business, including through international expansion plans.
Our involvement in any such legal matters now or in the future, could cause us to incur significant legal expenses and other costs, and be disruptive to our business.
If we fail to maintain effective internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and
the marketour stock price
of our Class A common stock may be adversely affected.
We are required to maintain internal control over financial reporting and to report any material weaknesses in such internal control. Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”) requires that we furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. This assessment must include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. Our independent registered public accounting firm also attests to the effectiveness of our internal control over financial reporting. If we have a material weakness in our internal control over financial reporting in the future, we may not detect errors on a timely basis, and our financial statements may be materially misstated.
If we identify material weaknesses in our internal control over financial reporting, are unable to continue to comply with the requirements of Section 404 in a timely manner, are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, and the market price of our Class A common stock could be adversely affected. In addition, we could become subject to investigations by the
stock exchange on which our Class A common stock is listed, the SEC,
The Nasdaq Global Select Market, or other regulatory authorities, which could require additional financial and management resources.
Our financial results may be adversely affected by changes in accounting principles applicable to us.
U.S. GAAP
The generally accepted accounting principles in the United States are subject to interpretation by the FASB,Financial Accounting Standards Board, the SEC, and other various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported results of operations and may even affect the reporting of transactions completed before the announcement or effectiveness of a change. For example, we adopted Accounting Standards Codification, Revenue from Contracts with Customers (Topic 606) (“ASC 606”), using the modified retrospective method. We applied the revenue standard to all contracts that were not completed as of January 1, 2018. We recognized the cumulative effect of initially applying the revenue standard as an adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for the prior periods. It is difficult to predict the impact of future changes to accounting principles or our accounting policies, any of which could harm our business.
If we fail to comply with the laws and regulations relating to the
collection of sales tax and payment of income taxes
inand the
various jurisdictions in which we do business,collection of indirect taxes, we could be exposed to unexpected costs, expenses, penalties, and fees as a result of our noncompliance, which could harm our business.
By engaging in business activities in the United States, we become
We are subject to
various jurisdiction laws and regulations, including requirements to
collect sales tax from our sales within those jurisdictions, and the payment ofdeduct or withhold income taxes on revenue
generatedsourced in various jurisdictions, pay income taxes on profits earned by any permanent establishment (or similar enterprise) of ours that carries on business in various jurisdictions, and collect indirect taxes from
activitiesour sales in
thosevarious jurisdictions. The laws and regulations governing the
collection of sales tax for sales on our websitewithholding and payment of income
taxes and the collection of indirect taxes are numerous, complex, and vary by jurisdiction. A successful assertion by one or more jurisdictions that we were required to
collect saleswithhold or
otherpay income taxes or
to pay incomecollect indirect taxes where we did not could result in substantial tax liabilities, fees, and expenses, including substantial interest and penalty charges, which could harm our business.
New legislation that would change U.S. or foreign taxation of international business activities or other tax-reform policies could harm our business.
Reforming
We earn a portion of our income in foreign countries and, as such, we are subject to tax laws in the taxation of international businesses has been a priority forUnited States and numerous foreign jurisdictions. Current economic and political conditions make tax laws and regulations, or their interpretation and application, in any jurisdiction subject to significant change.
Proposals to reform U.S.
politicians, and
key members of the legislative and executive branches, and a wide variety of changes has been proposed or enacted. Certain changes to U.S.foreign tax laws could
affect the tax treatment of oursignificantly impact how U.S. multinational corporations are taxed on foreign earnings
as well as cash and
cash equivalent balances we maintain outside the United States. Additionally, any changes incould increase the U.S.
corporate tax rate. Although we cannot predict whether or
foreign taxationin what form these proposals will pass, several of
such activities may increasethe proposals under consideration, if enacted into law, could have an adverse impact on our
worldwide effective tax rate,
income tax expense, and
the amount of taxes we pay and harm our business.Legislation enacted in 2017, informally titled the Tax Cuts and Jobs Act (“TCJA”), as modified by legislation enacted on March 27, 2020, entitled the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), significantly reformed the Internal Revenue Code of 1986, as amended. The TCJA, as modified by the CARES Act, alters U.S. federal tax rates, imposes additional limitations on the deductibility of interest, allows for the expensing of certain capital expenditures, and puts into effect the migration from a “worldwide” system of taxation to a territorial system. Additionally, the TCJA, as modified by the CARES Act, has both positive and negative changes to the utilization of future net operating loss carryforwards. For example, U.S. federal NOLs incurred in taxable years beginning after December 31, 2017, can be carried forward indefinitely, but the deductibility of such U.S. federal NOLs in taxable years beginning after December 31, 2020 is limited to 80% of taxable income. The U.S. Department of Treasury has broad authority to issue regulations and interpretative guidance that may significantly impact how we will apply the law, which could affect our financial position and result of operations. It is uncertain if and to what extent various states will conform to the TCJA and the CARES Act.
cash flows.
In addition, an increasing number ofboth tax policy and tax administration are becoming multilateral. This multilateralism and collaboration among taxing authorities (including the U.S. and many foreign jurisdictions are considering or have adopted laws or administrative practices that imposein which we operate) has resulted in proposed new tax measures including revenue-based taxesspecifically targeting online commerce, digital services, streaming services, and the remote sellingsale of goods and services. These include new obligationsSome of these measures (such as a global corporate minimum tax) require adoption of local legislation consistent with the agreed to collect sales, consumption, value added,multilateral framework. Other measures (such as digital services taxes) have already been implemented but may terminate upon the adoption of multilateral tax rules.
The rapid growth of multilateralism in tax administration means greater sharing of tax information among taxing authorities as well as the likelihood of joint and simultaneous tax audits of companies such as ours who have cross-border business activities in which the tax administrations may have a common or
other taxescomplementary interest. The results of any such audits or related disputes could have an adverse effect on
online marketplaces and remote sellers,our financial results for the period or
other requirements that may result in liabilityperiods for
third-party obligations.which the applicable final determinations are made. For example,
Maryland recently passed legislation establishing a tax on certain advertising activitieswe and
in the EU, certain member states, and other countries have adopted or proposed taxes on digital advertising and marketplace service revenue. The OECD and G-20our subsidiaries are
currently engaged in
negotiations over an Inclusive Framework on “Base Erosionintercompany transactions across multiple tax jurisdictions. Although we believe we have clearly reflected the economics of these transactions and
Profit Shifting” (BEPS). The talks particularly target digital businesses, involve 135 countries,that the proper local transfer pricing is in place, tax authorities may propose and
could significantly alter the rules on international taxation of multinational enterprises. Our results of operations and cash flows could be adversely affected by additional taxes of this nature imposed on us prospectively or retroactively or additional taxes or penalties resulting from the failure to comply with any collection obligations. The United States has threatened to impose retaliatory duties under Section 301 of the Trade Act of 1974 on imports from countriessustain adjustments that
adopt DSTs, which could result in
increased trade tensions and potential retaliation by foreign governments against U.S. digital services or technologies.We continue to examine thechanges that may impact these and otherour mix of earnings in countries with differing statutory tax reforms may have on our business. The impact of these and other tax reforms is uncertain and one or more of these or similar measures could seriously harm our business.
rates.
We have been, are currently, and may in the future be subject to
litigation, claims, regulatory inquiries, investigations, and
other legal proceedings, which could cause us to incur substantial costs or require us to change our business practices in a way that could seriously harm our business.
We have been, are currently, and may in the future be subject to
various legal proceedings, claims, arbitration proceedings, and investigations and inquiries from government
entities.entities, including with regard to intellectual property, employment, consumer and data privacy, corporate governance, and commercial disputes, among other matters. These
investigations andmatters are inherently uncertain. Any proceedings, claims, or inquiries
and our compliance with any associatedinitiated by or against us, whether successful or not, may be time-consuming, subject us to damage awards, regulatory orders,
or consent decrees,
may
injunctive relief, fines, or other penalties or sanctions, require us to change our policies or practices, subject us to substantial monetary fines or other penalties or sanctions, result in increased operating costs, divert management’s attention, harm our reputation, and require us to incur significant legal and other expenses. In addition, our insurance may not be adequate to protect us from all material expenses anyrelated to pending and future claims. Any of whichthese factors could seriously harmmaterially adversely affect our business. For example, in the past, we responded to requests for information made by staff from the SEC.
business, financial condition, and results of operations.
Risks Related to Ownership of Our Class A Common Stock
The dual class structure of our common stock
as contained in our amended and restated certificate of incorporation has the effect of concentratingconcentrates voting control with those stockholders who held our stock prior to our initial public offering, including our executive officers, employees, and directors and their affiliates, and
limiting yourlimits the ability
of holders of our Class A common stock to influence corporate matters.
Our Class B common stock has 10 votes per share, and our Class A common stock has one vote per share. Our President and Chief Executive Officer, Anthony Wood, holds and controls the vote of a significant number of shares of our outstanding common stock, and therefore Mr. Wood will have significant influence over our management and affairs and over all matters requiring stockholder approval, including election of directors and significant corporate transactions, such as a merger or other sale of Roku or our assets, for the foreseeable future. If Mr. Wood’s employment with us is terminated, he will continue to have the same influence over matters requiring stockholder approval.
In addition, the holders of Class B common stock collectively will continue to be able to control all matters submitted to our stockholders for approval even if their stock holdings represent less than
50%a majority of the outstanding shares of our common stock.
Because of the 10-to-1 voting ratio between our Class B and Class A common stock, the holders of our Class B common stock collectively will continue to control a majority of the combined voting power of our common stock even when the shares of Class B common stock represent as little as 10% of all outstanding shares of our Class A and Class B common stock. This concentrated control will limit
yourthe ability
of holders of our Class A common stock to influence corporate matters for the foreseeable future, and, as a result, the market price of our Class A common stock could be adversely affected.
Future transfers by holders of Class B common stock will generally result in those shares converting to Class A common stock, which
will havehas the effect, over time, of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long term. As a result of such transfers, as of December 31,
2020,2023, Mr. Wood controls a majority of the combined voting power of our Class A and Class B common stock even though he only owns
13%12.2% of the outstanding Class A and Class B common stock. As a
board member
of our Board of Directors (our “Board”), Mr. Wood owes a fiduciary duty to our stockholders and must act in good faith in a manner he reasonably believes to be in the best interests of our stockholders. As a stockholder, even a controlling stockholder, Mr. Wood is entitled to vote his shares in his own interests, which may not always be in the interests of our stockholders generally. This concentrated control could delay, defer, or prevent a change of control, merger, consolidation, or sale of all or substantially all of our assets that our other stockholders support, or conversely this concentrated control could result in the consummation of such a transaction that our other stockholders do not support. This concentrated control could also discourage a potential investor from acquiring our Class A common stock, which has limited voting power relative to the Class B common stock, and might harm the
tradingmarket price of our Class A common stock.
We have not elected to take advantage of the “controlled company” exemption to the corporate governance rules for companies listed on The Nasdaq Global Select Market.
The
tradingmarket price of our Class A common stock has been, and may
continue to be, volatile, and the value of our Class A common stock may decline.The market price of our Class A common stock has been and may continue to be subject to wide fluctuations in response to numerous factors, many of which are beyond our control, including:
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| actual or anticipated fluctuations in our financial condition and operating results;
|
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| changes in projected operational and•actual or anticipated fluctuations in our financial condition and operating results;
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| •changes in projected operational and financial results;• | loss by us of key content publishers;
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| •our loss of key content partners;• | changes in laws or regulations applicable to our devices or platform;
|
| •changes in laws or regulations applicable to our products or platform;• | the commencement or conclusion of legal proceedings that involve us;
|
| •the commencement or conclusion of legal proceedings that involve us;• | actual or anticipated changes in our growth rate relative to our competitors;
|
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| announcements of new products or services by us•actual or anticipated changes in our growth rate relative to our competitors;
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| •announcements of new products or services by us or our competitors;• | announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or
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| •announcements by us or our competitors of significant acquisitions, strategic partnerships, or joint ventures;• | capital-raising activities or commitments;
|
| •capital-raising activities or commitments;• | additions or departures of key personnel;
|
| •additions or departures of key personnel;• | issuance of new or updated research or reports by securities analysts;
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| •issuance of new or updated research or reports by securities analysts;• | the use by investors or analysts of third-party data regarding our business that may not reflect our financial performance;
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| •the use by investors or analysts of third-party data regarding our business that may not reflect our financial performance;• | fluctuations in the valuation of companies perceived by investors to be comparable to us;
|
| •fluctuations in the valuation of companies perceived by investors to be comparable to us;• | sales of our Class A common stock;
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| •the perception that our environmental, social, and corporate governance performance is inadequate compared to that of our competitors;• | share price and volume fluctuations attributable to inconsistent trading volume levels of our shares; and
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| •sales of our Class A common stock, including short selling of our Class A common stock;• | general economic and market conditions.
|
•share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;
•general economic and market conditions; and
•other events or factors, including those resulting from civil unrest, war, foreign invasions, terrorism, or public health crises, or responses to such events.
Furthermore, the stock markets frequently experience extreme price and volume fluctuations that affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political, and market conditions such as recessions, elections, interest rate changes, or international currency fluctuations, may negatively impact the market price of our Class A common stock. As a result of such fluctuations, you may not realize any return on your investment in us and may lose some or all of your investment. In
the past,addition, we and other companies that have experienced volatility in the market price of their stock have been,
and may in the future be, subject to securities class action
litigation or derivative litigation.
We may be the target of this type ofSuch litigation
in the future, which could result in substantial costs and divert our management’s attention from other business concerns.
Future sales and issuances of our capital stock or rights to purchase capital stock could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to decline.
We may issue additional securities in the future and from time to time. Future sales and issuances of our capital stock or rights to purchase our capital stock could result in substantial dilution to our existing stockholders. We may sell or issue Class A common stock, convertible securities, and other equity securities in one or more transactions at prices and in a manner as we may determine from time to time. If we sell any such securities in subsequent transactions, investors may be materially diluted. New investors in such subsequent transactions could gain rights, preferences, and privileges senior to those of holders of our Class A common stock.
Future sales of shares by existing stockholders could cause our stock price to decline.
If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our Class A common stock in the public market, the
tradingmarket price of our Class A common stock could decline. All of our outstanding Class A shares are eligible for sale in the public market, other than shares and
stock options exercisable held by directors, executive officers, and other affiliates that are subject to volume limitations under Rule 144 of the Securities Act. In addition, we have reserved shares for future issuance under our equity incentive plan. Our
directors, employees,
other service providers, and
directorscertain contingent workers are subject to our quarterly trading window, which generally opens at the start of the second full trading day after the public dissemination of our annual or quarterly financial results and closes (i) with respect to the first, second, and third quarter of each year, at the end of the fifteenth day of the last month of
the such quarter and (ii) with respect to the fourth quarter of each year, at the end of the trading day on the Wednesday before Thanksgiving. These
directors, employees,
service providers and
directorscontingent workers may also sell shares during a closed window
periodsperiod pursuant to trading plans that comply with the requirements of Rule 10b5-1(c)(1) under the Exchange Act. When these shares are issued and subsequently sold, it
would beis dilutive to existing stockholders and the
tradingmarket price of our Class A common stock could decline.
If securities or industry analysts do not publish research or publish unfavorable research about our business or if they downgrade our stock, our stock price and trading volume could decline.
A limited number of equity research analysts provide research coverage of our Class A common stock, and we cannot assure you that such equity research analysts will adequately provide research coverage of our Class A common stock. A lack of adequate research coverage may adversely affect the liquidity and market price of our Class A common stock.
If securities or industry analysts cover our company and one or more of these analysts downgrades our stock or issues other unfavorable commentary or research, the price of our Class A common stock could decline. If one or more equity research analysts cease coverage of our company, or fail to publish reports on us regularly, demand for our stock could decrease, which in turn could cause our stock price or trading volume to decline.
We incur costs and demands upon management as a result of complying with the laws and regulations affecting public companies in the United States, which may harm our business.
As a public company listed in the United States, we incur significant legal, accounting, and other expenses. In addition, changing laws, regulations, and standards relating to corporate governance and public disclosure, including
regulations implemented by the SEC and The Nasdaq Global Select Market
regulations, may increase legal and financial compliance costs and make some activities more
time consuming.time-consuming. These laws, regulations, and standards are subject to varying interpretations and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. We
intend to invest resources to comply with evolving laws, regulations, and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If, notwithstanding our efforts, we fail to comply with new laws, regulations, and standards, regulatory authorities may initiate legal proceedings against us, and our business may be harmed.
Failure to comply with these rules might also make it more difficult for us to obtain certain types of insurance, including director and officer liability insurance, and we might be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our Board,
of Directors, on committees of our Board,
of Directors or as members of senior management.
We do not intend to pay dividends in the foreseeable future.
We have never declared or paid any cash dividends on our Class A or Class B common stock and do not intend to pay any cash dividends in the foreseeable future. We anticipate that we will retain all of our future earnings to grow our business and for general corporate purposes. Moreover,
our outstanding Credit Agreement containsany future credit agreement we enter into could contain prohibitions on the payment of cash dividends on our capital stock. Accordingly, investors must rely on sales of their Class A common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.
Provisions
inof our
corporate charter documents and
under Delaware law may prevent or frustrate attempts by our stockholders to change our management or hinder efforts to acquire a controlling interest in us, and the market price of our Class A common stock may be lower as a result.
There are provisions in our certificate of incorporation and bylaws that may make it difficult for a
third-partythird party to acquire, or attempt to acquire, control of
Roku,our company, even if a change in control was considered favorable by our stockholders.
Our charter documents also contain other provisions that could have an anti-takeover effect, such as:
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| establishing a classified Board of Directors so that not all members of our Board of Directors are elected at one time;
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| •establishing a classified Board so that not all directors are elected at one time;• | permitting the Board of Directors to establish the number of directors and fill any vacancies and newly created directorships;
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| •permitting our Board to establish the number of directors and fill any vacancies and newly created directorships;• | providing that directors may only be removed for cause;
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| •providing that directors may only be removed for cause;�� | prohibiting cumulative voting for directors;
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| •prohibiting cumulative voting for directors;• | requiring super-majority voting to amend some provisions in our certificate of incorporation and bylaws;
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| •requiring super-majority voting to amend some provisions in our certificate of incorporation and bylaws;• | authorizing the issuance of “blank check” preferred stock that our Board of Directors could use to implement a stockholder rights plan;
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| •authorizing the issuance of “blank check” preferred stock that our Board could use to implement a stockholder rights plan;• | eliminating the ability of stockholders to call special meetings of stockholders;
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| •eliminating the ability of stockholders to call special meetings of stockholders;• | prohibiting stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders; and
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| •prohibiting stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders; and• | reflecting our two classes of common stock as described above.
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•reflecting our two classes of common stock as described above.
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibitprohibits a person who owns 15% or more of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner. Any provision in our certificate of incorporation or our bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our Class A common stock and could also affect the price that some investors are willing to pay for our Class A common stock.
Our amended and restated certificate of incorporation provides that the Delaware Court of Chancery ofand the State of Delaware and theU.S. federal district courts of the United States of America will be the exclusive forums for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.
Our
amended and restated certificate of incorporation provides that the
Delaware Court of Chancery
of the State of Delaware is the exclusive forum for the following types of actions or proceedings under Delaware statutory or common law:
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| any derivative action or proceeding brought on our behalf;
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| •any derivative action or proceeding brought on our behalf;• | any action asserting a breach of fiduciary duty;
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| •any action asserting a breach of fiduciary duty;• | any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation or our bylaws;
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| •any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our certificate of incorporation, or our bylaws; and• | or any action asserting a claim against us that is governed by the internal affairs doctrine.
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•any action asserting a claim against us that is governed by the internal affairs doctrine.
This provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all Securities Act actions. Accordingly, both state and federal courts have jurisdiction to entertain such claims.
To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our
amended and restated certificate of incorporation provides that the
U.S. federal district courts
of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act.
In December 2018, the Delaware Chancery Court issued a ruling invalidating such provision, which we appealed to the Supreme Court of the State of Delaware. In March 2020, the Supreme Court of the State of Delaware reversed the ruling of the Delaware Chancery Court and held that the federal forum provision in our amended and restated certificate of incorporation is facially valid.While the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions. In such instance, we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of our
amended and restated certificate of incorporation. This may require significant additional costs associated with resolving such action in other jurisdictions and there can be no assurance that the provisions will be enforced by a court in those other jurisdictions.
These exclusive-forumexclusive forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for certain disputes with us or our directors, officers, or other employees, which may discourage lawsuits against us and our directors, officers, and other employees. If a court were to find either exclusive-forumexclusive forum provision in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur further significant additional costs associated with resolving such action in other jurisdictions, all of which could harm our business.
Item 1B. Unresolved Staff Comments None.
Item 1C. Cybersecurity
Cybersecurity Risk Management and Strategy
Our enterprise-wide approach to risk management is designed to support the achievement of our organizational and strategic objectives and improve long-term organizational performance. Cybersecurity is a critical component of our enterprise risk management approach, and cybersecurity risks are among the enterprise risks that are subject to oversight by our Board and the Audit Committee of our Board (the “Audit Committee”).
Our cybersecurity program is designed to assess, identify, and manage cybersecurity risks and threats. Key components of our cybersecurity program include:
•managing cybersecurity threats by deploying technical safeguards that are designed to protect our information systems from cybersecurity threats, which we evaluate and seek to improve, including through vulnerability assessments and cybersecurity threat intelligence;
•maintaining cybersecurity incident management procedures to address incident reporting, classification, escalation, response, and recovery, and facilitate efficient and consistent management of cybersecurity incidents involving our information systems;
•assessing and testing our cybersecurity policies and practices via internal efforts (such as assessments, vulnerability testing, threat modeling, tabletop exercises, and other exercises focused on evaluating the effectiveness of our cybersecurity measures) and by engaging third parties (including cybersecurity consulting firms) to perform assessments of our cybersecurity measures;
•a third-party cybersecurity risk management process, including, among other things, a security assessment and contracting process for vendor applications and implementing contractual security measures with third-party vendors; and
•cybersecurity awareness training for all employees and enhanced training for certain employees.
Cybersecurity Governance
As part of its broader risk oversight activities, the Board oversees risks from cybersecurity threats, primarily through delegation to the Audit Committee. As reflected in its charter, the Audit Committee assists the Board in reviewing our significant cybersecurity matters and concerns. The Audit Committee engages on cybersecurity matters with our management team, including our Vice President of Trust Engineering, who regularly provides presentations to the Audit Committee on our cybersecurity program and cybersecurity risks. These presentations address a range of topics including, for example, the threat landscape and cybersecurity events, vulnerability assessments, incident preparedness assessments, disaster recovery plans, and cybersecurity awareness training. Two additional members of our Board, who have cybersecurity experience but are not members of the Audit Committee, are invited to attend Audit Committee meetings when review of our cybersecurity program is on the agenda. In addition, the full Board receives regular updates on the activities of the Audit Committee, including with regard to cybersecurity oversight.
Our Vice President of Trust Engineering is principally responsible for overseeing our cybersecurity risk management program, in partnership with other members of management. Our Vice President of Trust Engineering has served in various roles in cybersecurity and information technology for over 30 years, including as Vice President and Chief Security Architect of Intertrust Technologies Corporation and Java Security Architect at Sun Microsystems, Inc.
In addition, our Executive Incident Management Team (“EIMT”) is a cross-functional management committee focused on providing executive guidance on the cybersecurity incident response process to facilitate an appropriate and timely response, make decisions related to cybersecurity incidents, and notify appropriate parties with relevant cross-functional expertise in the event of a cybersecurity incident.
Our Trust Engineering team is responsible for the day-to-day identification, assessment, and management of information security risks and provides regular updates to our Vice President of Trust Engineering regarding the prevention, detection, mitigation, and remediation of cybersecurity incidents. Cybersecurity incidents are escalated to our Vice President of Trust Engineering, the EIMT, and the Chair of our Audit Committee in accordance with our cybersecurity incident management procedures, so that decisions can be made regarding incident reporting and disclosure in a timely manner.
Notwithstanding our cybersecurity risk management and governance, we may not be successful in preventing or mitigating a cybersecurity incident that could have a material adverse effect on us. While our business strategy, results of operations, and financial condition have not been materially affected by risks from cybersecurity threats, including as a result of previously identified cybersecurity incidents, we cannot provide assurance that they will not be materially affected in the future by such risks or any future material incidents. For more information regarding the cybersecurity risks we face, see Item 1A, Risk Factors, elsewhere in this Annual Report, under the caption “Significant disruptions of our information technology systems or data security incidents could harm our reputation, cause us to modify our business practices, and otherwise adversely affect our business and subject us to liability.”
Our corporate headquarters are currently located in San Jose, California under a lease that expires in September 2030. We use this space for sales, research and development, and administrative purposes. In addition, we lease various office and shared work spaces throughout the United States and internationally. We believe that our facilities are suitable to meet our current needs.
Item 3. Legal Proceedings
Information with respect to this item may be found in Note 12 to the consolidated financial statements in Item 8 of this Annual Report, which is incorporated herein by reference.
Item 4. Mine Safety Disclosures
None
None.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our Class A common stock is listed on The Nasdaq Global Select Market under the ticker symbol “ROKU.” Our Class B common stock is not listed or traded on any exchange.
As of
JanuaryDecember 31,
2021,2023, there were
62approximately 70 stockholders of record of our Class A common
stock. There were significantly more beneficial owners of our Class A common stock. As of January 31, 2021, there were approximately 22stock and 15 stockholders of record of our Class B common stock.
The actual number of stockholders of our Class A common stock is greater than the number of record holders and includes stockholders who are beneficial owners but whose shares of Class A common stock are held in street name by banks, brokers, and other nominees.
We have never declared or paid any dividends on our Class A or Class B common stock. We currently intend to retain all available funds and any future earnings for use in our business and therefore we do not anticipate declaring or paying any cash dividends in the foreseeable future.
The terms of our Credit Agreement also restrict our ability to pay dividends, and we may also enter into credit agreements or other borrowing arrangements in the future that will restrict our ability to declare or pay cash dividends on our capital stock.Sale of Unregistered Securities and Use of Proceeds
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Stock Performance Graphs and Cumulative Total Return
The following graph shows the cumulative total stockholder return of an investment of $100 in cash from September 29, 2017 (the date our Class A common stock commenced trading on The Nasdaq Global Select Market)December 31, 2018 through December 31, 2020,2023, for (i) our Class A common stock, (ii) the Nasdaq Composite Index, and (iii) the Peer Group of companies.companies described below. Because no published index of comparable player and platform companies is currently available, we have used the Peer Group of companies for the purposes of this graph in accordance with the requirements of the SEC. The
Our Peer Group
is made upconsists of
Facebook, Inc., Alphabet, Inc.,
Logitech International S.A.Fox Corp, fuboTV, Inc., Interpublic Group of Companies, Inc., LiveRamp Holdings, Inc., Magnite, Inc., Meta Platforms, Inc., Netflix,
Inc., Paramount Global, Pinterest, Inc., Pubmatic, Inc., Snap, Inc.,
Twitter,Tradedesk Financial Corp, Vizio Holding Corp, Walt Disney Co., and Warner Bros. Discovery, Inc.
, Yelp, Inc. and Zillow Group, Inc. Not all of the companies included in Peer Group participate in all the lines of business in which we are engaged, and some of the companies are engaged in lines of business in which we do not participate. Additionally, the market capitalization of some of the companies included in the Peer Group are different from ours. Pursuant to applicable SEC rules, all values assume reinvestment of the full amount of all dividends, however no dividends have been declared on our Class A common stock or Class B common stock to date. The stockholder return shown on the graph below is not necessarily indicative of future performance, and we do not make or endorse any predictions as to future stockholder returns.
Company / Index | Sep-17 | | Sep-17 | | Dec-17 | | Mar-18 | | Jun-18 | | Sep-18 | | Dec-18 | | Mar-19 | | Jun-19 | | Sep-19 | | Dec-19 | | Mar-20 | | Jun-20 | | Sep-20 | | Dec-20 | |
Roku, Inc. | $ | 100 | | $ | 190 | | $ | 370 | | $ | 222 | | $ | 304 | | $ | 522 | | $ | 219 | | $ | 461 | | $ | 647 | | $ | 727 | | $ | 956 | | $ | 625 | | $ | 832 | | $ | 1,348 | | $ | 2,371 | |
Nasdaq Composite Index | $ | 100 | | $ | 101 | | $ | 107 | | $ | 110 | | $ | 117 | | $ | 126 | | $ | 104 | | $ | 122 | | $ | 126 | | $ | 127 | | $ | 142 | | $ | 123 | | $ | 160 | | $ | 179 | | $ | 206 | |
Peer Group | $ | 100 | | $ | 101 | | $ | 107 | | $ | 107 | | $ | 124 | | $ | 119 | | $ | 98 | | $ | 117 | | $ | 121 | | $ | 120 | | $ | 134 | | $ | 119 | | $ | 153 | | $ | 169 | | $ | 193 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Company / Index | | Dec-18 | | Dec-19 | | Dec-20 | | Dec-21 | | Dec-22 | | Dec-23 |
| Roku, Inc. | | $100 | | $437 | | $1,084 | | $745 | | $133 | | $299 |
| Nasdaq Composite Index | | $100 | | $137 | | $198 | | $242 | | $163 | | $236 |
| Peer Group | | $100 | | $136 | | $186 | | $247 | | $129 | | $227 |
Source: Prepared by Zacks Investment Research, Inc. Used with permission. All rights reserved. Copyright 1980-2022.
Index Data: Copyright NASDAQ OMX, Inc. Used with permission. All rights reserved.
The information under “Stock Performance Graphs and Cumulative Total Return” is not deemed to be “soliciting material” or “filed” with the SEC or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act and is not to be incorporated by reference in any filing of the Company under the Securities Act, or the Exchange Act, whether made before or after the date of this Annual Report
on Form 10-K and irrespective of any general incorporation language in those filings.
Equity Compensation Plan Information
The following table summarizes information about our equity compensation plans as of December 31, 2020.
Plan Category | | Number of securities to be issued upon exercise of outstanding options and awards | | | Weighted average exercise price of outstanding options (1) | | | Number of securities remaining available for future issuances under equity compensation plans (excluding securities in column (a)) | |
| | (a) | | | (b) | | | (c) | |
| | (in thousands, except per share amount) | |
Equity compensation plans approved by security holders (2) | | | 13,088 | | | $ | 26.19 | | | | 26,509 | |
Equity compensation plans not approved by security holders | | | — | | | | — | | | | — | |
Total | | | 13,088 | | | $ | 26.19 | | | | 26,509 | |
| | | | | | | | | | | | |
(1) Restricted stock units have been excluded for purposes of computing weighted average exercise prices in column (b) as they do not have an exercise price. (2) The number of securities remaining available for future issuance in column (c) includes 21,420 shares of Class A common stock, available for issuance under our 2017 Equity Incentive Plan (the “2017 Plan”) in column (a) and, includes 5,089 shares of Class A common stock available for issuance under our 2017 Employee Stock Purchase Plan. The number of shares authorized for issuance under the 2017 Plan are subject to an annual increase. | |
Item 6. Selected Financial Data
The selected consolidated financial data below should be read in conjunction with the Item 7, Management’s Discussion and AnalysisReserved
Platform revenue increased by
$527.0$282.7 million, or
71%10%,
forduring the year ended December 31,
20202023 as compared to the year ended December 31,
2019. The2022, primarily due to an increase is mostly attributable to higher advertising revenues, includingin revenue from
our demand-side platform, streaming services distribution, such as revenue share on content subscriptions and Premium Subscriptions through The Roku Channel, which we acquiredwas offset by slightly lower revenue from dataxuadvertising driven primarily by weakness in November 2019. In 2020, we re-branded our demand-side platform as the OneView Ad Platformmedia and integrated it with Roku-native identity, data and attribution tools. Platform revenues also increased due to higher content distribution and related transactional revenues, including from Premium Subscriptions.entertainment promotional spending.
Devices
Devices revenue increased by
$122.5$75.4 million, or
32%18%,
forduring the year ended December 31,
20202023 as compared to the year ended December 31,
2019, primarily2022. $10.0 million of the increase was due to
ana change in estimated transaction price for a licensing arrangement with a service operator for which performance obligations were satisfied in prior periods and was recognized as revenue during the three months ended March 31, 2023. The remaining increase
was driven primarily by the sales of Roku-branded TVs introduced in
March 2023 and to a lesser extent by the
sales of smart home products, partially offset by lower revenue from sales of streaming players. The volume of streaming players sold
in addition todecreased by 8% and the average selling price of streaming players increased
revenues from the sale of audio products and accessories. Duringby 1% during the year ended December 31, 2020, the volume of streaming players sold increased 28%2023 as compared to the year ended December 31,
2019 offset by a 3% decrease in the average selling price of players. The increase in the volume of players sold was due to an increase in demand for lower priced models, namely the Roku Express player and the Roku Premiere player, and in part to consumers spending more time at home due to the COVID-19 pandemic.2022.
Cost of Revenue
and Gross Profit | | Years Ended December 31, | | | | | | | | | |
| | 2020 | | | 2019 | | | Change $ | | | Change % | |
(in thousands, except percentages) | | | | | | | | | | | | | | | | |
Cost of revenue: | | | | | | | | | | | | | | | | |
Platform | | $ | 503,177 | | | $ | 262,655 | | | $ | 240,522 | | | | 92 | % |
Player | | | 466,992 | | | | 371,042 | | | | 95,950 | | | | 26 | % |
Total Cost of Revenue | | $ | 970,169 | | | $ | 633,697 | | | $ | 336,472 | | | | 53 | % |
Gross profit: | | | | | | | | | | | | | | | | |
Platform | | $ | 764,567 | | | $ | 478,121 | | | $ | 286,446 | | | | 60 | % |
Player | | | 43,652 | | | | 17,103 | | | | 26,549 | | | | 155 | % |
Total Gross Profit | | $ | 808,219 | | | $ | 495,224 | | | $ | 312,995 | | | | 63 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, | | | | |
| 2023 | | 2022 | | Change $ | | Change % |
| (in thousands, except percentages) | | | | | | | |
| Cost of Revenue: | | | | | | | |
| Platform | $ | 1,427,546 | | | $ | 1,179,675 | | | $ | 247,871 | | | 21 | % |
| Devices | 534,458 | | | 505,737 | | | 28,721 | | | 6 | % |
| Total cost of revenue | $ | 1,962,004 | | | $ | 1,685,412 | | | $ | 276,592 | | | 16 | % |
| Gross Profit (Loss): | | | | | | | |
| Platform | $ | 1,566,559 | | | $ | 1,531,766 | | | $ | 34,793 | | | 2 | % |
| Devices | (43,944) | | | (90,644) | | | 46,700 | | | (52) | % |
| Total gross profit | $ | 1,522,615 | | | $ | 1,441,122 | | | $ | 81,493 | | | 6 | % |
The cost of
revenue, platform
revenue increased by
$240.5$247.9 million, or
92%21%,
forduring the year ended December 31,
20202023 as compared to the year ended December 31,
2019. This2022. The increase is a result of $182.4 million was primarily driven by higher advertising related costs including inventory acquisitionof acquiring content, higher costs in addition toof Premium Subscriptions, and higher content licensing fees, programming fees and credit card processing fees, totaling $215.3 million. Platform costs increased an additional $25.3partially offset by lower content asset amortization and lower cost of advertising inventory. The cost of revenue, platform also includes restructuring charges of $67.0 million dueof which $65.5 million consisted of impairment charges related to increases in allocated personnel and operational overhead costs and amortization of acquired intangibles.removing selected content assets from The Roku Channel.
Gross profit for
the platform
revenuesegment increased by
$286.4$34.8 million, or
60%2%,
forduring the year ended December 31,
20202023 as compared to the year ended December 31,
2019, 2022, primarily driven by the overall growth in our platform revenues.Player
revenue.
Devices
The cost of player revenue, devices increased by $96.0$28.7 million, or 26%6%, forduring the year ended December 31, 20202023 as compared to the year ended December 31, 2019.2022. The increase was primarily driven by higher manufacturing costs of $8.7 million, higher royalties of $8.6 million, higher inventory provision of $2.2 million, and higher other device related costs such as product warranties and overhead cost allocation of $9.3 million, offset by lower freight costs of $3.5 million. The increase in manufacturing costs was driven primarily by the cost of Roku-branded TVs that we began selling in March 2023 and the cost of smart home products. The cost of player revenue, increased approximately $73.1devices also includes restructuring charges of $3.3 million due to an increase inthat consist of employee severance, facilities exit costs, and asset impairments.
Gross loss for the
volume of players sold. Freight expenses increaseddevices segment decreased by
$14.2 million as a result of an increase in the volume of units sold as well as an increase in the overall cost of transportation. Packaging and other overhead costs increased by $8.7 million.Gross profit for player revenue increased by $26.5$46.7 million, or 155%52%, forduring the year ended December 31, 20202023 as compared to the year ended December 31, 2019,2022. The gross loss was driven by a higher sales volumescost of playermanufacturing of products and accessories and lower direct manufacturing costs.
in the devices segment as compared to the revenue generated from them. We manage the average selling prices of our products to increase our Active Accounts.
| | Years Ended December 31, | | | | | | | | | |
| | 2020 | | | 2019 | | | Change $ | | | Change % | |
| Years Ended December 31, | |
| 2023 | |
| 2023 | |
| 2023 | | | 2022 | | Change $ | | Change % |
(in thousands, except percentages) | | | | | | | | | | | | | | | | |
| Research and development | |
| Research and development | |
Research and development | | $ | 355,784 | | | $ | 265,011 | | | $ | 90,773 | | | | 34 | % | $ | 878,474 | | | $ | | $ | 788,913 | | | $ | | $ | 89,561 | | | 11 | | 11 | % |
Sales and marketing | | | 299,457 | | | | 178,855 | | | | 120,602 | | | | 67 | % | Sales and marketing | 1,033,359 | | | 838,419 | | 838,419 | | | 194,940 | | 194,940 | | | 23 | | 23 | % |
General and administrative | | | 173,231 | | | | 116,417 | | | | 56,814 | | | | 49 | % | General and administrative | 403,159 | | | 344,678 | | 344,678 | | | 58,481 | | 58,481 | | | 17 | | 17 | % |
Total Operating Expenses | | $ | 828,472 | | | $ | 560,283 | | | $ | 268,189 | | | | 48 | % |
| Total operating expenses | | Total operating expenses | $ | 2,314,992 | | | $ | 1,972,010 | | | $ | 342,982 | | | 17 | % |
Research and development expenses increased by
$90.8$89.6 million, or
34%11%,
forduring the year ended December 31,
20202023 as compared to the year ended December 31,
2019.2022. The increase was primarily
due to increases in personnel-relateddriven by higher restructuring charges of $90.9 million comprised of asset impairments, facilities exit costs,
and employee severance. In addition, the increase includes higher office facilities and IT infrastructure expenses of
$65.5 million as a result of increased engineering headcount of 14% and related stock-based compensation, higher professional service and consulting fees of $27.8 million, and higher allocated facilities costs of $11.7$7.9 million, offset by allocationslower consulting expenses of overheads to cost$6.6 million and lower personnel-related expenses of platform and player revenue of $14.2$3.0 million.Sales and marketing expenses increased by
$120.6$194.9 million, or
67%23%,
forduring the year ended December 31,
20202023 as compared to the year ended December 31,
2019.2022. The increase was primarily
due to increases in personnel-relateddriven by higher restructuring charges of $102.8 million comprised of asset impairments, facilities exit costs,
and employee severance. In addition, the increase includes higher marketing, retail, and merchandising expenses of
$61.9$89.7 million,
related to increased headcountand higher office facilities and IT infrastructure expenses of
15% and related stock-based compensation in sales and sales support, product management, marketing and business analytics to support efforts to grow our business. Other$11.3 million, offset by lower consulting expenses of $4.8 million, lower other sales and marketing expenses include an increase of $42.2$2.7 million, mainly due to increase in marketing, retail and merchandising costs, an increaselower personnel-related expenses of $10.6 million in higher facilities costs, an increase of $5.6 million in outside consulting expenses, and an increase of $3.7 million in other expenses primarily related to higher amortization of acquired intangible assets offset by a decrease of $3.4 million in travel expenses due to the COVID-19 pandemic.$1.5 million.
General and administrative
General and administrative expenses increased by
$56.8$58.5 million, or
49%17%,
forduring the year ended December 31,
20202023 as compared to the year ended December 31,
2019. 2022. The increase was primarily due to increases indriven by higher restructuring charges of $53.9 million comprised of asset impairments, facilities exit costs, and employee severance. In addition, the increase includes higher personnel-related costsexpenses of $29.2$5.5 million, related to increased headcountand higher office facilities and IT infrastructure expenses of
27% and related stock-based compensation, an increase of $16.1$2.3 million, related to higheroffset by lower legal, consulting, and professional service fees, an increaseservices expenses of $5.1 million related to higher facilities costs, an increase of $3.1 million in allowance for doubtful accounts primarily from adoption of accounting standard for credit losses, and a net increase of $3.3 million that includes various corporate expenses and overheads partly offset by a decrease in travel expenses due to the COVID-19 pandemic.$4.8 million.
Other Income,
(Expenses), Net
| | Years Ended December 31, | | | | | | | | | |
| | 2020 | | | 2019 | | | Change $ | | | Change % | |
| Years Ended December 31, | |
| 2023 | |
| 2023 | |
| 2023 | | | 2022 | | Change $ | | Change % |
(in thousands, except percentages) | | | | | | | | | | | | | | | | |
Interest expense | | $ | (3,432 | ) | | $ | (2,366 | ) | | $ | (1,066 | ) | | | 45 | % |
Other income (expense), net | | | 5,233 | | | | 6,506 | | | | (1,273 | ) | | | (20 | )% |
Total Other Income (Expense), Net | | $ | 1,801 | | | $ | 4,140 | | | $ | (2,339 | ) | | | (56 | )% |
| Interest expense | |
| Interest expense | | $ | (730) | | | $ | (5,161) | | | $ | 4,431 | | | (86) | % |
| Other income, net | | Other income, net | 93,677 | | | 43,766 | | | 49,911 | | | 114 | % |
| Total other income, net | | Total other income, net | $ | 92,947 | | | $ | 38,605 | | | $ | 54,342 | | | 141 | % |
Other income,
(expenses), net
Total other income, (expense)net, increased by $54.3 million, or 141%, net, decreased by $2.3 million during the year ended December 31, 20202023 as compared to the year ended December 31, 2019.2022. The increase was primarily driven by an increase in interest income of $51.0 million from higher interest rates on our cash balances, an increase in other income of $8.6 million that includes Interestincome recognized related to non-cash consideration associated with the delivery of services as part of a strategic commercial arrangement and an unrealized gain in the fair value of the Strategic Investment, and a reduction in interest expense including amortization of deferred debt costs,$4.4 million as the Credit Facility (as defined below) was higherfully repaid in February 2023, offset by an increase in foreign exchange losses of $9.7 million due to fluctuation in exchange rates.
Income Tax Expense
| | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, | | | | |
| 2023 | | 2022 | | Change $ | | Change % |
| (in thousands, except percentages) | | | | | | | |
| Income tax expense | $ | 10,131 | | | $ | 5,722 | | | $ | 4,409 | | | 77 | % |
Income tax expense
Income tax expense increased by $4.4 million, or 77%, for the year ended December 31,
2020 due to higher level of borrowings under our Credit Facility2023 as compared to
the prior year. Other income, net was $1.3 million lower in the year ended December 31,
2020. Interest income declined $2.7 million for2022. The increase was driven by the
year ended December 31, 2020increases in foreign taxes primarily due to
a significant dropthe increase of taxable earnings in
interest rates early in the year in reaction to the COVID-19 pandemic, which impacted our
investment yields. This was offset by favorable foreign
exchange totaling $1.4 million primarily related to the British Pound. Income Tax (Benefit) Expenses
operations. | | Years Ended December 31, | | | | | | | | | |
| | 2020 | | | 2019 | | | Change $ | | | Change % | |
(in thousands, except percentages) | | | | | | | | | | | | | | | | |
Income tax (benefit) expense | | $ | (945 | ) | | $ | (982 | ) | | $ | 37 | | | | (4 | )% |
Income tax benefit
Income tax benefit arises from foreign income taxes and state income taxes in the United States.
Liquidity and Capital Resources As of December 31,
2020,2023, we had cash and cash equivalents of
$1,092.8$2,025.9 million. Approximately
1.2%4% of our cash was held outside the United States in accounts held by our foreign subsidiaries, which are used to fund foreign operations.
Our primary sources of cash are receipts from platform and
player revenue and proceeds from equity sales including equity issued pursuant to our employee stock option plans.devices revenue. The primary uses of cash are costs of revenue including
third party manufacturing costs, costs to acquire advertising inventory,
costs to license and
produce content,
and programming license feesthird-party manufacturing costs for our products, as well as operating expenses
such as personnel-related expenses including
payroll-related expenses,employee termination payments, consulting and professional service
fees, andexpenses, facility
expenses, and marketing expenses. Other uses of cash include purchases of property and
equipment.equipment and mergers and acquisitions.
We have
multi-year lease agreements for office space and incurred material expenses in 2020. We expect to continue to incur material expenses for facility and building related costs for our campus headquarters in San Jose, California as well as at other office locations in the U.S. and internationally. As our business and workforce continue to expand, we further expect ongoing purchases of computer systems and other investments in property and equipment. In addition, we may pursuepursued merger and acquisition activities
in the past, and we may pursue additional merger and acquisition activities in the future, including the acquisition of rights to programming and content
assets that couldassets. Though we do not expect to incur expenses for facilities and building related costs at the same level as the last few fiscal years, we will continue to incur expenses on the maintenance of our facilities and purchases of computer systems, and other property and equipment, in order to support future growth in our business. These activities may materially impact our liquidity and capital resources.
We believe our existing cash and cash equivalents
cash flow from operations, and our undrawn available balance
under our Credit Facility will be sufficient to meet our working capital,
capital expenditures, and material cash requirements
from known contractual obligations for
at least the next twelve
months.months and beyond. Our future capital requirements, the adequacy of available funds, and cash flows from operations could be affected by various risks,
and uncertainties, including, but not limited to, those detailed in
Part I, Item 1A, Risk Factors
in this Annual Report and the effects of the
COVD-19 pandemic.current macroeconomic environment. While the
pandemiccurrent macroeconomic environment has not severely impacted our liquidity and capital resources to date, it has contributed to disruption and volatility in local economies and in capital and credit markets, which could adversely affect our liquidity and capital resources in the future.
We may attempt to raise additional capital through the sale of equity securities or other financing arrangements. If we raise additional funds by issuing equity, the ownership of our existing stockholders will be diluted.
Our Credit Agreement expires in February 2023. If we raise additional financing by the incurrence of
additional indebtedness, we may be subject to fixed payment obligations and also to restrictive covenants.
At-the-Market Offering
On May 13, 2020,Additionally, due to the current macroeconomic environment, we entered into an Equity Distribution Agreement with Morgan Stanley & Co. LLC and Citigroup Global Markets Inc., as our sales agents, pursuantmay be unable to which we sold an aggregate of 4.0 million shares of our Class A common stock and received gross proceeds of $504.0 millionat an average selling price of $126.01 per share and incurred issuance costs of $6.8 million.
obtain debt or equity financing on terms that are acceptable to us.
Senior Secured Term Loan A and Revolving Credit Facilities
On February 19, 2019,
(the “Original Closing Date”), we entered into a Credit Agreement
(the “Existing Credit Agreement”) with Morgan Stanley Senior Funding, Inc.
On(as amended on May 3, 2019,
(the “Closing Date”), the Existing Credit Agreement was amended pursuant to an Incremental Assumption and Amendment No. 1 (the “Amendment” and the Existing Credit Agreement as amended by the Amendment, the “Credit Agreement”)
.The Credit Agreement provides, which provided for (i) a four-year revolving credit facility in the aggregate principal amount of up to $100.0 million (the “Revolving Credit Facility”), (ii) a four-year delayed draw term loan A facility in the aggregate principal amount of up to $100.0 million (the “Term Loan A Facility”), and (iii) an uncommitted incremental facility subject to the satisfaction of certain financial and other conditions in the amount of up to (v) $50.0 million, plus (w) 1.0x of our consolidated EBITDA for the most recently completed four fiscal quarter period, plus (x) an additional amount at our discretion, so long as, on a pro forma basis at the time of incurrence, our secured leverage ratio does not exceed 1.50 to 1.00, plus (y) voluntary prepayments of the Revolving Credit Facility and Term Loan A Facility to the extent accompanied by concurrent reductions to the applicable Credit Facility (together with the Revolving Credit Facility and the Term Loan A Facility, collectively, the “Credit Facility”).
For our current borrowings,
On November 18, 2019, we haveborrowed an aggregate principal amount of $100.0 million from the Term Loan A Facility. We elected a Eurodollar borrowing withan interest at a rate equal to the adjusted one-month LIBOR rate plus an applicable margin of 1.75% based on our secured leverage ratio. The borrowings underCredit Facility matured on February 19, 2023 and the facility mature or have tooutstanding Term Loan A Facility was repaid in full by February 2023. Our obligations under the Credit Agreement are secured by substantially all of our assets. The Credit Agreement contains customary representations and warranties, customary affirmative and negative covenants, a financial covenant that is tested quarterly and requires us to maintain a certain adjusted quick ratio of at least 1.00 to 1.00, and customary events of default. full.
As of December 31, 2020,2022, we were in compliance with allhad outstanding letters of credit against the covenantsRevolving Credit Facility of $37.7 million. Upon maturity of the Credit Agreement. Facility on February 19, 2023, the outstanding letters of credit were secured by our existing cash balance, a portion of which is restricted for that purpose. As of December 31, 2023, we had outstanding letters of credit of $37.5 million, which are secured by restricted cash of $40.7 million.
See Note 10 to the consolidated financial statements in Item 8 of this
Annual Report for additional
details regarding the Credit Agreement.We had outstanding lettersdetails.
The following table summarizes our cash flows for the periods presented (in thousands):
| | Years Ended December 31, | |
| | 2020 | | | 2019 | |
| Years Ended December 31, | | | Years Ended December 31, |
| 2023 | | | 2023 | | 2022 |
Consolidated Statements of Cash Flows Data: | | | | | | | | |
Cash flows provided by operating activities | | $ | 148,192 | | | $ | 13,707 | |
| Cash flows provided by operating activities | |
| Cash flows provided by operating activities | |
Cash flows used in investing activities | | | (81,324 | ) | | | (110,295 | ) |
Cash flows provided by financing activities | | | 509,048 | | | | 458,328 | |
| Cash flows (used in) provided by financing activities | |
Cash Flows from Operating Activities
Our operating activities provided cash of $148.2$255.9 million for the year ended December 31, 2020.2023. Our net loss of $17.5$709.6 million for the year ended December 31, 20202023 was adjusted by non-cash charges of $225.7$972.7 million comprisingcomprised mainly of $134.1 million of stock-based compensation, $36.2 millionamortization of content assets, depreciation and amortization primarily onof property and equipment and acquired intangible assets, $28.7 million of amortization of operating lease right-of-use assets, $22.4 millionimpairment of amortizationassets as part of capitalized licensed content assetsrestructuring charges, and $3.8 millionchange in fair value of provision for doubtful accounts. the Strategic Investment.
The changes in our operating assets and liabilities used cash
of $60.0totaling $7.3 million
comprised of outflows of $196.0 million frommainly due to payments made to acquire content, payments made for operating leases liabilities, and an increase in the accounts receivable primarily driven by higher sales volume in the last quarter, $4.2 million from increased inventory levels
balance at the end of the year $3.5 million from an increase in prepaid and other current assets due to an increase in contract assets, prepaid taxes and other general expenses, and $1.1 million from an increase in other long term assets. These outflows werehigher revenue, offset by cash inflows by an increase of $103.2 million from an increase in accrued liabilities related to content publisher payables, marketing, retail and merchandising costs, advertising inventory costs and overall growth in the volume of business, $21.5 million from an increase in deferred revenue due to overall growth in the volume of business, $13.0 million from an increase in operating lease liabilities for new leases added during the year, $6.4 million from an increase in accounts payable and $0.6 million fromaccrued liabilities due to timing of payments, an increase in other long-term liabilities.
deferred revenue, a decrease in prepaid expenses, and a decrease in inventory balances at the end of fiscal 2023.
Cash Flows from Investing Activities
Our operatinginvesting activities providedfor the year ended December 31, 2023 included cash outflows of $92.6 million consisting of purchases of property and equipment and expenditures related to the expansion of our office facilities of $82.6 million and an additional investment in the Strategic Investment of $10.0 million.
Cash Flows from Financing Activities
Our financing activities used cash of
$13.7$61.2 million for the year ended December 31,
2019. Our net loss2023. The cash outflow related primarily to the repayment of
$59.9 million for the year ended December 31, 2019 was adjusted by non-cash charges of $127.9 million comprising mainly of $85.2$80.0 million of
stock-based compensation and $15.7 million of depreciation and amortization primarily on property and equipment and acquired intangible assets, $22.3 million of amortization of operating right-of-use assets and $2.9 million of amortization of capitalized licensed content assets. The changesour Credit Facility that became due in
our operating assets and liabilities used cash of $54.2 million comprised of outflows of $110.2 million from an increase in accounts receivable due to increased seasonal revenues in the fourth quarter, $14.1 million from increasing inventory levels, $10.6 million from a decrease in deferred revenue, $9.9 million from an increase in prepaid and other current assets due to an increase in prepaid contracts, marketing expenses and prepaid capital expenditure for new facilities, $3.0 million from a decrease in other long-term liabilities, and $3.0 million from an increase in other long-term assets. These outflows wereFebruary 2023 offset by
cash inflows of $74.5 million from an increase in accrued liabilities due to timing of payments, increased content publishers payables, and overall growth in the volume of business, $11.7 million from an increase in operating lease liabilities, $9.4 million from an increase in accounts payable, and $1.1 million from a decrease in deferred cost of revenue.Cash Flow from Investing Activities
Our investing activities used cash of $81.3 million for the year ended December 31, 2020. The cash used comprised of $82.4 million for the purchase of property and equipment, which primarily related to expenditures on leasehold improvements related to expanding our facilities and other capital investments, partially offset by $1.1 million of cash received from proceeds from the resolution of purchase acquisition contingencies.
Our investing activities used cash of $110.3 million for the year ended December 31, 2019. The cash used comprised of $77.2 million for the purchase of property and equipment, which primarily related to expenditures on leasehold improvements related to expanding our facilities and other capital investments, $68.1 million related to the acquisition of dataxu, Inc., $12.4 million spent on the purchase of short-term investments, and $7.4 million related to the purchases of other intangible assets, partially offset by $54.8$18.8 million received from sales/maturities of short-term investments.
Cash Flow from Financing Activities
Our financing activities provided cash of $509.0 million for the year ended December 31, 2020. The cash was received mainly from net proceeds from the issuance of common stock through our at-the-market offering amounting to $497.2 million, net of offering costs and proceeds from the exercise of employee stock options of $16.8 million. We borrowed and repaid $69.3 million of our Revolving Credit Facility in addition to the repayments of $5.0 million on our Term Loan A during the year.
Our financing activities provided cash of $458.3 million for the year ended December 31, 2019. The cash was received mainlyoptions.
Material Cash Requirements from
net proceeds from the issuance of Class A common stock through our at-the-market offerings amounting to $330.5 million, net of offering costs, proceeds from borrowings amounting to $99.6 million, net of issuance costs, and proceeds from the exercise of employee stock options of $28.2 million.Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements during the years ended December 31, 2020 and 2019, as defined by applicable SEC rules and regulations.
Known Contractual Obligations
Our
future minimum payments under our non-cancelablematerial cash requirements from known contractual obligations
were as follows as of December 31,
2020 (in thousands): | | Payments Due by Period | |
| | Total | | | Less Than 1 Year | | | 1 – 3 Years | | | 3 – 5 Years | | | More Than 5 Years | |
Term Loan A Facility (1) | | $ | 95,000 | | | $ | 5,000 | | | $ | 90,000 | | | $ | — | | | $ | — | |
Purchase commitments (2) | | | 185,945 | | | | 185,945 | | | | — | | | | — | | | | — | |
Operating lease obligations (3) | | | 440,645 | | | | 50,889 | | | | 94,974 | | | | 92,930 | | | | 201,852 | |
Other obligations (4) | | | 70,990 | | | | 42,574 | | | | 26,376 | | | | 2,040 | | | | — | |
Total | | $ | 792,580 | | | $ | 284,408 | | | $ | 211,350 | | | $ | 94,970 | | | $ | 201,852 | |
(1)
| Represents the principal amount of Term Loan A Facility. For additional information regarding the terms of the debt and interest payable, see Note 10 to the consolidated financial statements in Item 8 of this Report.
|
2023 consisted of:(2)
| Represents commitments to purchase finished goods from our contract manufacturer•Commitments to purchase finished goods from our contract manufacturers and other inventory related items.
|
(3)
| Represents future minimum lease payments under operating leases.
|
(4)
| Represents commitments included in other non-cancelable arrangements like licensed content assets, advertising inventory costs and other platform services.
|
We rely on an outsourced supplier to manufacture, assemble and test our players and audio devices. Consistent with industry practices, we enter into firm, noncancelable,non-cancelable, and unconditional purchase commitments with our contract manufacturers to acquire products through a combination of purchase orders, supplier contracts, and open orders based on projected demand information. Our contract manufacturer sourcesmanufacturers source components and buildsbuild our products based on these demand forecasts. Changes to projected demand or in the subsequent sales mix of our products may result in us being committed to purchase excess inventory to satisfy these commitments.
For additional information regarding manufacturing purchase commitments, see Note 12 to the consolidated financial statements in Item 8 of this Annual Report.
•Commitments to license content from content partners and produce content under contractual arrangements. For additional information regarding content commitments, see Note 12 to the consolidated financial statements in Item 8 of this Annual Report.
•Operating lease liabilities that are included in our consolidated balance sheets and liabilities related to the lease arrangements that have not yet commenced. For additional information regarding our lease liabilities, see Note 9 to the consolidated financial statements in Item 8 of this Annual Report. Our restructuring efforts to consolidate office space did not materially change our operating lease obligations.
The contractual
commitment amounts in the tablecommitments discussed above are associated with agreements that are enforceable and legally binding. Obligations under contracts that we can cancel without a significant penalty are not included
in the table above.
As
In addition, we
are unable to reasonably predict the timing of settlement of liabilities related to unrecognized tax benefits, net, the table does not include $29.2have $6.2 million of
such non-current liabilities not included in our consolidated balance sheetsuncertain tax positions as of December 31,
2020.2023. We adjust these positions when facts and circumstances change, such as the closing of a tax audit or the refinement of an estimate. We are unable to accurately predict when these amounts will be realized or released. Although we believe we have adequately provided for our uncertain tax positions, no assurance can be given that the final tax outcome of these matters will not be materially different.
Critical Accounting
Policies and Estimates
Our financial statements are prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. These estimates and assumptions are affected by management’s application of accounting policies, as well as uncertainty inbased on historical experience, current trends and other factors that we believe to be reasonable at the current economic environment due to the ongoing COVID-19 pandemic.time our consolidated financial statements are prepared. We evaluate our estimates and assumptions on an ongoing basis. Our actual results could differ from these estimates.
The critical accounting policies requiring estimates, assumptions, and judgments that we believe have the most significant impact on our financial statements are described below.
Our contracts with customers often include promises to transfer multiple products and services to a customer.
DeterminingJudgment may be required in determining whether products
and services are consideredcontain multiple distinct performance obligations
may require significant judgment.Judgment is requiredand whether each should be accounted for separately or as one combined performance obligation.
For arrangements with multiple performance obligations, we allocate revenue to
determine theeach distinct performance obligation based on its relative stand-alone selling price (“
SSP"SSP”)
. Our process for
each distinct performance obligation.determining SSP requires judgment. For performance obligations routinely sold separately,
we consider multiple factors that may vary over time depending upon the
unique facts and circumstances related to each performance obligation. We determine SSP
is determined by evaluating such stand-alone sales.based on prices charged to customers for individual products, taking into consideration other factors, which may include (i) historical and expected discounting practices, (ii) the size, and volume of transactions, (iii) the geographic areas in which our products are sold, and (iv) our overall go-to-market strategy. For those
performance obligations that are not routinely sold separately, we determine SSP using information that may include market conditions and other observable inputs.
To the extent platform services are part of multiple element arrangement, revenue recognition of each performance obligation in the estimated transaction price of a contract is based on
When arrangements have variable consideration, we utilize the expected value
for whichmethod to estimate the amount expected to be received. The amount of variable consideration that is included in the transaction price is constrained to the extent that it is probable a significant reversal
in the amount of
the cumulative revenue
isrecognized will not
expected to occur.occur in a future period. The estimate of the variable consideration is based on the assessment of historical, current, and forecasted performance noted and expected from the performance obligation.
The transaction price in some of our arrangements include non-cash consideration. We determine the fair value of non-cash consideration at contract inception by using historical internal and observable third-party data.
For the sale of third-party goods and services, we evaluate whether we are the principal, and report
revenuesrevenue on a gross basis, or an agent, and report
revenuesrevenue on a net basis. In this assessment, we consider if we obtain control of the specified goods or services before they are transferred to the customer, as well as other indicators such as the party primarily responsible for fulfillment, inventory risk, and discretion in establishing price.
Our playerdevices revenue includes allowances for returns and sales incentives in the estimated transaction price.
Amortization of Content Assets
The estimatesamortization expense for returnscontent assets (licensed and sales incentives areproduced) is based on projected monetization of such content which results in accelerated or straight-lined patterns depending on the nature of the content. Judgment is required to determine the amortization patterns of our content assets which are monetized as a group. Critical judgments include: (i) the predominant monetization strategy of content, (ii) the grouping of content with similar characteristics, and (iii) the application of historical experienceviewership model and anticipated performance. We provide unspecified upgradesprojected decay. These judgments and updates to our player end users. We record the allocated value of theseunderlying analysis are reviewed regularly and adjusted as deferred revenue and recognize it ratablyneeded on a time elapsed basis over the estimated economic lifeprospective basis.
Impairment of the associated players. Shipping charges billed to customers are included in revenueLong-Lived Assets
We review long-lived assets, including property and
the related shipping costs are included in cost of revenue.Business Combinations
We recognize, separately from goodwill, identifiableequipment, right-of-use assets, and liabilities acquired in a business combination at fair value on the date of acquisition. We use our best estimates and assumptions to accurately assign fair value to the tangible and identifiable intangible assets acquired and liabilities assumed at the acquisition date as well as the usefulwith finite lives of those acquired intangible assets. Examples of critical estimates in valuing certain of the intangible assets and goodwill we have acquired include, but are not limited to, future expected cash inflows and outflows, expected technology life cycle, attrition rates of customers, and discount rates. We estimate the useful lives of the intangible assets based on the expected period over which we anticipate generating economic benefit from the asset. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results.
While we use our best estimates and assumptions as part of the purchase price allocation process to accurately value assets and liabilities acquired, these estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets and liabilities acquired, with the corresponding offset to goodwill to the extent we identify adjustments to the preliminary purchase price allocation. Upon the conclusion of the measurement period or final determination of the values of assets and liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations.
Goodwill and Intangible Assets
We test goodwill for impairment on an annual basis during the fourth quarter of each fiscal year or when specific circumstances dictate, between annual tests. We measure recoverability of goodwill at the reporting unit level. The process of determining the fair value of a reporting unit is highly subjective and involves the use of significant estimates and assumptions. In performing our annual assessment, we can opt to perform a qualitative assessment to test a reporting unit’s goodwill for impairment or we can directly perform a quantitative assessment. Based on our qualitative assessment, if we determine that the fair value of our reporting unit is, more likely than not, less than its carrying amount, then the quantitative assessment is performed. Any excess of the reporting unit's carrying amount over its fair value will be recorded as an impairment loss.
We identify intangible assets acquired in a business combination and determine their fair value. The determination involves certain judgments and estimates. These judgments include, but are not limited to, the cash flows that an asset is expected to generate in the future and the appropriate discount weighted-average cost of capital. We amortize purchased-intangible assets on a straight-line basis over the estimated useful life of the assets. We review purchased-intangible assets whenever events or changes in circumstances indicate that the useful life is shorter than we had originally estimated or that the carrying amount of assetsthe asset or asset group to which it relates may not be recoverable. If such facts and circumstances indicate an asset’sasset or asset group’s carrying amount may not be recoverable, we assess theits recoverability of purchased-intangible assets by comparing the projected
undiscounted net cash flows directly associated with the use and eventual disposition of the asset or asset group against their respective carrying amounts. Impairment, if any,If the asset or asset group is not recoverable, an impairment loss is recognized based on the excess of the carrying amount over the fair value of thesethe asset groups. Ifor asset group.
During the useful lifeyear ended December 31, 2023, we recognized an impairment charge of $131.6 million for operating lease right-of-use assets and an impairment charge of $72.3 million for property and equipment related to a decision to sub-lease and cease the use of certain office facilities and related property and equipment. The impairment was a result of the asset is shorter than originally estimated, we acceleraterestructuring efforts announced in the ratethird quarter of amortizationfiscal year 2023. See Note 17 for additional details. There were no impairments of property and amortizeequipment, right-of-use assets, and intangible assets with finite lives during the years ended December 31, 2022 and December 31, 2021.
Significant judgments and estimates included in the determination of the fair value of the assets were identification of events or changes in circumstances necessitating an impairment assessment, the expected downtime prior to the commencement of future subleases, projected sublease income over the remaining
carrying value overlease periods, and discount rates that reflect the
new shorter useful life.level of risk associated with the expected future cash flows.
Allowances for Sales Returns
and Sales Incentives
and Doubtful AccountsAccounts
Our accounts receivable
areis stated at invoice value less estimated allowances
that include allowance for sales returns
and sales
incentives and doubtful accounts which is our best estimate of the amount of probable credit losses in our existing accounts receivable.incentives. We perform an ongoing analysis of various factors including our historical experience, promotional programs, claims to date, and other business factors to determine the allowances for sales returns and sales incentives.
We assess collectability by reviewing accounts receivable on a collective basis where similar characteristics exist and on an individual basis when we identify specific customers with collectability issues and determine the allowance for doubtful accounts. We regularly review the allowance by considering historical collectability based on past due status, credit quality, and make judgments about the creditworthiness of customers based on ongoing credit evaluations. We consider customer-specific information and current economic conditions that may affect a customer’s ability to pay.
If our estimates regarding accounts receivable allowances differ from the actual results, the losses or gains could be material.
Stock-Based Compensation
Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense on a straight-line basis over the requisite service period, which is generally the vesting period of the respective award. Determining the fair value of stock-based awards at the grant date requires judgment.
We account for the fair value of restricted stock units using the closing market price of our Class A common stock on the date of the grant.
We use the Black-Scholes option-pricing model to determine the fair value of stock options. The determination of the grant date fair value of stock options using an option-pricing model is affected by our estimated common stock fair value as well as assumptions regarding a number of other complex and subjective variables. These variables include our expected stock price volatility over the expected term of the options, stock option exercise and cancellation behaviors, risk-free interest rates and expected dividends, which are estimated as follows:
| •
| Fair Value of Our Common Stock. We use the closing market price for our Class A common stock as reported on The Nasdaq Global Select Market on the date of grant.
|
| •
| Expected Term. The expected term of employee stock options represents the weighted-average period that the stock options are expected to remain outstanding. To determine the expected term, we generally apply the simplified approach in which the expected term of an award is presumed to be the mid-point between the vesting date and the expiration date of the award as we do not have sufficient historical exercise data to provide a reasonable basis for an estimate of expected term.
|
| •
| Volatility. As we do not have sufficient trading history for our Class A common stock, the expected volatility for our Class A common stock is estimated by taking the average historic price volatility for industry peers based on daily price observations over a period equivalent to the expected term of the stock option awards. Industry peers consist of several public companies in our industry which are either similar in size, stage of life cycle or financial leverage. We intend to consistently apply this process until a sufficient amount of historical information regarding the volatility of our own Class A common stock share price becomes available or unless circumstances change such that the identified peer companies are no longer similar to us, in which case, more suitable companies whose share prices are available would be utilized in the calculation.
|
| •
| Risk-free Rate. The risk-free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected term for each of our stock options.
|
| •
| Dividend Yield. We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future. Consequently, we use an expected dividend yield of zero.
|
We account for forfeitures as they occur. If any of the assumptions used in the Black-Scholes model changes significantly, stock-based compensation for future awards may differ materially compared with the awards granted previously.
We will continue to use judgement in evaluating assumptions related to our stock-based compensation cost. As we continue to accumulate additional data related to our Class A common stock and our business evolves, we may have refinements to our assumptions and estimates which could impact our future stock-based compensation cost.
Provision for Income Taxes
We are subject to income taxes in the U.S. and foreign jurisdictions. We account for income taxes
in accordance with authoritative guidance, which requires the use ofusing the asset and liability method. Under this method, deferred income tax assets and liabilities are determined based upon the difference between the consolidated financial statement carrying amounts and the tax basis of assets and liabilities and are measured using the enacted tax rate expected to apply to taxable income in the years in which the differences are expected to be reversed.
Deferred income taxes reflect
In determining the
netneed for a valuation allowance, we assess both positive and negative evidence in the various jurisdictions to determine whether it is more likely than not that our deferred tax
effects of temporary differences between the carrying amounts of assets
are recoverable. We regularly assess all available evidence, including cumulative historic losses and
liabilities for financial reporting purposes and the amounts used for income tax purposes.forecasted earnings. A valuation allowance is
providedestablished when it is more likely than not that the deferred tax assets will not be realized. We have established a full valuation allowance
to offset domesticfor our U.S. and Netherlands net deferred tax assets due to the uncertainty of realizing future tax benefits from our net operating loss carry-forwards and other deferred tax assets.
OurA change in the assessment of the realizability of deferred tax assets may materially impact our tax provision in the period in which a change of assessment occurs. Release of the valuation allowance
is attributable towould result in the
uncertaintyrecognition of
realizing future tax benefits from U.S.
net operating lossesfederal and
otherstate deferred tax
assets.assets and a corresponding decrease to income tax expense in the period the release is recorded.
Recent Accounting Pronouncements
The recent accounting pronouncements adopted during the year ended December 31, 2020 and those not yet adopted are discussed and included in Note 2 to the consolidated financial statements in Item 8 of this Annual Report. They are incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Fluctuation Risk
Our exposure to interest rate risk relates to the interest income generated by cash
and cash
equivalents and interest expense on the Credit Facility.equivalents. The primary objective of our investment policy is to preserve principal while maximizing income without significantly increasing risk. We
do not believe that an increase or decrease in interest rates of 100 basis points
would have a material effect on our
operating results or financial condition. As of December 31, 2020, borrowings under the Term Loan A Facility totaled $95.0 million withcash and cash equivalents balance would impact our interest income by an
effective interest rate of 2.03%. If the amount outstanding under our Term Loan A Facility remains at this level for an entire year and interest rates increased or decreased by 100 basis points, our annual interest expense wouldadditional increase or decrease
respectively, by an additional $1.0of $20.7 million.
Foreign Currency Exchange Rate Risk
Most of our revenue is generated within the United States and as such we have minimal foreign currency risk related to our revenue. In addition, most of ourOur foreign currency risk primarily relates to operating expenses, arecash balances and lease liabilities denominated in thecurrencies other than U.S. dollar, resultingdollars, primarily British pounds and Euros. Our results of current and future operations and cash flows are, therefore, subject to fluctuations due to changes in minimal foreign currency risks. In the future, ifexchange rates.
We have experienced and will continue to experience fluctuations in our international revenues increasenet income as a result of transaction gains or more of our expenseslosses related to revaluing monetary asset and liability balances that are denominated in currencies other than the U.S. dollar, our exposure to foreignfunctional currency risk will likely be more significant. For any of the periods presented, we didentities in which they are recorded. We have not enterentered into any foreign exchange contracts. However, in the future, we may enter into derivatives or other financial instruments in an attempt to hedge our foreign currency exchange risk.risk, but we may do so in the future.
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Roku, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Roku, Inc. and subsidiaries (the "Company") as of December 31,
20202023 and
2019,2022, the related consolidated statements of operations, comprehensive
loss,income (loss), stockholders' equity,
(deficit), and cash flows for each of the three years in the period ended December 31,
2020,2023, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31,
20202023 and
2019,2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31,
2020,2023, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020,2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25, 2021,16, 2024, expressed an unqualified opinion on the Company's internal control over financial reporting.Changes in Accounting Principles
As discussed in Note 2 to the financial statements, the Company changed its method of accounting for leases in fiscal year 2019 due to the adoption of Accounting Standards Update No. 2016-02, Leases (Topic 842), using the optional transition method.
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition - Variable Consideration Determination of Contentin Streaming Services Distribution Services and Branded Channel Buttons – Refer to Note 32 to the financial statements
Critical Audit Matter Description
As part of the Company’s revenue recognition for its arrangements with content
publishers,partners, management is required to estimate variable consideration
primarily related to content distribution services from transactional revenue sharing
and the sale of branded channel buttons on remote controls.related to streaming services distribution.
Variable consideration related to
streaming services distribution (“content
distribution services with content publisherspartner arrangements”) is included in the estimated transaction price based on the expected value for which a significant reversal of revenue is not expected to occur. For
transactional revenue sharing arrangements,streaming services distribution, the estimate of the variable consideration is based on management’s assessment of historical, current, and forecasted performance of the
publisher’s content application(s). For the sale of branded channel buttons on remote controls, the estimate of the variable consideration is based on management’s assessment of historical, current, and forecasted player and Roku TV sales volumes.partner’s applications.
We identified the
revenue forecasts
of variable consideration relating to
content publisher arrangementsstreaming service distribution as a critical audit matter due to the significant judgment necessary to estimate variable
consideration and transaction prices.consideration. Such estimates required a high degree of auditor judgment and an increased extent of effort relative to evaluating the reasonableness of management’s estimates and assumptions related to the forecasts of variable consideration.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to management’s forecast used in the determination of future variable consideration included the following, among others:
| •
| We tested the effectiveness of controls over management’s forecasting process related to content distribution services and branded channel buttons.
|
| •We tested the effectiveness of controls over management’s forecasting process related to streaming services distribution.• | We selected a sample of revenue arrangements with variable consideration and performed the following:
|
| o•We selected a sample of revenue arrangements with variable consideration and performed the following:
| Obtained contractual documents for each selection, including master agreements and other related documents.
|
| o◦Obtained contractual documents for each selection, including master agreements and other related documents.
| Analyzed the contractual documents to determine if all arrangement terms that may have an impact on revenue recognition were identified and properly considered in the evaluation of the accounting for the contract, including terms and conditions for revenue sharing.
|
| o◦Analyzed the contractual documents to determine if all arrangement terms that may have an impact on revenue recognition were identified and properly considered in the evaluation of the accounting for the contract, including terms and conditions for transactional revenue sharing.
| Performed inquiries with applicable individuals in the Company’s finance and sales departments regarding the estimates for sales of branded channel buttons.
|
| o◦Performed inquiries with applicable individuals in the Company’s finance, operations, and sales departments regarding the estimates for streaming services distribution.
| Evaluated management’s accuracy of forecasting by comparing the historical forecasts of consideration to actual consideration received.
|
| o◦Tested management’s accuracy of forecasting by comparing the historical forecasts of consideration to actual consideration received.
| Evaluated changes from prior period forecasts to current period forecasts, when applicable.
|
| o
| Compared management’s◦Evaluated changes from prior period forecasts to current period forecasts, of variable consideration to historical data, other information within the Company, and certain publicly available historical and forecasted industry information, when applicable.
|
| o◦Tested the mathematical accuracy of the compilation of the forecasts.
| Tested the mathematical accuracy of the compilation of the forecast.The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
|
◦We considered the existence of contradictory evidence based on reading of internal communication to management, Company press releases, industry reports, publicly available information related to partners’ content applications as well as our observations and inquiries as to the changes within the business and considerations of macroeconomic and industry factors.
/s/ DELOITTE & TOUCHE LLP
February
25, 2021 16, 2024
We have served as the Company's auditor since 2008.
CONSOLIDATED BALANCE SHEETS
(in thousands, except par
value)value data) | | | As of December 31, | | | As of December 31, |
| | 2020 | | | 2019 | | | 2023 | | 2022 |
Assets | | | | | | | | |
Current Assets: | | | | | | | | |
| Current Assets: | |
| Current Assets: | |
Cash and cash equivalents | | $ | 1,092,815 | | | $ | 515,479 | |
Restricted cash | | | 434 | | | | 1,854 | |
Accounts receivable, net of allowances of $41,236 and $27,521 as of | | | 523,852 | | | | 332,673 | | |
December 31, 2020 and 2019, respectively | | | | | | | | |
| Cash and cash equivalents | |
| Cash and cash equivalents | |
| Accounts receivable, net of allowances of $34,127 and $40,191 as of | |
| December 31, 2023 and 2022, respectively | |
| Inventories | |
| Inventories | |
Inventories | | | 53,895 | | | | 49,714 | |
Prepaid expenses and other current assets | | | 26,644 | | | | 25,943 | |
Total current assets | | | 1,697,640 | | | | 925,663 | |
Property and equipment, net | | | 155,197 | | | | 103,262 | |
Operating lease right-of-use assets | | | 266,197 | | | | 283,291 | |
| Content assets, net | |
Intangible assets, net | | | 62,181 | | | | 76,668 | |
Goodwill | | | 73,058 | | | | 74,116 | |
Other non-current assets | | | 16,269 | | | | 7,234 | |
Total Assets | | $ | 2,270,542 | | | $ | 1,470,234 | |
Liabilities and Stockholders’ Equity | | | | | | | | |
Current Liabilities: | | | | | | | | |
| Current Liabilities: | |
| Current Liabilities: | |
| Accounts payable | |
| Accounts payable | |
Accounts payable | | $ | 112,314 | | | $ | 115,227 | |
Accrued liabilities | | | 347,668 | | | | 198,347 | |
Current portion of long-term debt | | | 4,874 | | | | 4,866 | |
Deferred revenue, current portion | | | 55,465 | | | | 39,861 | |
Total current liabilities | | | 520,321 | | | | 358,301 | |
Long-term debt, non-current portion | | | 89,868 | | | | 94,742 | |
| | Deferred revenue, non-current portion | |
| Deferred revenue, non-current portion | |
Deferred revenue, non-current portion | | | 21,283 | | | | 15,370 | |
Operating lease liability, non-current portion | | | 307,936 | | | | 301,694 | |
Other long-term liabilities | | | 3,119 | | | | 1,701 | |
Total Liabilities | | | 942,527 | | | | 771,808 | |
Commitments and contingencies (Note 12) | | | | | | | | | Commitments and contingencies (Note 12) | | | |
Stockholders’ Equity: | | | | | | | | |
Common stock, $0.0001 par value; | | | 13 | | | | 12 | |
| Common stock, $0.0001 par value; | |
| Common stock, $0.0001 par value; | |
1,150,000 (Class A - 1,000,000 and Class B - 150,000) shares authorized | | | | | | | | |
as of December 31, 2020 and 2019; | | | | | | | | |
128,004 (Class A - 110,645 and Class B - 17,359) shares and | | | | | | | | |
119,897 (Class A - 93,574 and Class B - 26,323) shares | | | | | | | | |
issued and outstanding as of December 31, 2020 and 2019, respectively | | | | | | | | |
| as of December 31, 2023 and 2022; | |
| as of December 31, 2023 and 2022; | |
| as of December 31, 2023 and 2022; | |
| 143,502 (Class A - 126,118 and Class B - 17,384) shares and | |
| 143,502 (Class A - 126,118 and Class B - 17,384) shares and | |
| 143,502 (Class A - 126,118 and Class B - 17,384) shares and | |
| 140,027 (Class A - 122,602 and Class B - 17,425) shares | |
| 140,027 (Class A - 122,602 and Class B - 17,425) shares | |
| 140,027 (Class A - 122,602 and Class B - 17,425) shares | |
| issued and outstanding as of December 31, 2023 and 2022, respectively | |
| issued and outstanding as of December 31, 2023 and 2022, respectively | |
| issued and outstanding as of December 31, 2023 and 2022, respectively | |
Additional paid-in capital | | | 1,660,379 | | | | 1,012,218 | |
Accumulated other comprehensive income | | | 29 | | | | 29 | |
| Additional paid-in capital | |
| Additional paid-in capital | |
| Accumulated other comprehensive income (loss) | |
Accumulated deficit | | | (332,406 | ) | | | (313,833 | ) |
Total stockholders’ equity | | | 1,328,015 | | | | 698,426 | |
Total Liabilities and Stockholders’ Equity | | $ | 2,270,542 | | | $ | 1,470,234 | |
See accompanying Notes to Consolidated Financial Statements.
ROKU, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
| | Years Ended December 31, | |
| | 2020 | | | 2019 | | | 2018 | |
Net Revenue: | | | | | | | | | | | | |
Platform | | $ | 1,267,744 | | | $ | 740,776 | | | $ | 416,863 | |
Player | | | 510,644 | | | | 388,145 | | | | 325,643 | |
Total net revenue | | | 1,778,388 | | | | 1,128,921 | | | | 742,506 | |
Cost of Revenue: | | | | | | | | | | | | |
Platform | | | 503,177 | | | | 262,655 | | | | 120,543 | |
Player | | | 466,992 | | | | 371,042 | | | | 289,815 | |
Total cost of revenue | | | 970,169 | | | | 633,697 | | | | 410,358 | |
Gross Profit: | | | | | | | | | | | | |
Platform | | | 764,567 | | | | 478,121 | | | | 296,320 | |
Player | | | 43,652 | | | | 17,103 | | | | 35,828 | |
Total gross profit | | | 808,219 | | | | 495,224 | | | | 332,148 | |
Operating Expenses: | | | | | | | | | | | | |
Research and development | | | 355,784 | | | | 265,011 | | | | 170,692 | |
Sales and marketing | | | 299,457 | | | | 178,855 | | | | 102,780 | |
General and administrative | | | 173,231 | | | | 116,417 | | | | 71,972 | |
Total operating expenses | | | 828,472 | | | | 560,283 | | | | 345,444 | |
Loss from Operations | | | (20,253 | ) | | | (65,059 | ) | | | (13,296 | ) |
Other Income (Expense), Net: | | | | | | | | | | | | |
Interest expense | | | (3,432 | ) | | | (2,366 | ) | | | (346 | ) |
Other income (expense), net | | | 5,233 | | | | 6,506 | | | | 4,309 | |
Total other income (expense), net | | | 1,801 | | | | 4,140 | | | | 3,963 | |
Loss Before Income Taxes | | | (18,452 | ) | | | (60,919 | ) | | | (9,333 | ) |
Income tax (benefit) expense | | | (945 | ) | | | (982 | ) | | | (476 | ) |
Net Loss Attributable to Common Stockholders | | $ | (17,507 | ) | | $ | (59,937 | ) | | $ | (8,857 | ) |
Net loss per share attributable to common stockholders—basic and diluted | | | (0.14 | ) | | $ | (0.52 | ) | | $ | (0.08 | ) |
Weighted-average shares used in computing net loss per share attributable to common stockholders—basic and diluted | | | 123,978 | | | | 115,218 | | | | 104,618 | |
See accompanying Notes to Consolidated Financial Statements.
ROKU, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
| | Years Ended December 31, | |
| | 2020 | | | 2019 | | | 2018 | |
Net Loss Attributable to Common Stockholders | | $ | (17,507 | ) | | $ | (59,937 | ) | | $ | (8,857 | ) |
Other comprehensive gain (loss), net of tax: | | | | | | | | | | | | |
Unrealized gain (loss) on short-term investments, net of tax | | | — | | | | 17 | | | | (17 | ) |
Foreign currency translation adjustment | | | — | | | | 29 | | | | — | |
Other comprehensive gain (loss), net of tax | | | — | | | | 46 | | | | (17 | ) |
Comprehensive Net Loss | | $ | (17,507 | ) | | $ | (59,891 | ) | | $ | (8,874 | ) |
See accompanying Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands)OPERATIONS
| | Common Stock | | | Additional Paid-in | | | Accumulated Other | | | Accumulated | | | Total Stockholders’ | |
| | Shares | | | Amount | | | Capital | | | Comprehensive Loss | | | Deficit | | | Equity | |
Balance—December 31, 2017 | | | 99,157 | | | $ | 10 | | | $ | 435,607 | | | $ | — | | | $ | (283,338 | ) | | $ | 152,279 | |
Vesting of early exercised stock options | | | — | | | | — | | | | 239 | | | | — | | | | — | | | | 239 | |
Issuance of common stock pursuant to equity incentive plans, net of taxes | | | 10,481 | | | | 1 | | | | 25,033 | | | | — | | | | — | | | | 25,034 | |
Issuance of common stock pursuant to exercise of common stock warrants, net | | | 141 | | | | — | | | | - | | | | — | | | | — | | | | — | |
Stock-based compensation expense | | | — | | | | — | | | | 37,674 | | | | — | | | | — | | | | 37,674 | |
Share repurchases | | | (9 | ) | | | — | | | | — | | | | — | | | | — | | | | — | |
Adoption of ASU 2016-16 | | | — | | | | — | | | | — | | | | — | | | | (40 | ) | | | (40 | ) |
Adoption of ASU 2014-09 | | | — | | | | — | | | | — | | | | — | | | | 38,339 | | | | 38,339 | |
Unrealized loss on short-term investments | | | — | | | | — | | | | — | | | | (17 | ) | | | — | | | | (17 | ) |
Net loss | | | — | | | | — | | | | — | | | | — | | | | (8,857 | ) | | | (8,857 | ) |
Balance—December 31, 2018 | | | 109,770 | | | | 11 | | | | 498,553 | | | | (17 | ) | | | (253,896 | ) | | | 244,651 | |
Vesting of early exercised stock options | | | — | | | | — | | | | 86 | | | | — | | | | — | | | | 86 | |
Share repurchases | | | (2 | ) | | | — | | | | — | | | | — | | | | — | | | | — | |
Issuance of common stock pursuant to equity incentive plans | | | 6,169 | | | | 1 | | | | 28,181 | | | | — | | | | — | | | | 28,182 | |
Issuance of common stock pursuant in connection with at-the-market offerings, net of issuance costs of $6.4 million | | | 3,389 | | | | — | | | | 330,539 | | | | — | | | | — | | | | 330,539 | |
Issuance of common stock in connection with acquisition | | | 571 | | | | — | | | | 69,684 | | | | — | | | | — | | | | 69,684 | |
Stock-based compensation expense | | | — | | | | — | | | | 85,175 | | | | — | | | | — | | | | 85,175 | |
Unrealized gain on short-term investments | | | — | | | | — | | | | — | | | | 17 | | | | — | | | | 17 | |
Foreign currency translation adjustment | | | — | | | | — | | | | — | | | | 29 | | | | — | | | | 29 | |
Net loss | | | — | | | | — | | | | — | | | | — | | | | (59,937 | ) | | | (59,937 | ) |
Balance—December 31, 2019 | | | 119,897 | | | | 12 | | | | 1,012,218 | | | | 29 | | | | (313,833 | ) | | | 698,426 | |
Vesting of early exercised stock options | | | — | | | | — | | | | 38 | | | | — | | | | — | | | | 38 | |
Issuance of common stock pursuant to equity incentive plans | | | 4,107 | | | | 1 | | | | 16,805 | | | | — | | | | — | | | | 16,806 | |
Issuance of common stock pursuant in connection with at-the-market offering, net of issuance costs of $6.8 million | | | 4,000 | | | | — | | | | 497,242 | | | | — | | | | — | | | | 497,242 | |
Stock-based compensation expense | | | — | | | | — | | | | 134,076 | | | | — | | | | — | | | | 134,076 | |
Adoption of ASU 2016-13 | | | — | | | | — | | | | — | | | | — | | | | (1,066 | ) | | | (1,066 | ) |
Net loss | | | — | | | | — | | | | — | | | | — | | | | (17,507 | ) | | | (17,507 | ) |
Balance—December 31, 2020 | | | 128,004 | | | $ | 13 | | | $ | 1,660,379 | | | $ | 29 | | | $ | (332,406 | ) | | $ | 1,328,015 | |
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2023 | | 2022 | | 2021 |
| Net Revenue: | | | | | |
| Platform | $ | 2,994,105 | | | $ | 2,711,441 | | | $ | 2,264,920 | |
| Devices | 490,514 | | | 415,093 | | | 499,664 | |
| Total net revenue | 3,484,619 | | | 3,126,534 | | | 2,764,584 | |
| Cost of Revenue: | | | | | |
| Platform | 1,427,546 | | | 1,179,675 | | | 818,506 | |
| Devices | 534,458 | | | 505,737 | | | 537,478 | |
| Total cost of revenue | 1,962,004 | | | 1,685,412 | | | 1,355,984 | |
| Gross Profit (Loss): | | | | | |
| Platform | 1,566,559 | | | 1,531,766 | | | 1,446,414 | |
| Devices | (43,944) | | | (90,644) | | | (37,814) | |
| Total gross profit | 1,522,615 | | | 1,441,122 | | | 1,408,600 | |
| Operating Expenses: | | | | | |
| Research and development | 878,474 | | | 788,913 | | | 461,602 | |
| Sales and marketing | 1,033,359 | | | 838,419 | | | 455,601 | |
| General and administrative | 403,159 | | | 344,678 | | | 256,297 | |
| Total operating expenses | 2,314,992 | | | 1,972,010 | | | 1,173,500 | |
| Income (Loss) from Operations | (792,377) | | | (530,888) | | | 235,100 | |
| Other Income, Net: | | | | | |
| Interest expense | (730) | | | (5,161) | | | (2,980) | |
| Other income, net | 93,677 | | | 43,766 | | | 4,467 | |
| Total other income, net | 92,947 | | | 38,605 | | | 1,487 | |
| Income (Loss) Before Income Taxes | (699,430) | | | (492,283) | | | 236,587 | |
| Income tax expense (benefit) | 10,131 | | | 5,722 | | | (5,798) | |
| Net Income (Loss) | $ | (709,561) | | | $ | (498,005) | | | $ | 242,385 | |
| | | | | |
| Net income (loss) per share — basic | $ | (5.01) | | | $ | (3.62) | | | $ | 1.83 | |
| Net income (loss) per share — diluted | $ | (5.01) | | | $ | (3.62) | | | $ | 1.71 | |
| | | | | |
| Weighted-average common shares outstanding — basic | 141,572 | | 137,668 | | 132,710 |
| Weighted-average common shares outstanding — diluted | 141,572 | | 137,668 | | 141,668 |
See accompanying Notes to Consolidated Financial
Statements.Statements
CONSOLIDATED STATEMENTS OF
CASH FLOWSCOMPREHENSIVE INCOME (LOSS)
(in thousands)
| | Years Ended December 31, | |
| | 2020 | | | 2019 | | | 2018 | |
Cash flows from operating activities: | | | | | | | | | | | | |
Net loss | | $ | (17,507 | ) | | $ | (59,937 | ) | | $ | (8,857 | ) |
Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | | | | | | | | |
Depreciation and amortization | | | 36,206 | | | | 15,669 | | | | 8,389 | |
Stock-based compensation expense | | | 134,076 | | | | 85,175 | | | | 37,674 | |
Amortization of right-of-use assets | | | 28,743 | | | | 22,328 | | | | — | |
Amortization of content assets | | | 22,392 | | | | 2,914 | | | | — | |
Provision for doubtful accounts | | | 3,801 | | | | 704 | | | | 876 | |
Other items net | | | 524 | | | | 1,101 | | | | 1,465 | |
Changes in operating assets and liabilities: | | | | | | | | | | | | |
Accounts receivable | | | (196,046 | ) | | | (110,225 | ) | | | (50,673 | ) |
Inventories | | | (4,181 | ) | | | (14,129 | ) | | | (2,953 | ) |
Prepaid expenses and other current assets | | | (3,450 | ) | | | (9,934 | ) | | | (306 | ) |
Deferred cost of revenue | | | — | | | | 1,143 | | | | 2,261 | |
Other noncurrent assets | | | (1,128 | ) | | | (3,060 | ) | | | (732 | ) |
Accounts payable | | | 6,410 | | | | 9,409 | | | | (98 | ) |
Accrued liabilities | | | 103,218 | | | | 74,512 | | | | 17,914 | |
Operating lease liabilities | | | 12,999 | | | | 11,658 | | | | — | |
Other long-term liabilities | | | 618 | | | | (3,024 | ) | | | (1,101 | ) |
Deferred revenue | | | 21,517 | | | | (10,597 | ) | | | 10,063 | |
Net cash provided by operating activities | | | 148,192 | | | | 13,707 | | | | 13,922 | |
Cash flows from investing activities: | | | | | | | | | | | | |
Purchase of property and equipment | | | (82,382 | ) | | | (77,180 | ) | | | (18,327 | ) |
Purchase of business, net of cash acquired | | | — | | | | (68,132 | ) | | | — | |
Proceeds from escrows associated with acquisition | | | 1,058 | | | | — | | | | — | |
Purchase of intangible assets | | | — | | | | (7,428 | ) | | | — | |
Purchases of short-term investments | | | — | | | | (12,365 | ) | | | (53,806 | ) |
Sales/maturities of short-term investments | | | — | | | | 54,810 | | | | 12,000 | |
Net cash used in investing activities | | | (81,324 | ) | | | (110,295 | ) | | | (60,133 | ) |
Cash flows from financing activities: | | | | | | | | | | | | |
Proceeds from borrowings, net of issuance costs | | | 69,325 | | | | 99,608 | | | | — | |
Repayments of borrowings | | | (74,325 | ) | | | — | | | | — | |
Holdback payment for a prior business acquisition | | | — | | | | — | | | | (500 | ) |
Proceeds from equity issued under incentive plans, net of repurchases | | | 16,806 | | | | 28,181 | | | | 25,025 | |
Proceeds from equity issued under at-the-market offerings, net of offering costs | | | 497,242 | | | | 330,539 | | | | — | |
Net cash provided by financing activities | | | 509,048 | | | | 458,328 | | | | 24,525 | |
Net increase (decrease) in cash, cash equivalents and restricted cash | | | 575,916 | | | | 361,740 | | | | (21,686 | ) |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | | | — | | | | 29 | | | | — | |
Cash, cash equivalents and restricted cash —Beginning of period | | | 517,333 | | | | 155,564 | | | | 177,250 | |
Cash, cash equivalents and restricted cash —End of period | | $ | 1,093,249 | | | $ | 517,333 | | | $ | 155,564 | |
Cash, cash equivalents and restricted cash at end of period: | | | | | | | | | | | | |
Cash and cash equivalents | | | 1,092,815 | | | | 515,479 | | | | 155,564 | |
Restricted cash | | | 434 | | | | 1,854 | | | | — | |
Cash, cash equivalents and restricted cash —End of period | | $ | 1,093,249 | | | $ | 517,333 | | | $ | 155,564 | |
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2023 | | 2022 | | 2021 |
| Net Income (Loss) | $ | (709,561) | | | $ | (498,005) | | | $ | 242,385 | |
| Other comprehensive gain (loss), net of tax: | | | | | |
| | | | | |
| Foreign currency translation adjustment | 451 | | | (333) | | | 12 | |
| Other comprehensive gain (loss), net of tax | 451 | | | (333) | | | 12 | |
| Comprehensive Income (Loss) | $ | (709,110) | | | $ | (498,338) | | | $ | 242,397 | |
| | Years Ended December 31, | |
| | 2020 | | | 2019 | | | 2018 | |
Supplemental disclosures of cash flow information: | | | | | | | | | | | | |
Cash paid for interest | | $ | 3,470 | | | $ | 3,095 | | | $ | 493 | |
Cash paid for income taxes | | $ | 1,014 | | | $ | 759 | | | $ | 564 | |
Supplemental disclosures of noncash investing and financing activities: | | | | | | | | | | | | |
Issuance of common stock for business combinations | | $ | — | | | $ | 69,684 | | | $ | — | |
Unpaid portion of property and equipment purchases | | $ | 1,242 | | | $ | 10,762 | | | $ | 1,617 | |
Unpaid portion of acquisition related expenses | | $ | — | | | $ | 2,190 | | | $ | — | |
Unpaid portion of purchased intangibles | | $ | — | | | $ | 400 | | | $ | — | |
Unpaid portion of at-the-market offering costs | | $ | — | | | $ | 144 | | | $ | — | |
See accompanying Notes to Consolidated Financial Statements.
Statements
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-in Capital | | Accumulated Other Comprehensive Income (Loss) | | Accumulated Deficit | | Total Stockholders' Equity |
| Shares | | Amount | | | | |
| Balance-December 31, 2020 | 128,004 | | | $ | 13 | | | $ | 1,660,379 | | | $ | 29 | | | $ | (332,406) | | | $ | 1,328,015 | |
| Vesting of early exercised stock options | — | | | — | | | 4 | | | — | | | — | | | 4 | |
| Issuance of common stock pursuant to equity incentive plans | 4,496 | | | 1 | | | 18,531 | | | — | | | — | | | 18,532 | |
| Issuance of common stock in connection with at-the-market offering, net of issuance costs of $10,400 | 2,637 | | | — | | | 989,615 | | | — | | | — | | | 989,615 | |
| Stock-based compensation expense | — | | | — | | | 188,043 | | | — | | | — | | | 188,043 | |
| Foreign currency translation adjustment | — | | | — | | | — | | | 12 | | | — | | | 12 | |
| Net income | — | | | — | | | — | | | — | | | 242,385 | | | 242,385 | |
| Balance-December 31, 2021 | 135,137 | | | 14 | | | 2,856,572 | | | 41 | | | (90,021) | | | 2,766,606 | |
| Issuance of common stock pursuant to equity incentive plans | 4,890 | | | — | | | 18,357 | | | — | | | — | | | 18,357 | |
| Stock-based compensation expense | — | | | — | | | 359,931 | | | — | | | — | | | 359,931 | |
| Foreign currency translation adjustment | — | | | — | | | — | | | (333) | | | — | | | (333) | |
| Net loss | — | | | — | | | — | | | — | | | (498,005) | | | (498,005) | |
| Balance-December 31, 2022 | 140,027 | | | 14 | | | 3,234,860 | | | (292) | | | (588,026) | | | 2,646,556 | |
| Issuance of common stock pursuant to equity incentive plans | 3,475 | | | — | | | 18,757 | | | — | | | — | | | 18,757 | |
| Stock-based compensation expense | — | | | — | | | 370,130 | | | — | | | — | | | 370,130 | |
| Foreign currency translation adjustment | — | | | — | | | — | | | 451 | | | — | | | 451 | |
| Net loss | — | | | — | | | — | | | — | | | (709,561) | | | (709,561) | |
| Balance-December 31, 2023 | 143,502 | | | $ | 14 | | | $ | 3,623,747 | | | $ | 159 | | | $ | (1,297,587) | | | $ | 2,326,333 | |
See accompanying Notes to Consolidated Financial Statements
ROKU, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2023 | | 2022 | | 2021 |
| Cash flows from operating activities: | | | | | |
| Net income (loss) | $ | (709,561) | | | $ | (498,005) | | | $ | 242,385 | |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | |
| Depreciation and amortization | 70,447 | | | 48,651 | | | 42,621 | |
| Stock-based compensation expense | 370,130 | | | 359,931 | | | 187,532 | |
| Amortization of right-of-use assets | 57,579 | | | 55,507 | | | 31,024 | |
| Amortization of content assets | 207,852 | | | 234,355 | | | 95,570 | |
| Foreign currency remeasurement (gains) losses | 1,457 | | | (8,230) | | | — | |
| Change in fair value of Strategic Investment | (4,348) | | | 532 | | | — | |
| Impairment of assets | 269,402 | | | 7,500 | | | — | |
| Provision for (recoveries of) doubtful accounts | 1,674 | | | 2,081 | | | (904) | |
| Other items, net | (1,510) | | | (190) | | | (101) | |
| Changes in operating assets and liabilities: | | | | | |
| Accounts receivable | (56,937) | | | (10,887) | | | (221,768) | |
| Inventories | 14,725 | | | (56,471) | | | 3,619 | |
| Prepaid expenses and other current assets | 15,058 | | | (15,941) | | | (48,074) | |
| Content assets and liabilities, net | (267,155) | | | (313,204) | | | (193,440) | |
| Other non-current assets | (592) | | | (7,304) | | | (19,335) | |
| Accounts payable | 248,175 | | | 14,190 | | | 8,428 | |
| Accrued liabilities | 57,714 | | | 167,526 | | | 128,931 | |
| Operating lease liabilities | (27,786) | | | (9,245) | | | (20,083) | |
| Other long-term liabilities | (1,309) | | | (403) | | | (1,100) | |
| Deferred revenue | 10,841 | | | 41,402 | | | (7,224) | |
| Net cash provided by operating activities | 255,856 | | | 11,795 | | | 228,081 | |
| Cash flows from investing activities: | | | | | |
| Purchases of property and equipment | (82,619) | | | (161,696) | | | (40,041) | |
| Acquisition of businesses, net of cash acquired | — | | | — | | | (136,778) | |
| Purchase of Strategic Investment | (10,000) | | | (40,000) | | | — | |
| Net cash used in investing activities | (92,619) | | | (201,696) | | | (176,819) | |
| Cash flows from financing activities: | | | | | |
| Repayments of borrowings | (80,000) | | | (10,000) | | | (5,000) | |
| Proceeds from equity issued under incentive plans | 18,757 | | | 18,357 | | | 18,532 | |
| Proceeds from equity issued under at-the-market offerings, net of offering costs | — | | | — | | | 989,615 | |
| Net cash (used in) provided by financing activities | (61,243) | | | 8,357 | | | 1,003,147 | |
| Net increase (decrease) in cash, cash equivalents and restricted cash | 101,994 | | | (181,544) | | | 1,054,409 | |
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | 2,654 | | | (4,170) | | | 12 | |
| Cash, cash equivalents and restricted cash —Beginning of period | 1,961,956 | | | 2,147,670 | | | 1,093,249 | |
| Cash, cash equivalents and restricted cash —End of period | $ | 2,066,604 | | | $ | 1,961,956 | | | $ | 2,147,670 | |
| Cash, cash equivalents and restricted cash at end of period: | | | | | |
| Cash and cash equivalents | 2,025,891 | | | 1,961,956 | | | 2,146,043 | |
| Restricted cash, current | 40,713 | | | — | | | — | |
| Restricted cash, non-current | — | | | — | | | 1,627 | |
| Cash, cash equivalents and restricted cash —End of period | $ | 2,066,604 | | | $ | 1,961,956 | | | $ | 2,147,670 | |
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2023 | | 2022 | | 2021 |
| Supplemental disclosures of cash flow information: | | | | | |
| Cash paid for interest | $ | 915 | | | $ | 3,894 | | | $ | 2,578 | |
| Cash paid for income taxes | $ | 6,632 | | | $ | 7,016 | | | $ | 1,363 | |
| Supplemental disclosures of non-cash investing and financing activities: | | | | | |
| Non-cash consideration for business combination | $ | — | | | $ | — | | | $ | 21,400 | |
| Services to be received as part of a business combination | $ | — | | | $ | — | | | $ | 6,500 | |
| | | | | |
| Unpaid portion of property and equipment purchases | $ | 429 | | | $ | 28,503 | | | $ | 3,073 | |
| | | | | |
| | | | | |
| | | | | |
See accompanying Notes to Consolidated Financial Statements
ROKU, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Organization and Description of Business
Roku, Inc. (the “Company” or “Roku”), was formed in October 2002 as Roku LLC under the laws of the State of Delaware. On February 1, 2008, Roku LLC was converted into Roku, Inc., a Delaware corporation. The
Company’s TV streaming platform allows users to easily discover and access a wide variety of movies and TV episodes, as well as live sports, music, news and more. The Company operates in
2two reportable segments
and generates platform revenue from the sale of digital advertising (including direct and programmatic video advertising, media and entertainment promotional spending, and related services) and streaming services distribution (including subscription and transaction revenue shares, the sale of Premium Subscriptions, and the sale of branded app buttons on remote controls). Streaming services distribution was previously referred to as content distribution audience development, billing services and licensing activities and playerservices. The Company generates devices revenue from the sale of streaming players, Roku-branded TVs, smart home products and services, audio products.products, and related accessories as well as revenue from licensing arrangements with service operators.
2. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
Basis of Presentation and Principles of Consolidation
The consolidated financial statements, which include the accounts of Roku, Inc. and its wholly-owned subsidiaries, have been prepared in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”). All intercompany accounts and transactions have been eliminated in consolidation.
Reclassification of Prior Year Presentation
Certain prior period amounts within cash flow from operations in the statement of cash flows,consolidated financial statements and accompanying notes have been reclassified to conform to the current period presentation. These reclassifications had no effect on net cash provided by operating activities for any period reported.
The preparation of the Company’s consolidated financial statements in accordance with U.S. GAAP requires management to make certain estimates, judgements,judgments, and assumptions that affect the reported amounts of assets, liabilities, net revenue, and expenses. Significant items subject to such estimates and assumptions include: for
•revenue recognition,recognition: determining the nature and timing of satisfaction of performance obligations, variable consideration, determining the stand-alone selling prices of performance obligations, gross versus net revenue recognition, and evaluation of customer versus vendor relationships, and other obligations such as sales return reserves and sales incentive programs; relationships;
•the impairment of goodwillintangible assets;
•amortization and intangiblethe impairment of content assets;
•the impairment of operating lease right-of-use assets and property and equipment;
•valuation of the Strategic Investment (defined in Note 7);
•useful lives of tangible and intangible assets;
•allowances for doubtful accounts; sales returns and sales incentives; and
•the valuation of deferred income tax assets; and stock-based compensation. assets
The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances. Actual results may differ from the Company’s estimates and assumptions.
Comprehensive
LossThe comprehensive loss is equal to the net lossIncome (Loss)
Comprehensive income (loss) for the yearyears ended December 31, 2020. Comprehensive loss2023, 2022, and 2021 includes unrealized gains on the Company’s short-term investments and foreign currency translation adjustments for the year ended December 31, 2019. Comprehensive loss includes unrealized losses on the Company’s short-term investments for the year ended December 31, 2018. Income taxes on the unrealized gains or losses are not material.adjustments.
Foreign Currency
The functional currency
of some of the Company’s foreign subsidiaries is the U.S. dollar. Monetary assets and liabilities of these subsidiaries are remeasured into U.S. dollars from the local currency at
exchange rates in effect at period-end and
nonmonetarynon-monetary assets and liabilities are remeasured at historical
exchange rates.
RevenuesRevenue and expenses are remeasured at average exchange rates in effect during each period. Foreign currency gains or losses from
re-measurementremeasurement and transaction gains or losses are recorded as
otherOther income (expense), net in the consolidated statements of operations.
During the year ended December 31, 2020, the Company recorded a foreign currency gain of $1.3 million. During the years ended December 31, 2019 and 2018, theThe Company recorded a foreign currency loss of
$0.2$1.5 million, a gain of $8.2 million, and
$0.5a loss of $1.2 million
during the years ended December 31, 2023, 2022, and 2021, respectively.
The Company also has some foreign subsidiaries which use local currency as their functional currency. The financial statements of these subsidiaries are translated to U.S. dollars using month-end exchange rates for assets and liabilities, and average exchange rates for revenue and expenses. Translation gains and losses are recorded in accumulated other comprehensive income (loss) as a component of stockholders' equity.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less at the date of purchase to be cash equivalents. As of December 31, 2020, 2 financial institutions managed 46% and 26%, respectively, of the Company’s total cashCash and cash equivalents balance. Asconsist primarily of December 31, 2019,bank deposit accounts and investments in money market funds.
The Company’s restricted cash balance is included in Prepaid expenses and other current assets in the same 2consolidated balance sheets and is used to secure outstanding letters of credit related to operating leases for office facilities. The letters of credit were previously secured by the Credit Facility (defined in Note 10) which matured and was repaid in February 2023. See Note 10 for additional details.
The Company maintains its cash, cash equivalent, and restricted cash balances with high credit financial institutions
managed 65% and
34%, respectively,continuously monitors the amount of
the Company’s total cashexposure to any one institution and
cash equivalents balance.diversifies as necessary in order to minimize its concentration risk. Such balances often exceed regulated insured limits.
Accounts receivable are typically unsecured and are derived from revenue earned from customers. They are stated at invoice value less estimated allowances for sales returns, sales incentives,
doubtful accounts, and
doubtful accounts.other miscellaneous allowances. The Company performs ongoing credit evaluations of its customers
and maintainsto determine allowances for potential credit losses and doubtful accounts. The Company considers historical experience, ongoing promotional activities, historical claim
raterates, and other factors to determine the allowances for sales returns and sales incentives.
Allowance for Sales Returns: Allowance for sales returns consistconsisted of the following activities (in thousands): | | | Years Ended December 31, | | | Years Ended December 31, |
| | 2020 | | | 2019 | | | 2018 | | | 2023 | | 2022 | | 2021 |
Beginning balance | | $ | (6,550 | ) | | $ | (7,335 | ) | | $ | (6,907 | ) |
Charged to revenue | | | (14,594 | ) | | | (15,541 | ) | | | (17,396 | ) |
Utilization of sales return reserve | | | 15,232 | | | | 16,326 | | | | 16,968 | |
| Add: Charged to revenue | |
| Less: Utilization of sales return reserve | |
Ending balance | | $ | (5,912 | ) | | $ | (6,550 | ) | | $ | (7,335 | ) |
Allowance for Sales Incentives: Allowance for sales incentives consisted of the following activities (in thousands): | | | Years Ended December 31, | | | Years Ended December 31, |
| | 2020 | | | 2019 | | | 2018 | | | 2023 | | 2022 | | 2021 |
Beginning balance | | $ | (19,476 | ) | | $ | (13,750 | ) | | $ | (10,442 | ) |
Charged to revenue | | | (68,315 | ) | | | (65,676 | ) | | | (50,958 | ) |
Utilization of sales incentive reserve | | | 56,953 | | | | 59,950 | | | | 47,650 | |
| Add: Charged to revenue | |
| Less: Utilization of sales incentive reserve | |
Ending balance | | $ | (30,838 | ) | | $ | (19,476 | ) | | $ | (13,750 | ) |
|
Allowance for Doubtful Accounts: Allowance for doubtful accounts consisted of the following activities (in thousands):
| | Years Ended December 31, | |
| | 2020 | | | 2019 | | | 2018 | |
Balance, beginning of period | | $ | (1,140 | ) | | | (686 | ) | | | (63 | ) |
Impact of adoption of ASU 2016-13 | | | (1,066 | ) | | | — | | | | — | |
Adjusted balance, beginning of period | | | (2,206 | ) | | | (686 | ) | | | (63 | ) |
Provision for doubtful accounts | | $ | (3,801 | ) | | $ | (704 | ) | | $ | (876 | ) |
Adjustments for recovery and write-off | | | 1,826 | | | | 250 | | | | 253 | |
Balance, end of period | | | (4,181 | ) | | | (1,140 | ) | | | (686 | ) |
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2023 | | 2022 | | 2021 |
| Beginning balance | $ | 3,498 | | | $ | 2,158 | | | $ | 4,181 | |
| Provision for (recoveries of) doubtful accounts | 1,674 | | | 2,081 | | | (904) | |
| Adjustments for write-off | (2,959) | | | (741) | | | (1,119) | |
| Ending balance | $ | 2,213 | | | $ | 3,498 | | | $ | 2,158 | |
Customer H accounted for 11% of the accounts receivable, net balance as of December 31, 2020.
The Company did
0tnot have any customer that
individually accounted for more than 10% of its accounts receivable, net balance as of December 31,
2019.Business Combinations
The Company determines whether a transaction meets the definition2023 and 2022.
Intangible assets acquired through business combinations are recorded at their fair values
uponas of the acquisition
close.date. Intangible assets are amortized using the straight-line method over their estimated useful lives. The Company evaluates the estimated remaining useful lives of its intangible assets annually and when events or changes in circumstances warrant a revision to the remaining periods of amortization.
The Company evaluates goodwill
and indefinite-lived intangible assets, for possible impairment at least annually during the fourth quarter of each fiscal year or more often, if and when circumstances indicate that goodwill
or indefinite-lived intangible assets may be impaired. This includes but is not limited to significant adverse changes in the business climate, market conditions, or other events that indicate that it is more likely than not that the fair value of a reporting unit
or indefinite lived-intangible asset is less than its carrying value. In performing its annual assessment, the Company can opt to perform a qualitative assessment to test
a reporting unit’s goodwill for impairment or it can directly perform a quantitative assessment. Based on the Company’s qualitative assessment, if
it is determined that the fair value of ourthe reporting unit or indefinite-lived intangible assets is, more likely than not, less than its carrying amount, then the quantitative assessment is performed. Any excess of the reporting unit'sunit’s carrying amount over its fair value is berecorded as an impairment loss, limited to the total amount of goodwill allocated to the reporting unit. Any excess of an indefinite-lived intangible asset’s carrying amount over its fair value is recorded as an impairment loss.
The Company reviews long-lived assets,
intangibleincluding property and equipment, right-of-use assets, and
capitalized licensed contentintangible assets with finite lives for impairment when events or changes in business circumstances indicate that the carrying amount of the
assetsasset or asset group may not be
fully recoverable or that the useful lives of those assets are no longer appropriate.recoverable. The Company assesses
these assets for impairmentthe recoverability of an asset or asset group based on their estimated undiscounted future cash
flows.flows directly associated with their use and eventual disposition. If the
carrying value of theasset or asset group
exceeds the estimated future undiscounted cash flows, the Company recognizesis not recoverable, an impairment loss
is recognized based on the excess of the carrying amount over the fair value of the asset
or asset group.
The Company did 0tnot recognize any impairment for goodwill intangible assets or capitalized licensed content assets in any of the periods reported. The Company recorded an impairment charge related to abandoned technology assets of $7.5 million for the year ended December 31, 2022. There were no impairments of operating right-of-useintangible assets during the years ended December 31, 20202023 and 2019December 31, 2021. See Note 17 for additional details.
During the year ended December 31, 2023, the Company recognized an impairment charge of $131.6 million for operating lease right-of-use assets and an impairment charge of $72.3 million for property and equipment related to a decision to sub-lease and cease the use of certain office facilities and related property and equipment. This action was taken as part of the restructuring announced in the third quarter of fiscal year 2023. See Note 17 for additional details. There were no impairments of property and equipment, right-of-use assets, and intangible assets with finite lives during the years ended December 31, 2022 and December 31, 2021.
Content Assets
The Company recognizes content assets (licensed and produced) as Content assets, net on the consolidated balance sheets. For licensed content, the cost per title is capitalized along with a corresponding liability when the license period begins, the content is available for streaming and when the fee is determinable. For produced content, all direct production costs are capitalized. Payment terms for certain licensed content require advanced payments which are reflected in Prepaid expenses and other current assets.
The amortization expense for content assets (licensed and produced) is based on projected usage which results in accelerated or straight-lined patterns depending on the nature of the content. Projected usage is mainly based on historical and projected viewing patterns. Amortization of content assets is included in Cost of revenue, platform in the consolidated statements of operations.
Content assets (licensed and produced) are primarily monetized together as a unit, referred to as a film group. The film group is evaluated for impairment whenever an event occurs, or circumstances change, indicating the fair value is less than the carrying value. The Company reviews various qualitative factors and indicators to assess whether the film group is impaired. In addition, unamortized costs for assets that have been, or are expected to be, abandoned are written off. During the year ended December 31, 2023, the Company recognized an impairment charge of $65.5 million related to removing select licensed and produced content from The Roku Channel. This action was taken as part of the restructuring announced in the third quarter of fiscal year 2023. See Note 17 for additional details. The Company did not
material.recognize any impairment of content assets during the years ended December 31, 2022 and December 31, 2021.
Revenue is recognized upon transfer of control of promised goods or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those goods or services. The Company’s contracts include various product or services or a combination of both, which are generally capable of being distinct and are accounted for as separate performance obligations. The Company’s contracts often contain multiple distinct performance obligations.
The Company estimates the transaction price
of a contract based on the
amount expected to be received for transferring the promised goods or services in the contract which may include fixed consideration or variable consideration. At the inception of each arrangement, the Company evaluates the likelihood that the payments will be collected. When arrangements have variable consideration, the Company utilizes the expected value
for whichmethod to estimate the amount expected to be received. The amount of variable consideration that is included in the transaction price is constrained to the extent that it is probable a significant reversal
in the amount of
the cumulative revenue
isrecognized will not
expected to occur.occur in a future period. The estimate of the variable consideration is based on the assessment of historical, current, and forecasted performance noted and expected from the performance obligation.
In arrangements with multiple performance obligations, the estimated transaction price of each contract is allocated to each distinct performance obligation based on relative stand-alone selling price (“SSP”). For performance obligations routinely sold separately, the
Company determines SSP
is determined by evaluating such stand-alone sales.based on prices charged to customers for individual products in consideration with historical and expected discounting practices, the size, and volume of transactions, geographic location, and go-to-market strategy. For those performance obligations that are not routinely sold separately, the Company determines SSP
based onusing information that may include market conditions and other observable inputs.
When the
Company sellsCompany’s arrangements involve third-party goods and services, it evaluates whether the Company is the principal, and reports
revenuesrevenue on a gross basis, or an agent, and reports
revenuesrevenue on a net basis. In this assessment, the Company considers if it obtains control of the specified goods or services before they are transferred to the customer, as well as other indicators such as the party primarily responsible for fulfillment, inventory risk, and discretion in establishing price.
Revenue is recorded net of taxes collected from customers which are subsequently remitted to the relevant government authority. The Company does not capitalize any cost associated with contract acquisition because it applies a practical expedient and expenses commissions when incurred as most direct contract acquisition costs relate to contracts that are recognized over a period of one year or less. Sales commissions are included in Sales and marketing expenses in the consolidated statements of operations.
As-invoicedThe as-invoiced practical expedient is applied when the amount of consideration the Company has a right to invoice corresponds directly with the value to the customer of the entity’s performance completed to date.
Nature of Products and Services
The Company generates platform revenue from the sale of digital advertising (including direct and programmatic video advertising, media and entertainment promotional spending, and related services) and streaming services content distribution services,(including subscription and transaction revenue shares, the sale of Premium Subscriptions, billing services,and the sale of branded channelapp buttons on remote controls and licensing arrangements with service operators and TV brands.controls).
The Company sells digital advertising directly to marketersadvertisers directly or through advertising agencies. Revenue from advertising is mostly generated throughagencies or third-party demand and supply-side platforms and to content partners for their media and entertainment promotions via various campaign tools. Advertising arrangements include video and display advertising delivered through advertising impressions. Advertising is typically sold on a cost-per-thousand (“CPM”) basis and is evidenced by an Insertion Order (“IO”). Revenue is recognized as the number of impressions are delivered. IOs mayarrangements include multiple performance obligations as they contain distinct advertising products or services. For such arrangements, the Company allocates revenue to each distinct performance obligation based on their relative SSP. The Company also generates revenue from customers using its advertising platform. For thatsuch arrangements, it charges a platform fee, which is a percentage of a customer’s advertising inventory spend during the month, along with data and any add-on features purchased through the platform. The Company recognizes revenue on either a gross or net basis for digital advertising based on its determination as to whether it is acting as the principal in the revenue generation process or as an agent. Where the Company is the principal, it controls the advertising inventory before it is transferred to its customers. This is further supported by the Company being primarily responsible to its customers for the fulfillment and having a level of discretion in establishing pricing. Advertising arrangements comprised of multiple performance obligations are recognized either at a point in time or over time depending on the nature of the distinct performance obligation.
The Company’s
content distribution revenue sharing arrangements
within its streaming services distribution include cash or non-cash consideration. The revenue sharing arrangements generally apply to new subscriptions for accounts that sign up for new services and at the time of a movie rental or purchase. Revenue is recognized on a net basis as the Company is deemed to be the agent between content
publisherspartners and end users. Revenue is recognized on a time elapsed basis, by day, as the services are delivered over the contractual distribution term. Non-cash consideration is usually in the form of advertising inventory, the fair value of which is determined based on relevant internal and third-party data.
The Company sells
monthly subscriptionsPremium Subscriptions for premium content on The Roku Channel for varying fees for different content. Revenue from such
premium subscriptionPremium Subscription fees is recognized on a gross basis over the service period as the Company is deemed to be the principal in the relationship with the end user. The Company obtains control of the content before transferring to the end user and has latitude in establishing pricing. The Company pays fixed fees
per subscriber or fixed percentage of revenue share to the providers of premium content on The Roku Channel based on the contractual arrangement and recognizes that in Cost of revenue, platform.
The Company sells branded
channelapp buttons on remote controls of streaming devices that provide one-touch access to a
publisher’scontent partner’s content. The Company typically receives a fixed fee per button for each unit sold over a defined distribution period. Revenue is recognized on a time elapsed basis, by day, over the distribution term.
Devices segment:
The Company generates devices revenue from the sale of streaming players, Roku-branded TVs, smart home products and services, audio products, and related accessories as well as revenue from licensing arrangements with service operators.
The Company sells the majority of its devices in the U.S. through retailers and distributors as well as through the Company’s website. Devices revenue primarily consists of hardware, embedded software, and unspecified upgrades and updates on a when and if-available basis. The hardware and embedded software are considered as one performance obligation and revenue is recognized at a point in time when the control transfers to the customer. Unspecified upgrades and updates are available to customers on a when-and-if available basis. The Company records the allocated value of the unspecified upgrades and updates as deferred revenue and recognizes it as devices revenue ratably on a time elapsed basis over the estimated economic life of the associated products.
The Company’s devices revenue includes allowances for sales returns and sales incentives in the estimated transaction price. These estimates are based on historical experience and anticipated performance. Shipping charges billed to customers are included in devices revenue and the related shipping costs are included in Cost of revenue, devices.
The Company licenses the Roku OS, including updates and upgrades, to
TV brands and service operators.
The licensing revenue is recognized at a point in time, when the Company makes the intellectual property available and the control transfers to the customer. The revenue allocated to unspecified upgrades
and updates is recognized on a time elapsed basis, by day, over the service period. Professional services revenue is recognized as services are provided or accepted. Hosting fees are recognized on a time elapsed basis, by day, over the service period.
Player segment:
The Company sells the majority of its players and audio products to retail distribution channels in the U.S., including brick and mortar and online retailers, as well as through the Company’s website. Player revenue primarily consists of hardware, embedded software and unspecified upgrades on a when and if-available basis. The hardware and embedded software are considered as one performance obligation and revenue is recognized at a point in time when the control transfers to the customer. Unspecified upgrades or enhancements are available to customers on a when-and-if available basis. The Company records the allocated value of the unspecified upgrades as deferred revenue and recognizes it as player revenue ratably on a time elapsed basis over the estimated economic life of the associated players.
The Company’s player revenue includes allowances for sales returns and sales incentives in the estimated transaction price. These estimates are based on historical experience and anticipated performance. Shipping charges billed to customers are included in Revenue and the related shipping costs are included in Cost of revenue.
Leases
Leases
On January 1, 2019, the Company adopted the guidance in Leases (Topic 842), using the optional transition method and recorded operating right-of-use (“ROU”) assets and operating lease liabilities on its consolidated balance sheets.
The Company determines if an arrangement contains a lease at its inception.
Operating leases are included in operating lease right-of-use (“ROU”) assets, accrued liabilities, and operating lease liability in ourthe consolidated balance sheets. ROU assets
represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the rate implicit in the lease is not readily determinable, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of future lease payments. The Company takes into consideration its credit rating and the length of the lease when calculating the incremental borrowing rate. The Company considers the options to extend or terminate the lease in determining the lease term, when it is reasonably certain to exercise one of the options.
The Company combines lease and non-lease components into a single lease component for its real estate and equipment leases.Fair Value of Financial Instruments
The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company applies fair value accounting for all assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements. The carrying amounts reported in the consolidated financial statements for cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximate their fair values due to their short-term nature. The carrying amount of debt approximates fair value due to its variable interest rates.
The Company’s inventories consist primarily of finished goods and are stated at the lower of cost or net realizable value with cost determined on a first-in, first-out basis. Provisions are made if the cost of the inventories exceeds their net realizable value. The Company evaluates inventory levels and purchase commitments for excess and obsolete products, based on
management’sits assessment of future demand and market conditions.
Property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives of the assets, generally ranging between eighteen months and five years.years. Leasehold improvements are amortized over the shorter of the lease term or their estimated useful lives, which range from fiveone to teneleven years. The Company capitalizes costs to develop its internal-use software. Costs that relate to the planning and post-implementation phases of development are expensed as incurred. Costs are capitalized when preliminary efforts are successfully completed, management has authorized and committed to funding the project, and it is probable that the project will be completed and will be used as intended. Costs incurred for enhancements that are expected to result in additional material functionality are capitalized.
During the years ended December 31, 2020, 20192023, and 2018,2022, the Company did not capitalize any internal-use software development costs. During the year ended December 31, 2021, the Company capitalized internal-use software development costs of $2.2 million, $0.1 million and $1.0 million, respectively.$0.5 million. Capitalized costs are amortized using the straight-line method over the estimated useful life of the asset, which is generally two to three years, beginning when the asset is ready for its intended use. During the years ended December 31, 2020, 20192023, 2022, and 2018,2021, the Company amortized expensesinternal-use software development costs of $0.5$0.9 million, $1.6$1.0 million, and $2.0$1.0 million, respectively. The Company’s deferred revenue reflects fees received
from licensing and service arrangements, including advertising,in advance that will be recognized as revenue over time or as services are rendered. Deferred revenue balances consist of the amount of
player salesdevices revenue allocated to unspecified upgrades
or enhancementsand updates on a when-and-if available
basis, and advance payments from advertisers, content partners, and licensing andor services fees received from service operators and TV brands, and payments from advertisers and content publishers.where performance obligations are not yet fulfilled. Deferred revenue expected to be realized within one year is classified as a current liabilitiesliability and the remaining is recorded as noncurrent liabilities.
a non-current liability.
Advertising
CostsExpenses
Advertising
costsexpenses are
expensedrecognized when incurred and are included in Sales and marketing expense in the consolidated statements of operations. The Company incurred advertising
costsexpenses of
$7.1$3.7 million,
$7.3$10.0 million, and
$3.0$35.2 million for the years
ended December 31,
2020, 20192023, 2022, and
2018,2021, respectively.
The Company measures compensation expense for all stock-based awards, including restricted stock units and stock options granted to employees, based on the estimated fair value of the award on the date of grant. For restricted stock units, the grant date fair value is based on the closing market price of the Company’s Class A common stock on the date of grant. The fair value of each stock option is estimated using the Black-Scholes
option-pricingoption pricing model. The Company accounts for forfeitures as they occur. Stock-based compensation is recognized on a straight-line basis over the requisite vesting period.
The Black-Scholes option pricing model used to fair value stock options include the following assumptions:
•Fair Value of Our Common Stock. The Company uses the closing market price of its Class A common stock as reported on The Nasdaq Global Select Market on the date of grant.
•Expected Term. The expected term of employee stock options represents the weighted-average period that the stock options are expected to remain outstanding. The Company uses the simplified calculation of the expected term, which reflects weighted-average time to vest and the contractual life of the stock options granted, in absence of its own historical exercise data.
•Volatility. The expected volatility is derived from an average of the historical volatility of the Company’s Class A common stock price and the stock price volatilities of several peer companies which are similar in size and/or operational and economic activities.
•Risk-free Rate. The risk-free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected term for each of the Company’s stock options.
•Dividend Yield. The expected dividend is assumed to be zero as the Company has never paid dividends and has no current plans to pay any dividends on its common stock.
The Company accounts for income taxes using an asset and liability approach. Deferred tax assets and liabilities are determined based on the difference between the consolidated financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts that are more likely than not to be realized.
Net Loss per Share
Since the Company was in a loss position for all periods presented, basic net loss per share is the same as diluted net loss per share for all periods as the inclusion of all potential common shares outstanding and potentially dilutive securities would have been anti-dilutive.
Recently Adopted
Recent Accounting
StandardsPronouncements
In June 2016,November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-13,2023-07, Financial InstrumentsSegment Reporting (Topic 280) - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The guidance amended reporting of credit losses for assets held at amortized cost basis and available-for-sale debt securities to require that credit losses on available-for-sale debt securities be presented as an allowance rather than as a write-down.On January 1, 2020, the Company adopted this guidance using the modified retrospective adoption method and recorded a cumulative-effect adjustment to the beginning balance of accumulated deficit of approximately $1.1 million. The measurement of credit losses for newly recognized financial assets and subsequent changes in the allowance for credit losses are recorded in the statements of operations. This impact mainly relates to credit losses recognized on the Company’s doubtful accounts. As the Company did not have any available-for-sale debt securities as of the adoption date, there was no additional impact to accumulated deficit.
In March 2019, the FASB issued ASU 2019-02, Entertainment—Films—Other Assets—Film Costs (Subtopic 926-20) and Entertainment—Broadcasters—Intangibles—Goodwill and Other (Subtopic 920-350): Improvements to Accounting for Costs of Films and License Agreements for Program MaterialsReportable Segment Disclosures, in orderthat requires companies to align the accounting for production costs ofprovide enhanced disclosures about significant segment expenses within its reportable segment disclosures on an episodic television series with the accounting for production costs of films by removing the content distinction for capitalization. ASU 2019-02 also requires that an entity reassess estimates of the use of a film in a film group and account for any changes prospectively. In addition, ASU 2019-02 requires that an entity test films and license agreements for program material for impairment at a film group level when the film
or license agreements are predominantly monetized with other films and license agreements. On January 1, 2020, the Company adopted the guidance in ASU 2019-02. There was no material impact to the Company’s consolidated financial statements.
The Company also adopted the following ASUs effective January 1, 2020, none of which had a material impact on the Company’s financial position or results of operations.
| |
| |
ASU
| Description
|
ASU 2018-15
| Intangibles—Goodwill and Other—Internal-Use Software (Topic 350), Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
|
ASU 2018-13
| Fair Value Measurements (Topic 820), Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement
|
ASU 2017-04
| Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
|
ASU2019-04
| Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments
|
ASU2020-02
| Financial Instruments—Credit Losses (Topic 326) and Leases (Topic 842)—Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842)
|
ASU2020-03
| Codification Improvements to Financial Instruments
|
In March 2020, FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This guidance provides optional expedients and exceptions for applying U.S. GAAP to contract modifications, hedging relationships, and other transactions that reference London Interbank Offered Rate (“LIBOR”) that is expected to be discontinued, subject to meeting certain criteria. The guidance is effective as of March 12, 2020 through December 31, 2022. The Company made a policy election in the second quarter of 2020 to elect a different reference rate for the Credit Agreement when LIBOR is discontinued. It is still uncertain when the transition from LIBOR to another reference rate will occur or which reference rate will become the accepted market alternative to LIBOR.
Recent Accounting Standards Not Yet Adopted
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, to simplify the accounting for income taxes by removing certain exceptions to the general principles and also simplification of areas such as franchise taxes, step-up in tax basis goodwill, separate entity financial statementsannual and interim recognition of enactment of tax laws or rate changes.basis. The guidance is effective for fiscal years beginning after December 15, 2020, including2023 and interim reporting periods within those fiscal years with early adoption permitted.beginning after December 15, 2024. The Company believes that the adoption of this guidance will not have a material impact onapplies retrospectively to all prior periods presented in the financial statements.
The Company is currently in the process of evaluating the effects of the new guidance.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures, that requires incremental disclosures within the income tax disclosures that increase the transparency and usefulness of income tax disclosures. The updated disclosures primarily require specific categories and greater disaggregation within the rate reconciliation, disaggregation of income taxes paid, and modifying other income tax-related disclosures. The guidance is effective either prospectively or retrospectively for fiscal years beginning after December 15, 2024. The Company is currently in the process of evaluating the effects of the new guidance.
The Company’s disaggregated
revenues arerevenue is represented by the
2two reportable segments discussed in Note
17.16.
The contract balances include the following (in thousands):
| | | As of December 31, | | | As of December 31, |
| | 2020 | | | 2019 | | | 2018 | | | 2023 | | 2022 | | 2021 |
Accounts receivable, net | | $ | 523,852 | | | $ | 332,673 | | | $ | 183,078 | |
Contract assets (included in Prepaid expenses and other current assets) | | | 7,431 | | | | 3,588 | | | | 753 | |
| | | | | | | | | | | | |
Deferred revenue, current portion | | | 55,465 | | | | 39,861 | | | | 45,442 | |
| Deferred revenue, current portion | |
| Deferred revenue, current portion | |
Deferred revenue, non-current portion | | | 21,283 | | | | 15,370 | | | | 19,594 | |
Total deferred revenue | | $ | 76,748 | | | $ | 55,231 | | | $ | 65,036 | |
Accounts receivable are recorded at the amount invoiced, net of an allowance for
doubtful accounts, sales returns,
sales incentives, and
sales incentives.doubtful accounts. Payment terms can vary by customer and contract.
The timing of revenue recognition may differ from the timing of invoicing to customers.
Contract assets are created when invoicing occurs subsequent to revenue recognition. Contract assets are transferred to accounts receivable when the right to invoice becomes unconditional. The Company’s contract assets are generally current in nature and are included in Prepaid expenses and other current assets. Contract assets
increaseddecreased by
$3.8$24.7 million during the year ended December 31,
20202023 due to the timing of billing to customers and
a slower growth rate in platform revenue. Contract assets decreased by
$2.8$4.3 million during the year ended December 31,
2019 primarily2022 due to
an increase in the growth of platform revenue combined with the timing of billing
which falls intoto customers and a
subsequent period.Contract liabilities are includedslower growth rate in deferredplatform revenue.
Deferred revenue
and reflectreflects consideration invoiced prior to the completion of performance obligations and revenue recognition. Deferred revenue increased by approximately
$21.5$10.8 million during the year ended December 31,
20202023 due to an increase in subscription revenue related to Premium Subscriptions and smart home products, higher device revenue in the year ended December 31, 2023 as compared to the year ended December 31, 2022, and due to the
increasebillings in
estimated valuesexcess of
content publisherrevenue recognized and
licensing partner arrangements and change in the timing of fulfillment of performance obligations
of approximately $12.4 million, and higher growth in the player segment, resulting in a net increase in deferred revenue related to
unspecified upgrades of approximately $8.4 million.platform revenue arrangements. Deferred revenue
decreasedincreased by approximately
$9.8$41.4 million during the year ended December 31,
20192022 primarily due to
the billings in excess of revenue recognized
of $5.0 million pursuant to customer acceptance of a milestone,and the remaining revenue recognized primarily relates to the timing of fulfillment of performance
obligations.obligations related to revenue arrangements.
Revenue recognized during the year ended December 31,
20202023 from amounts included in
the total deferred revenue as of December 31,
20192022 was
$42.9$88.4 million. Revenue recognized during the year ended December 31,
20192022 from amounts included in
the total deferred revenue as of December 31,
20182021 was
$52.5$47.6 million.
Revenue allocated to remaining performance obligations represents estimated contracted revenue that has not yet been recognized which includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods. Estimated contracted revenue
for these remaining performance obligations was
$513.7 million$1,195.9 million as of December 31, 20202023, of which the Company expects to recognize approximately 55%47% over the next 12 months and the remainder thereafter.The Company recognized $14.4$45.5 million and $10.9reversed $3.2 million of revenue during the years ended December 31, 20202023 and 2019,2022, respectively, from performance obligations that were satisfied in previous periods due to the changes in the estimated transaction price of its revenue contracts.contracts.
Customer CI accounted for 12%, 14% and 18%11% of the total net revenue duringfor the year ended December 31, 2023. The Company did not have any customer that individually accounted for more than 10% of its total net revenue for the years ended December 31, 2020, 20192022 and 2018, respectively.2021.
4.
business combinationOn November 8, 2019, the Company acquired all outstanding shares of dataxu, Inc., (“dataxu”) according to the terms and conditions of the Agreement and Plan of Merger, dated as of October 22, 2019 (the “Merger Agreement”). dataxu is a demand-side platform (“DSP”) that enables marketers to plan and buy video ad campaigns. The acquisition of dataxu’s platform complements the Company’s OTT advertising platform and enables marketers to access a single, data-driven software solution to plan, buy, and optimize their ad spend across TV and OTT providers.
The total purchase consideration for dataxu was $147.3 million, which consisted of $77.6 million in cash and $69.7 million for the fair value of the Company’s 571,459 shares of Class A common stock. Pursuant to the Merger Agreement, the Company had deposited $18.8 million into an escrow account to secure certain indemnifications and other potential obligations. As of the year ended December 31, 2020, a balance of $13.6 million is unreleased and remains in the escrow account.
The allocation of the purchase consideration to tangible and intangible assets acquired and liabilities assumed on acquisition date is based on estimated fair values and is as follows (in thousands):
Assets acquired | | Fair Values | | | Estimated Useful Lives (in years) | |
Current assets | | $ | 50,829 | | | | | |
Restricted cash | | | 1,303 | | | | | |
Property and equipment, net | | | 4,503 | | | | | |
Intangible assets: | | | | | | | | |
Developed Technology | | | 56,400 | | | | 6.0 | |
Customer relationships | | | 13,400 | | | | 4.0 | |
Tradename | | | 400 | | | | 0.5 | |
Goodwill | | | 71,676 | | | | | |
Operating lease right-of-use assets | | | 24,658 | | | | | |
Other long-term assets | | | 235 | | | | | |
Total assets acquired | | | 223,404 | | | | | |
Liabilities assumed | | | | | | | | |
Current liabilities | | | (51,428 | ) | | | | |
Operating lease liabilities | | | (24,658 | ) | | | | |
Total liabilities assumed | | | (76,086 | ) | | | | |
Total purchase consideration | | $ | 147,318 | | | | | |
The fair value estimates of the net assets acquired are based upon calculations and valuations, and those estimates and assumptions regarding certain tangible assets acquired and liabilities assumed. The excess of the total consideration over the tangible assets, identifiable intangible assets, and assumed liabilities is recorded as goodwill. Goodwill is primarily attributable to expected synergies in our advertising offerings and cross-selling opportunities.
The goodwill recorded is not deductible for tax purposes. In connection with the acquisition, a deferred tax liability is established for the book/tax differences related to non-goodwill intangible assets. The deferred tax liability is not reflected as the Company also acquired deferred tax assets, including significant net operating losses, that offset the deferred tax liability. Additionally, both companies have full valuation allowances recorded against their respective deferred tax assets, resulting in a net zero adjustment to deferred taxes on the consolidated balance sheets.
5. GOODWILL AND INTANGIBLE ASSETS
Goodwill represents the excess of purchase consideration in a business combination over the fair value of tangible and intangible assets acquired net of the liabilities assumed.
The following table reflects All goodwill relates to the carrying value of goodwill (in thousands):
| | Carrying Value | |
Balance as of December 31, 2018 | | $ | 1,382 | |
Addition: dataxu acquisition | | | 72,734 | |
Balance as of December 31, 2019 | | | 74,116 | |
Adjustment: dataxu working capital adjustments | | | (1,058 | ) |
Balance as of December 31, 2020 | | $ | 73,058 | |
platform segment. Goodwill is evaluated for impairment annually. NaNNo impairment was recognized during the years ended December 31, 2020, 20192023, 2022, and 2018.
2021.
The following table istables summarize the summary of Company’s intangible assets for the periods presented (in thousands)thousands, except years):
| | As of December 31, 2020 | |
| | Gross Carrying Amount | | | Accumulated Amortization | | | Net Carrying Amount | | | Weighted-Average Useful Lives (in years) | |
| As of December 31, 2023 | | | As of December 31, 2023 |
| Gross
Carrying
Amount | | | Gross
Carrying
Amount | | Accumulated Amortization | | Net
Carrying
Amount | | Weighted-Average Useful Lives
(in years) |
Developed technology | | $ | 62,367 | | | $ | (13,439 | ) | | $ | 48,928 | | | | 5.9 | | Developed technology | $ | 73,367 | | | $ | | $ | (49,087) | | | $ | | $ | 24,280 | | | 5.9 | | 5.9 |
Customer relationships | | | 13,400 | | | | (3,908 | ) | | | 9,492 | | | | 4.0 | | Customer relationships | 14,100 | | | (13,948) | | (13,948) | | | 152 | | 152 | | | 4.0 | | 4.0 |
Tradename | | | 400 | | | | (400 | ) | | | — | | | | 0.5 | | Tradename | 20,400 | | | (5,966) | | (5,966) | | | 14,434 | | 14,434 | | | 9.8 | | 9.8 |
Patents | | | 4,076 | | | | (315 | ) | | | 3,761 | | | | 14.0 | | Patents | 4,076 | | | (1,189) | | (1,189) | | | 2,887 | | 2,887 | | | 14.0 | | 14.0 |
Intangible assets | | $ | 80,243 | | | $ | (18,062 | ) | | $ | 62,181 | | | | | |
| Total Intangible assets | | Total Intangible assets | $ | 111,943 | | | $ | (70,190) | | | $ | 41,753 | | | 6.7 |
| | As of December 31, 2019 | |
| As of December 31, 2022 | | | As of December 31, 2022 |
| | Gross Carrying Amount | | | Accumulated Amortization | | | Net Carrying Amount | | | Weighted-Average Useful Lives (in years) | | | Gross
Carrying
Amount | | Accumulated Amortization | | Net
Carrying
Amount | | Weighted-Average Useful Lives
(in years) |
Developed technology | | $ | 62,367 | | | $ | (2,860 | ) | | $ | 59,507 | | | | 5.9 | | Developed technology | $ | 73,367 | | | $ | | $ | (37,278) | | | $ | | $ | 36,089 | | | 5.9 | | 5.9 |
Customer relationships | | | 13,400 | | | | (558 | ) | | | 12,842 | | | | 4.0 | | Customer relationships | 14,100 | | | (10,920) | | (10,920) | | | 3,180 | | 3,180 | | | 4.0 | | 4.0 |
Tradename | | | 400 | | | | (133 | ) | | | 267 | | | | 0.5 | | Tradename | 20,400 | | | (3,966) | | (3,966) | | | 16,434 | | 16,434 | | | 9.8 | | 9.8 |
Patents | | | 4,076 | | | | (24 | ) | | | 4,052 | | | | 14.0 | | Patents | 4,076 | | | (898) | | (898) | | | 3,178 | | 3,178 | | | 14.0 | | 14.0 |
Intangible assets | | $ | 80,243 | | | $ | (3,575 | ) | | $ | 76,668 | | | | | |
| Total Intangible assets | | Total Intangible assets | $ | 111,943 | | | $ | (53,062) | | | $ | 58,881 | | | 6.7 |
The Company recognized an impairment charge of $7.5 million during the year ended December 31, 2022 as part of its restructuring efforts related to the abandonment of future development of certain technology assets. See Note 17 for additional details.
The Company recorded expenses of $14.5$17.1 million, $2.8$17.7 million, and $0.6$17.3 million for amortization of intangible assets during the years ended December 31, 2020, 20192023, 2022, and 2018,2021, respectively. In the years ended December 31, 2020 and 2019, the
The Company recorded most of the amortization of developed technology in Cost of revenue, platform for the year ended December 31, 2023, and in Cost of revenue, player,platform and Research and development expenses for the years ended December 31, 2022 and General and administrative expenses and2021. The Company recorded amortization of customer relationships and tradename in Sales and marketing expenses, in the consolidated statements of operations. In the year ended December 31, 2018, the Companyand recorded amortization of developed technologypatents in ResearchGeneral and developmentadministrative expenses in the consolidated statements of operations.
TheAs of December 31, 2023, the estimated future amortization expense for intangible assetassets for the next five years and thereafter is as follows (in thousands):
| Year Ending December 31, | | | | | Year Ending December 31, | |
2021 | | $ | 14,036 | |
2022 | | | 13,666 | |
2023 | | | 13,108 | |
2024 | | | 10,316 | |
2025 | | | 8,750 | | 2025 | 12,533 |
| 2026 | | 2026 | 4,074 |
| 2027 | | 2027 | 2,737 |
| 2028 | | 2028 | 2,291 |
Thereafter | | | 2,305 | | Thereafter | 5,866 |
Total | | $ | 62,181 | |
6. Balance sheet components
5. BALANCE SHEET COMPONENTS
Accounts Receivable, net: Accounts receivable, net consisted of the following (in thousands):
| | As of December 31, | |
| | 2020 | | | 2019 | | | As of December 31, |
Gross accounts receivable | | $ | 565,088 | | | $ | 360,194 | |
| | | | 2023 | | 2022 |
| Accounts receivable, gross | |
| Less: Allowances | |
| Allowance for sales returns | |
| Allowance for sales returns | |
Allowance for sales returns | | | (5,912 | ) | | | (6,550 | ) |
Allowance for sales incentives | | | (30,838 | ) | | | (19,476 | ) |
Allowance for doubtful accounts | | | (4,181 | ) | | | (1,140 | ) |
Other allowances | | | (305 | ) | | | (355 | ) |
Total allowances | | | (41,236 | ) | | | (27,521 | ) |
Total Accounts Receivable, net of allowances | | $ | 523,852 | | | $ | 332,673 | |
| Accounts receivable, net | |
Property and Equipment, net: Property and equipment, net consisted of the following (in thousands): | | | As of December 31, | | | As of December 31, |
| | 2020 | | | 2019 | | | 2023 | | 2022 |
Computers and equipment | | $ | 30,859 | | | $ | 23,834 | |
Leasehold improvements | | | 144,013 | | | | 93,239 | |
Website and internal-use software | | | 6,744 | | | | 6,510 | |
| Internal-use software | |
Office equipment and furniture | | | 19,661 | | | | 12,091 | |
Total property and equipment | | | 201,277 | | | | 135,674 | |
| Property and equipment, gross | |
Accumulated depreciation and amortization | | | (46,080 | ) | | | (32,412 | ) |
Property and Equipment, net | | $ | 155,197 | | | $ | 103,262 | |
| Property and equipment, net | |
Depreciation and amortization expense for property and equipment assets for the years ended December 31,
2020, 20192023, 2022, and
20182021 was
$21.7$53.3 million,
$12.8$31.0 million, and
$7.8$25.4 million, respectively.
During the year ended December 31, 2023, the Company recognized an impairment charge of $72.3 million related to property and equipment associated with the leased office facilities that are part of its restructuring efforts. See Note 17 for additional details.
Accrued Liabilities: Accrued liabilities consisted of the following (in thousands): | | As of December 31, | |
| | 2020 | | | 2019 | |
Payments due to content publishers | | $ | 106,576 | | | $ | 57,376 | |
Accrued cost of revenue | | | 98,285 | | | | 58,149 | |
Marketing, retail and merchandising costs | | | 43,645 | | | | 7,624 | |
Operating lease liability, current | | | 35,647 | | | | 17,896 | |
Accrued royalty expense | | | 15,713 | | | | 18,040 | |
Licensed content liability, current | | | 6,165 | | | | 1,679 | |
Other accrued expenses | | | 41,637 | | | | 37,583 | |
Total Accrued Liabilities | | $ | 347,668 | | | $ | 198,347 | |
| | | | | | | | | | | |
| | As of December 31, |
| | 2023 | | 2022 |
| Payments due to content partners | $ | 239,196 | | | $ | 201,054 | |
| Accrued cost of revenue | 147,875 | | | 105,347 | |
| Marketing, retail and merchandising expenses | 147,853 | | | 163,367 | |
| Operating lease liability, current | 68,099 | | | 54,689 | |
| Content liability, current | 54,319 | | | 88,717 | |
| Other accrued expenses | 130,698 | | | 137,636 | |
| Total Accrued liabilities | $ | 788,040 | | | $ | 750,810 | |
Deferred Revenue: Deferred revenue consisted of the following (in thousands): | | | As of December 31, | | | As of December 31, |
| | 2020 | | | 2019 | | | 2023 | | 2022 |
Platform, current | | $ | 27,587 | | | $ | 18,234 | |
Player, current | | | 27,878 | | | | 21,627 | |
| Devices, current | |
Total deferred revenue, current | | | 55,465 | | | | 39,861 | |
Platform, non-current | | | 9,909 | | | | 6,135 | |
Player, non-current | | | 11,374 | | | | 9,235 | |
| Devices, non-current | |
Total deferred revenue, non-current | | | 21,283 | | | | 15,370 | |
Total Deferred Revenue | | $ | 76,748 | | | $ | 55,231 | |
| Total Deferred revenue | |
7.
licensed Content AssetsOther Long-term LiabilitiesThe Company licenses content for streaming on The Roku Channel. The licensing arrangements can be for a fixed fee or variable fee. The licensing arrangements specify the period when the content is available for streaming. The Company capitalizes the fixed content fees and its corresponding liability when the license period begins, the cost: Other Long-term liabilities consisted of the content is known, andfollowing (in thousands):
| | | | | | | | | | | |
| As of December 31, |
| 2023 | | 2022 |
| Content liability, non-current | $ | 24,115 | | | $ | 39,587 | |
| Other long-term liabilities | 25,071 | | | 30,324 | |
| Total Other long-term liabilities | $ | 49,186 | | | $ | 69,911 | |
6. CONTENT ASSETS
Content assets consisted of the content is accepted and available for streaming. If the licensing fee is not determinable or reasonably estimable, no asset or liability is recorded, and licensing costs are expenses as incurred. The Company amortizes licensedfollowing (in thousands):
| | | | | | | | | | | |
| As of December 31, |
| 2023 | | 2022 |
| Licensed content, net and advances | $ | 148,777 | | | $ | 243,226 | |
| Produced content: | | | |
| Released, less amortization | 77,951 | | | 42,605 | |
| Completed, not released | 11,235 | | | 3,537 | |
| In production | 38,275 | | | 42,904 | |
| Total produced content, net | 127,461 | | | 89,046 | |
| Total Content assets, net and advances | $ | 276,238 | | | $ | 332,272 | |
| | | |
| Current portion | $ | 18,843 | | | $ | 39,506 | |
| Non-current portion | $ | 257,395 | | | $ | 292,766 | |
Amortization of content assets
into Cost of Revenue, Platform, using the straight-line method over the contractual period of availability. The liability is paid in accordance with the contractual terms of the arrangement. On January 1, 2020, the Company adopted the guidance in ASU 2019-02, Entertainment—Films—Other Assets—Film Costs (Subtopic 926-20) and Entertainment—Broadcasters—Intangibles—Goodwill and Other (Subtopic 920-350): Improvements to Accounting for Costs of Films and License Agreements for Program Materials, on a prospective basis. The adoption did not have material impact on its financial statements.As of December 31, 2020, licensed content assets that met these requirements were $7.9 million and are recorded in “Other non-current assets.” As of December 31, 2019, licensed content assets that met these requirements were $1.7 million and are recorded in Prepaid expenses and other current assets. Payments for content, including additions to content assets and the changes in related liabilities, are classified within Net cash provided by operating activities on the consolidated statements of cash flows. The increase in the content asset is due to a change in the mix of content licensed and the period over which such content is available for streaming. The corresponding liability is included in Accrued liabilities and Other long-term liabilities and is discussed in Note 12.
The Company recorded amortization expense of $22.4 million and $2.9 million for the years ended December 31, 2020 and 2019, respectively, in Cost of revenue, platform in the consolidated statements of operations and is as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2023 | | 2022 | | 2021 |
| Licensed content | $ | 161,633 | | | $ | 216,393 | | | $ | 84,133 | |
| Produced content | 46,219 | | | 17,962 | | | 11,437 | |
| Total amortization costs | $ | 207,852 | | | $ | 234,355 | | | $ | 95,570 | |
During the year ended December 31, 2023, the Company recognized an impairment charge of $65.5 million related to capitalizedremoving select licensed and produced content assets. from The Roku Channel as part of its restructuring efforts. See Note 17 for additional details. The Company did not recognize any impairment of content assets during the years ended December 31, 2022 and December 31, 2021.
The following table reflects the
expected amortization
expensecosts of released licensed and produced content assets, net for the next three years
for capitalized licensed content assets as of December 31, 2020 (in thousands):
Year Ending December 31, | | | |
2021 | $ | 6,527 | |
2022 | | 1,338 | |
2023 | | 42 | |
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2024 | | 2025 | | 2026 |
| Licensed content | $ | 76,586 | | | $ | 28,824 | | | $ | 17,637 | |
| Produced content | 32,640 | | | 20,512 | | | 18,936 | |
| Total expected amortization costs | $ | 109,226 | | | $ | 49,336 | | | $ | 36,573 | |
Licensed content
7. STRATEGIC INVESTMENT
In June 2022, the Company agreed to provide financing of up to $60.0 million in the aggregate to a counterparty with whom the Company has a commercial relationship. The advances are in the form of convertible promissory notes (the “Strategic Investment”) and are recognized as Other non-current assets on the consolidated balance sheets. The Strategic Investment accrues interest at 5% per annum. The convertible promissory notes have maturity dates as reflected in the table below, or are primarily monetized togetherdue upon a redemption event or in the event of a default.
The convertible promissory notes and their date of investment and maturity are as a unit, referredfollows (in thousands):
| | | | | | | | | | | | | | |
| As of December 31, 2023 |
| Date of Investment | | Amount of Investment | | Date of Maturity |
| June 15, 2022 | | $40,000 | | June 15, 2025 |
| March 23, 2023 | | $5,000 | | March 23, 2026 |
| May 23, 2023 | | $5,000 | | May 23, 2026 |
The Strategic Investment contains certain redemption features that meet the definition of embedded derivatives and require bifurcation. The Company elected to
as a film group. The film group is evaluated for impairment whenever an event occurs or circumstances change indicatingapply the fair value
is less thanoption and account for the
carrying value. The Company reviews various qualitative factorshybrid instrument containing the host contract and
indicators to assess whether the
group asset is impaired. Asembedded derivatives at fair value as a single instrument, with any subsequent changes in fair value included in Other income (expense), net in the consolidated statements of
December 31, 2020,operations. See Note 8 for additional details on the
Company did 0t recognize any impairment for capitalized licensed content assets.fair value of the Strategic Investment.
The Company’s financial assets measured at fair value
on a recurring basis are as follows (in thousands):
| | | As of December 31, 2020 | | | As of December 31, 2019 | | | As of December 31, 2023 | | As of December 31, 2022 |
| | Fair Value | | | Level 1 | | | Fair Value | | | Level 1 | | | Fair Value | | Level 1 | | Level 3 | | Fair Value | | Level 1 | | Level 3 |
Assets: | | | | | | | | | | | | | | | | |
Cash and cash equivalents: | | | | | | | | | | | | | | | | |
| Cash and cash equivalents: | |
| Cash and cash equivalents: | |
| Cash | |
| Cash | |
Cash | | $ | 1,021,022 | | | $ | 1,021,022 | | | $ | 463,820 | | | $ | 463,820 | |
Money market funds | | | 71,793 | | | | 71,793 | | | | 51,659 | | | | 51,659 | |
Restricted cash | | | 434 | | | | 434 | | | | 1,854 | | | | 1,854 | |
| Restricted cash, current | |
| Strategic Investment | |
Total assets measured and recorded at fair value | | $ | 1,093,249 | | | $ | 1,093,249 | | | $ | 517,333 | | | $ | 517,333 | |
The following table reflects the changes in the fair value of the Company’s Level 3 financial assets (in thousands):
| | | | | | | | | | | |
| Years Ended December 31, |
| 2023 | | 2022 |
| Beginning balance | $ | 39,468 | | | $ | — | |
| Purchase of Strategic Investment | 10,000 | | | 40,000 | |
| Change in estimated fair value of Strategic Investment | 4,348 | | | (532) | |
| Ending balance | $ | 53,816 | | | $ | 39,468 | |
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal market (or most advantageous market, in the absence of a principal market) for the asset or liability in an orderly transaction between market participants at the measurement date. Further, the Company maximizes the use of observable inputs and minimizes the use of unobservable inputs in measuring fair value, and to utilizeutilizes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value.
The three levels of inputs used to measure fair value are as follows:
Level 1—Quoted prices in active markets for identical assets or liabilities. Financial assets and liabilities measured using Level 1 inputs include cash equivalents
including restricted cash, accounts receivable, prepaid expenses,
and other current assets, accounts payable, and accrued liabilities.
The Company considers all highly liquid investments purchased with an original
or remaining maturity of three months or less at the date of purchase to be cash equivalents. The Company measured money market funds of
$71.8$1,431.4 million and
$51.7$608.4 million as cash equivalents as of December 31,
20202023 and
2019,2022, respectively, using Level 1 inputs.
Level 2—Observable inputs other than quoted prices included within Level 1, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and inputs other than quoted prices that are observable or are derived principally from, or corroborated by, observable market data by correlation or other means. The Company did not have any Level 2 instruments as of December 31,
20202023 and
2019.2022.
Level 3—Unobservable inputs that are supported by little or no market activity, are significant to the fair value of the assets or liabilities and reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. As of December 31, 2023, the Company measured the Strategic Investment using Level 3 inputs. The fair value of the Strategic Investment on the date of purchase was determined to be equal to its principal amount. The Company did not haverecorded an unrealized gain of $4.3 million and an unrealized loss of $0.5 million in Other income, net related to the change in the fair value of the Strategic Investment for the years ended December 31, 2023 and 2022, respectively.
The Company classified the Strategic Investment as Level 3
instruments at December 31, 2020due to the lack of relevant observable market data over fair value inputs. The fair value of the Strategic Investment was estimated using a scenario-based probability weighted discounted cash flow model. Significant assumptions include the discount rate, and
2019.the timing and probability weighting of the various redemption scenarios that impact the settlement of the Strategic Investment.
Assets and liabilities that are measured at fair value on a non-recurring basis
Non-financial assets such as goodwill, intangible assets, property plant, and equipment, operating lease right-of-use assets, and licensed content assets are evaluated for impairment and adjusted to fair value using Level 3 inputs, only when impairment is recognized. The impairments for operating ROU assets recorded by
During the Company for the yearsyear ended December 31, 20202023, the Company recorded total impairment charges of $269.4 million that included $131.6 million of operating lease right-of-use assets impairment, $72.3 million of property and 2019equipment impairment, and $65.5 million of content assets impairment related to removing select licensed and produced content from The Roku Channel.
During the year ended December 31, 2022, the Company recognized an impairment charge of $7.5 million related to the abandonment of future development of certain technology assets. The Company did not record any impairment charges during the year ended December 31, 2021.
The fair value of the impaired operating lease right-of-use assets and property and equipment were not material.estimated using discounted cash flow models, or the income approach, based on market participant assumptions with Level 3 inputs. The significant assumptions used in estimating fair value include the expected downtime prior to the commencement of future subleases, projected sublease income over the remaining lease periods, and discount rates that reflect the level of risk associated with the expected future cash flows. For the licensed and produced content that was removed from The Roku Channel, the net carrying amount of the content assets was written off. For the abandoned technology assets, the net carrying amount of the technology assets was written off.
The Company has entered into operating leases primarily for office real estate. The leases have remaining terms ranging from
oneless than 1 year to 10 years and
may include options to extend or terminate the lease. The depreciable life of ROU assets is limited by the expected lease term.
The components of lease expense are as
follows (in thousands): | | Years Ended December 31, | |
| | 2020 | | | 2019 | |
Operating lease cost (1) | | $ | 56,348 | | | $ | 35,146 | |
Sublease income | | | (2,105 | ) | | | (2,622 | ) |
Net operating lease cost | | $ | 54,243 | | | $ | 32,524 | |
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2023 | | 2022 | | 2021 |
| Operating lease expense | $ | 83,060 | | | $ | 76,359 | | | $ | 46,410 | |
| Variable lease expense | 23,331 | | | 18,991 | | | 15,080 | |
| Total operating lease expense | $ | 106,391 | | | $ | 95,350 | | | $ | 61,490 | |
(1) For the years ended December 31, 2020 and 2019, variable lease costs were $12.1 million and $4.9 million, respectively. Variable lease costs primarily include common area maintenance charges.
Supplemental cash flow information related to leases is as follows (in thousands):
| | | Years Ended December 31, | | | Years Ended December 31, |
| | 2020 | | | 2019 | | | 2023 | | 2022 | | 2021 |
Cash paid for amounts included in the measurement of lease liabilities: | | | | | | | | |
Operating cash outflows from operating leases | | $ | 30,664 | | | $ | 17,721 | |
| Operating cash outflows from operating leases | |
| Operating cash outflows from operating leases | |
Right-of-use assets obtained in exchange for lease obligations: | | | | | | | | |
Operating leases | | $ | 12,031 | | | $ | 267,048 | |
| Operating leases | |
| Operating leases | |
| Decrease in operating lease right-of-use assets due to impairment (See Note 17) | |
Supplemental balance sheet information related to leases
wasis as follows (in thousands, except lease term and discount rate):
| | As of December 31, | |
| | 2020 | | | 2019 | |
Operating lease right-of-use assets | | $ | 266,197 | | | $ | 283,291 | |
Included in accounts payable and accrued liabilities: | | | | | | | | |
Operating lease liability, current | | | 35,647 | | | | 17,896 | |
Operating lease liability, non-current | | | 307,936 | | | | 301,694 | |
Total operating lease liability | | $ | 343,583 | | | $ | 319,590 | |
| | | | | | | | |
Weighted Average Remaining Lease Term: | | | | | | | | |
Operating leases (in years) | | 9.05 | | | 9.98 | |
Weighted Average Discount Rate: | | | | | | | | |
Operating leases | | | 4.60 | % | | | 4.65 | % |
| | | | | | | | | | | |
| | As of December 31, |
| | 2023 | | 2022 |
| Operating lease right-of-use assets | $ | 371,444 | | | $ | 521,695 | |
| | | |
| Operating lease liability, current (included in Accrued liabilities) | 68,099 | | | 54,689 | |
| Operating lease liability, non-current | 586,174 | | | 584,651 | |
| Total operating lease liability | $ | 654,273 | | | $ | 639,340 | |
| | | |
| Weighted-average remaining term for operating leases (in years) | 7.94 | | 8.62 |
| Weighted-average discount rate for operating leases | 3.94 | % | | 3.80 | % |
Future lease payments under operating leases as of December 31,
2020 were2023 are as follows (in thousands):
| Year Ending December 31, | | Operating Leases | | Year Ending December 31, | Operating Leases |
2021 | | $ | 50,889 | |
2022 | | | 47,377 | |
2023 | | | 47,597 | |
2024 | | | 46,635 | |
2025 | | | 46,295 | |
| 2026 | |
| 2027 | |
| 2028 | |
Thereafter | | | 201,852 | |
Total future lease payments | | | 440,645 | |
Less: imputed interest | | | (81,076 | ) |
Less: expected tenant improvement allowance | | | (15,986 | ) |
Total | | $ | 343,583 | |
(1)Total lease liabilities include liabilities related to operating lease right-of-use assets which were included in the impairment charges as part of the Company’s restructuring efforts. See Note 17 for additional details.
As of December 31, 2020,2023, the Company’s commitmentCompany had no commitments relating to the operating leaseleases that hashave not yet commenced is $2.7 million. This operating leasecommencescommenced.
10. DEBT
The Company does not have any outstanding debt as of December 31, 2023. In February 2023, the Company repaid the debt balance in
fiscal year 2025full and
has a lease term of two years.10. DEBT
satisfied all outstanding debt obligations under the Credit Facility (as defined below) when it matured.
The Company’s outstanding debt as of December 31, 2020 and 2019 is2022 was as follows (in thousands):
| | | |
| | | |
| | As of December 31, | |
| | 2020 | | | 2019 | �� |
| | Amount | | | Effective Interest Rate | | | Amount | | | Effective Interest Rate | | | | | | Amount | | Effective Interest Rate |
Term Loan A Facility | | $ | 95,000 | | | | 2.03 | % | | $ | 100,000 | | | | 3.48 | % | Term Loan A Facility | | | | | $ | 80,000 | | | 4.4 | | 4.4 | % |
Less: Debt issuance costs | | | (258 | ) | | | | | | | (392 | ) | | | | |
Net carrying amount of debt | | $ | 94,742 | | | | | | | $ | 99,608 | | | | | |
| Net carrying amount of debt | |
| Net carrying amount of debt | |
The carrying amount of debt approximates fair value due to its variable interest rates. The interest expense associated with the Credit Facility for the years ended December 31, 20202023 and 2019 relating to the Credit Agreement2022 is $2.6$0.6 million and $0.4$3.6 million, respectively.
Senior Secured Term Loan A and Revolving Credit Facilities
On February 19, 2019,
(the “Original Closing Date”), the Company entered into a Credit Agreement
(the “Existing Credit Agreement”) with Morgan Stanley Senior Funding, Inc.
On(as amended on May 3, 2019,
(the “Closing Date”), the Existing Credit Agreement was amended pursuant to an Incremental Assumption and Amendment No. 1 (the “Amendment” and the Existing Credit Agreement as amended by the Amendment, the “Credit Agreement”)
. On the Original Closing Date, the Company terminated the Amended and Restated Loan and Security Agreement that it entered into with Silicon Valley Bank in November 2014 (the “Restated 2014 LSA”).The Credit Agreement, which provides for (i) a four-year revolving credit facility in the aggregate principal amount of up to $100.0 million (the “Revolving Credit Facility”), (ii) a four-year delayed draw term loan A facility in the aggregate principal amount of up to $100.0 million (the “Term Loan A Facility”), and (iii) an uncommitted incremental facility, subject to the satisfaction of certain financial and other conditions, in the amount of up to (v) $50.0 million, plus (w) 1.0x of the Company’s EBITDA for the most recently completed four fiscal quarter period, plus (x) an additional amount at the Company’s discretion, so long as, on a pro forma basis at the time of incurrence, the Company’s secured leverage ratio does not exceed 1.50 to 1.00, plus (y) voluntary prepayments of the Revolving Credit Facility and Term Loan A Facility to the extent accompanied by concurrent reductions to the applicable Credit Facility (together with the Revolving Credit Facility and the Term Loan A Facility, collectively, the “Credit Facility”).
On November 18, 2019, the Company borrowed the Term Loan A facility in the aggregate principal amount of $100.0 million. In March 2020, the Company borrowed the available balance of $69.3 million from the Revolving Credit Facility. For both borrowings, theThe Company elected an interest rate equal to the adjusted one-month LIBOR rate plus an applicable margin of 1.75% based on the Company’s secured leverage ratio. In May 2020,The Credit Facility matured on February 19, 2023 and the
Company repaid the outstanding
balance on the Revolving Credit Facility.Loans under the Term Loan A Facility amortizewas repaid in equal quarterly installments beginning on March 31, 2020, in an aggregate annual amount equal to (i) on or prior tofull.
As of December 31,
2021, 1.25% of2022, the
drawn principal amount of the Term Loan Facility or $1.25 million and (ii) thereafter, 2.50% of the drawn principal amount of the Term Loan Facility or $2.5 million, with the remaining balance payable on the maturity date of the Term Loan A Facility in February 2023. The Revolving Credit Facility may be borrowed, repaid and reborrowed until the fourth anniversary of the Closing Date in February 2023, at which time all outstanding balances of the Revolving Credit Facility are due to be repaid.The Company had outstanding letters of credit against the Revolving Credit Facility of $30.8 million and $30.7 million as$37.7 million. Upon maturity of December 31, 2020 and December 31, 2019, respectively.
The Company’s obligations under the Credit Agreement areFacility on February 19, 2023, the outstanding letters of credit were secured by substantially allthe Company’s existing cash balance, a portion of its assets. In the future, certain of its direct and indirect subsidiaries may be required to guarantee the Credit Agreement. The Company may prepay, and in certain circumstances would be required to prepay, loans under the Credit Agreement without payment of a premium. The Credit Agreement contains customary representations and warranties, customary affirmative and negative covenants, a financial covenantwhich is restricted for that is tested quarterly and requires the Company to maintain a certain adjusted quick ratio of at least 1.00 to 1.00, and customary events of default.
purpose. As of December 31, 2020,2023 the Company was in compliance with allhad outstanding letters of the covenantscredit of the Credit Agreement.
$37.5 million, which are secured by restricted cash of $40.7 million.
The Company has 10 million shares of undesignated preferred stock authorized but not issued with rights and preferences determined by the Company’s Board of Directors at the time of issuance of such shares. As of December 31,
20202023 and
2019,2022, there were
0no shares of preferred stock issued and outstanding.
The Company has
2two classes of authorized common stock, Class A common stock and Class B common stock. Holders of Class A common stock are entitled to one vote for each share of Class A common stock held on all matters submitted to a vote of stockholders and holders of Class B common stock are entitled to ten votes for each share of Class B common stock held on all matters submitted to a vote of stockholders. Except with respect to voting, the rights of the holders of Class A and Class B common stock are identical. Shares of Class B common stock are voluntarily convertible into shares of Class A common stock at the option of the holder and are generally automatically converted into shares of the
Company'sCompany’s Class A common stock upon sale or transfer. Shares issued in connection with exercises of stock options, vesting of restricted stock units, or shares purchased under the employee stock purchase plan are generally automatically converted into shares of the Company’s Class A common stock.
On May 13, 2020,March 2, 2021, the Company entered into an Equity Distribution Agreement with Morgan Stanley & Co. LLC, and Citigroup Global Markets Inc., and Evercore Group L.L.C., as its sales agents, pursuant to which the Company sold an aggregate of 4.0 millioncould offer and sell from time-to-time shares of the Company’sits Class A common stock and receivedfor aggregate gross proceeds of $504.0up to $1,000.0 million. In March 2021, the Company sold approximately 2.6 million shares of Class A common stock at an average selling price of $126.01$379.26 per share, for aggregate gross proceeds of $1,000.0 million and incurred issuance costs of $6.8$10.4 million.
Common Stock Reserved For Issuance
At
As of December 31,
2020,2023, the
Company had reserved shares ofCompany’s common stock
reserved for issuance
in the future is as follows (in thousands):
| | | As of December 31, 2020
| | |
Common stock awards granted under equity incentive plans | 13,984 | | 13,088
| |
Common stock awards available for issuance under the 2017 Employee Stock Purchase Plan * | 5,089 | | 5,089
| |
Common stock awards available for issuance under the 2017 Equity Incentive Plan | 27,880 | | 21,420
| |
Total reserved shares of common stock | 46,953 | | 39,597
| |
* The Company has not issued any common stock pursuant to the 2017 Employee Stock Purchase Plan.
The Company
has 2currently grants equity
incentive plans, the 2008 Equity Incentive Plan (the “2008 Plan”) andunder the 2017 Equity Incentive Plan (the “2017 Plan”). The 2017 Plan became effective September 2017 in connection with the
IPO. No further shares have been issued under the 2008 Plan.Company’s initial public offering (“IPO”). The 2017 Plan provides for the grant of incentive stock options to the Company’s employees and for the grant of non-statutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance stock awards, performance cash awards, and other forms of equity compensation to the Company’s employees, directors and consultants.
Restricted stock units The outstanding equity relates to the 2017 Plan and the 2008 Equity Incentive Plan (“2008 Plan”), a pre-IPO plan. No additional equity grants have been made pursuant to the 2008 Plan subsequent to the IPO.
The equity granted under the
plan are2017 Plan is subject to continuous service.
OptionsStock options granted under the
plans2017 Plan generally are granted at a price per share equivalent to the fair market value on the date of grant. Recipients of option grants who possess more than 10% of the combined voting power of the Company
(a “10% Shareholder”) are subject to certain limitations, and incentive stock options granted to such recipients are at a price no less than 110% of the fair market value at the date of grant.
Restricted stock unit activity for the year ended December 31,
20202023 is as follows (in thousands, except per share data):
| | Number of Shares | | | Weighted Average Grant Date Fair Value Per Share | |
Balance, December 31, 2019 | | | 4,544 | | | $ | 67.30 | |
| | | | Number of Shares | | Weighted-Average Grant Date Fair Value Per Share |
| Balance, December 31, 2022 | |
Awarded | | | 1,425 | | | | 147.46 | |
Released | | | (1,253 | ) | | | 66.79 | |
Forfeited | | | (361 | ) | | | 76.55 | |
Balance, December 31, 2020 - outstanding | | | 4,355 | | | $ | 92.91 | |
| Balance, December 31, 2023 - Outstanding | |
The grant-dateweighted-average grant date fair value of restricted stock units granted during the years ended December 31, 2020, 20192023, 2022, and 20182021 was $210.1$325.0 million, $195.2$916.8 million, and $184.7$342.6 million, respectively.
The fair value of restricted stock units that vested during the years ended December 31,
2020, 20192023, 2022, and
20182021 was
$83.7$314.0 million, $40.5$282.6 million, and $11.4$135.6 million, respectively.Total
The unrecognized stock-based compensation costexpense related to restricted stock units awarded to employees as of December 31, 20202023 was $336.4$692.9 million, which the Company expects to recognize over 2.26a weighted-average period of approximately 2.37 years.
Stock options
The following table summarizesOptions
Stock option activity for the
Company’s stock option activities under the 2008 Plan and 2017 Planyear ended December 31, 2023 is as follows (in thousands, except
years and per share data):
| | Number of Shares | | | Weighted Average Exercise Price | | | Weighted Average Remaining Contractual Life (Years) | | | Weighted Average Grant Date Fair Value Per Share | | | Aggregate Intrinsic Value | |
Balance, December 31, 2019 | | | 11,124 | | | $ | 14.84 | | | | 6.2 | | | | — | | | | | |
| | | | Number of Shares | | Weighted-Average Exercise Price | | Weighted-Average Remaining Contractual Life (Years) | | Weighted-Average Grant Date Fair Value Per Share | | Aggregate Intrinsic Value |
| Balance, December 31, 2022 | |
| Granted | |
| Granted | |
Granted | | | 599 | | | | 145.17 | | | | — | | | $ | 54.39 | | | | | |
Exercised | | | (2,854 | ) | | | 5.89 | | | | — | | | | — | | | | | |
| Exercised | |
| Exercised | |
Forfeited and expired | | | (136 | ) | | | 48.04 | | | | — | | | | — | | | | | |
Balance, December 31, 2020 - outstanding | | | 8,733 | | | $ | 26.19 | | | | 5.7 | | | | — | | | $ | 2,670,743 | |
| Forfeited and expired | |
| Forfeited and expired | |
| Balance, December 31, 2023 - Outstanding | |
| Balance, December 31, 2023 - Outstanding | |
| Balance, December 31, 2023 - Outstanding | |
| | | | | | | | | | | | | | | | | | | | |
Options exercisable at December 31, 2020 | | | 6,144 | | | $ | 8.00 | | | | 4.8 | | | | — | | | $ | 1,990,694 | |
| Balance, December 31, 2023- Exercisable | |
| Balance, December 31, 2023- Exercisable | |
| Balance, December 31, 2023- Exercisable | |
The weighted average grant-dateweighted-average grant date fair value per share of options granted during the years ended December 31, 2020, 20192023, 2022, and 20182021 was $54.39, $39.23$42.43, $36.66, and $22.96,$139.76, respectively.
The intrinsic value for
stock options exercised in the years ended December 31,
2020, 20192023, 2022, and
20182021 was
$470.8$38.9 million,
$474.2$210.0 million, and
$445.9$997.6 million, respectively.
Intrinsic value represents the difference between the fair values of the Company’s common stock and the stock options’ exercise price on the date of grant.As of December 31,
2020,2023, the Company had
$50.8$69.4 million of unrecognized
stockstock-based compensation expense related to unvested stock options that is expected to be recognized over a weighted-average period of approximately
1.782.2 years.
The Company measures the cost of employee services received in exchange for an equity award based on the grant date fair value of the award. Generally, stockStock options granted to employees generally vest 25% after over one year and then 1/48th monthly thereafter to four years and have a term of ten years. Restricted stock units generally vest over 4one to four years. ForNo stock-based compensation was capitalized for the years ended December 31, 2020, 2019,2023 and 2018, the2022. The amount of stock-based compensation capitalized as part of internal useinternal-use software for the year ended December 31, 2021 was not material. The following table showspresents total stock-based compensation expense for the years ended December 31, 2020, 20192023, 2022, and 20182021 (in thousands):
| | Years Ended December 31, | |
| | 2020 | | | 2019 | | | 2018 | | | Years Ended December 31, |
Cost of platform revenue | | $ | 847 | | | $ | 342 | | | $ | 97 | |
Cost of player revenue | | | 1,407 | | | | 1,072 | | | | 469 | |
| | | | 2023 | | 2022 | | 2021 |
| Cost of revenue, platform | |
| Cost of revenue, devices | |
Research and development | | | 58,412 | | | | 40,036 | | | | 18,538 | |
Sales and marketing | | | 42,846 | | | | 24,179 | | | | 10,459 | |
General and administrative | | | 30,564 | | | | 19,546 | | | | 8,111 | |
Total stock-based compensation | | $ | 134,076 | | | $ | 85,175 | | | $ | 37,674 | |
The fair value of
stock options granted
under the 2008 Plan and 2017 Plan is estimated on the grant date using the Black-Scholes option-valuation model.
This valuation model for stock-based compensation expense requires the Company to make certain assumptions and judgments about the variables used in the calculation, including the expected term, the expected volatility of the Company’s common stock, an assumed risk-free interest rate, and expected dividends. The Company uses the straight-line method for expense recognition. The Company recognizes forfeitures as they occur.
Fair Value of Common Stock: The Company uses the market closing price for the Class A common stock as reported on The Nasdaq Global Select Market on the date of grant.
Expected Term: The Company’s expected term represents the period that the Company’s stock-based awards are expected to be outstanding and is determined based on the simplified method as described in ASC Topic 718-10-S99-1, SEC Materials SAB Topic 14, Share-Based Payment.
Expected Volatility: The Company’s volatility factor is estimated using several comparable public company volatilities for similar option terms.
Expected Dividends: The Company has never paid cash dividends and has no present intention to pay cash dividends in the future, and as a result, the expected dividends are $0.
Risk-Free Interest Rate: The Company bases the risk-free interest rate on the implied yield currently available on U.S. Treasury zero coupon issues with a remaining term equivalent to the estimated life of the stock options. Where the expected term of the Company’s stock options does not correspond with the term for which an interest rate is quoted, the Company performs a straight-line interpolation to determine the rate from the available term maturities.
The assumptions used to value stock options granted during the years ended December 31, 2020, 20192023, 2022, and 20182021 are as follows:
| | | Years Ended December 31, | | | Years Ended December 31, |
| | 2020 | | | 2019 | | | 2018 | | | 2023 | | 2022 | | 2021 |
Expected term (in years) | | 5.0 - 6.7 | | | 5.0 - 6.7 | | | 5.3 - 6.8 | | Expected term (in years) | 5.0 - 5.8 | | 5.0 - 6.8 |
Risk-free interest rate | | 0.22 - 1.67% | | | 1.35 - 2.56% | | | 2.32 - 2.88% | | Risk-free interest rate | 3.48 - 4.72% | | 1.37 - 4.33% | | 0.36 - 1.2% |
Expected volatility | | 36 - 39% | | | 35 - 36% | | | 38 - 40% | | Expected volatility | 61 - 63% | | 57 - 61% | | 38 - 39% |
Dividend rate | | | — | | | | — | | | | — | | Dividend rate | — | | — |
12. COMMITMENTS AND CONTINGENCIES
Manufacturing Purchase Commitments
The
Company has various manufacturing contracts with vendors in the conduct of the normal course of its business. In order to manage future demand for its products, the Company enters into agreements with manufacturers and suppliers to procure inventory based upon certain criteria and timing. Some of these commitments are non-cancelable. As of December 31,
2020,2023, the Company had
$185.9$131.5 million
of non-cancelable purchase commitments for inventory.
Content Commitments
The Company enters into contracts with content partners to license and produce content for streaming. When a title becomes available, the Company records a content asset and liability on the consolidated balance sheets. Certain licensing agreements, such as film output deals, include the obligation to license rights for non-cancelable purchase commitments in excessunknown future titles for which the ultimate quantity and/or fees are not determinable as of projected demand forecasts.the reporting date. The Company recorded $1.2 million and $0.3 milliondoes not include any estimated obligation for these purchase commitmentsfuture titles beyond the known minimum amount. The unknown obligations could be material. The Company also licenses content under arrangements where the payments are variable and based on the revenue earned by the Company. Since those amounts cannot be determined, they are not included in “Accrued liabilities” asthe obligations below.
As of December 31, 2020,2023, the Company’s total obligation for licensed and produced content is $286.1 million, of which the Company recognized a liability of $6.2recorded $59.2 million in AccruedCurrent liabilities and $1.4$24.1 million in Other long-term liabilities in the consolidated balance sheets. The remaining $202.8 million is not yet recognized on the consolidated balance sheets as the content does not meet the criteria for licensedasset recognition.
The expected timing of payments for these content that is available for streaming. obligations are as follows (in thousands):
| | | | | |
| Year Ending December 31, | |
| 2024 | $ | 184,716 | |
| 2025 | 62,655 | |
| 2026 | 21,971 | |
| 2027 | 12,732 | |
| 2028 | 1,436 | |
| Thereafter | 2,568 | |
| Total content liabilities | $ | 286,078 | |
Letters of Credit
As of December 31,
2019, the Company recorded $1.7 million as obligations in Accrued liabilities for licensed content that is available for streaming. The increase in content liability is due to change in the mix of content licensed2023 and
the period over which this content is available for streaming.The Company also enters into contracts with content publishers to acquire content or to buy ad inventory in the future. As of December 31, 2020, the Company had $71.0 million in commitments with content publishers for content or to buy ad inventory that are non-cancellable. These commitments include both content that is available
for streaming and is recognized as liabilities as well as content that is not yet available for streaming or ad inventories not yet purchased.
Letters of Credit
As of December 31, 2020 and 2019,2022, the Company had irrevocable letters of credit outstanding in the amount of $30.9$37.5 million and $31.8$37.7 million, respectively, related to facilities leases. The letters of credit have various expiration dates through 2030.
The Company
accruesaccounts for loss contingencies, including liabilities for intellectual property licensing
and other claims, when it believes such losses are probable and reasonably estimable.
These contingencies are reviewed at least quarterly and adjusted to reflect the impact of negotiations, estimated settlements, legal rulings, advice of legal counsel, and other information and events. The resolution of these contingencies and of other legal proceedings can be, however, inherently unpredictable and subject to significant uncertainties.
As of December 31, 2020, the Company does not have any loss contingencies that are material. During the year ended December 31, 2019, the Company recorded expenses of $9.9 million, in total cost of revenue, for various claims related to patent infringements. During the year ended December 31, 2018, the Company changed its estimate of certain liabilities previously recorded for intellectual property licensing and released $8.9 million as a result of its assessment that the likelihood of payment is now remote. The reversal of $8.9 million is recorded within cost of revenue, player during the year ended December 31, 2018, in the consolidated statements of operations.
From time to time, the Company is subject to legal proceedings, claims, and investigations in the ordinary course of business, including claims relating to employee relations, business practices, and patent infringement. The Company is involved in
litigation mattersproceedings, claims and investigations not listed herein. Although the results of these proceedings, claims, and investigations cannot be predicted with certainty, the Company does not believe that the final outcome of any matters that it is currently involved in are reasonably likely to have a material adverse effect on its business, financial condition, or results of operations.
During the years ended December 31, 2023, 2022, and 2021, the Company did not have any loss contingencies that were material.
In the ordinary course of business, the Company has entered into contractual arrangements which provide indemnification provisions of varying scope and terms to business partners and other parties with respect to
certain matters, including, but not limited to, losses arising out of the Company’s breach of such agreements and out of intellectual property infringement claims made by third parties. The Company’s obligations under these agreements may be limited in terms of time or amount, and in some instances, the Company may have recourse against third parties for certain payments. In addition, the Company has entered into indemnification agreements with its directors and certain of its officers that will require it, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers.
It is not possible to determine the maximum potential amount under these indemnification obligations due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each agreement. To date, the Company has not incurred any material costs as a result of such obligations and havehas not accrued any liabilities related to such obligations in the consolidated financial statements.
The components of
lossincome (loss) before income taxes consist of the following (in thousands):
| | | Years Ended December 31, | | | Years Ended December 31, |
| | 2020 | | | 2019 | | | 2018 | | | 2023 | | 2022 | | 2021 |
United States | | $ | (21,107 | ) | | $ | (63,453 | ) | | $ | (11,128 | ) |
Foreign | | | 2,655 | | | | 2,534 | | | | 1,795 | |
Net loss before income taxes | | $ | (18,452 | ) | | $ | (60,919 | ) | | $ | (9,333 | ) |
| Net income (loss) before income taxes | |
The income tax
expense (benefit)
expense consisted of the following (in thousands):
| | | Years Ended December 31, | | | Years Ended December 31, |
| | 2020 | | | 2019 | | | 2018 | | | 2023 | | 2022 | | 2021 |
Current: | | | | | | | | | | | | |
Federal | | $ | (219 | ) | | $ | (47 | ) | | $ | — | |
| Federal | |
| Federal | |
State | | | 620 | | | | 244 | | | | 114 | |
Foreign | | | 743 | | | | 108 | | | | 184 | |
| | | 1,144 | | | | 305 | | | | 298 | |
| 8,860 | |
Deferred: | | | | | | | | | | | | |
| Federal | |
| Federal | |
| Federal | |
| State | |
Foreign | | | (2,089 | ) | | | (1,287 | ) | | | (774 | ) |
Total | | $ | (945 | ) | | $ | (982 | ) | | $ | (476 | ) |
| 1,271 | |
| Total income tax expense (benefit) | |
The following is a reconciliation of the statutory federal income tax rate to the Company’s effective tax rate:
| | | Years Ended December 31, | | | Years Ended December 31, |
| | 2020 | | | 2019 | | | 2018 | | | 2023 | | 2022 | | 2021 |
U.S. federal income tax at statutory rate | | | 21.0 | % | | | 21.0 | % | | | 21.0 | % | U.S. federal income tax at statutory rate | 21.0 | % | | 21.0 | % | | 21.0 | % |
U.S. state and local income taxes | | | (3.2 | ) | | | (0.4 | ) | | | (1.3 | ) |
Change in valuation allowance | | | (698.4 | ) | | | (213.4 | ) | | | (1,039.4 | ) |
Federal research and development tax credit | | | 102.9 | | | | 30.8 | | | | 166.2 | |
| Research and development tax credit | |
Stock-based compensation | | | 577.8 | | | | 158.0 | | | | 859.4 | |
Meals and Entertainment | | | (1.6 | ) | | | (1.4 | ) | | | (6.6 | ) |
Permanent items | | | — | | | | — | | | | (1.1 | ) |
| Discrete tax benefit due to intellectual property transfer | |
| Meals and entertainment | |
Foreign rate differential | | | — | | | | (0.6 | ) | | | (1.5 | ) |
Acquisition costs | | | — | | | | (1.3 | ) | | | — | |
| | Section 162(m) limitation | |
| Section 162(m) limitation | |
Section 162(m) limitation | | | (7.2 | ) | | | (1.4 | ) | | | — | |
State apportionment change | | | 4.4 | | | | 1.3 | | | | — | |
Tax rate change | | | — | | | | (0.4 | ) | | | 2.4 | |
Provision to return true-up | | | 9.4 | | | | 9.9 | | | | 5.9 | |
Other | | | 0.1 | | | | (0.5 | ) | | | 0.1 | |
Effective tax rate | | | 5.2 | % | | | 1.6 | % | | | 5.1 | % | Effective tax rate | (1.4) | % | | (1.2) | % | | (2.5) | % |
Significant components of the Company’s deferred income tax assets and liabilities consist of the following (in thousands):
| | | As of December 31, | | | As of December 31, |
| | 2020 | | | 2019 | | | 2023 | | 2022 |
Deferred tax assets: | | | | | | | | |
Net operating loss carryforwards | | $ | 379,613 | | | $ | 263,512 | |
| Net operating loss carryforwards | |
| Net operating loss carryforwards | |
Reserves and accruals | | | 14,131 | | | | 10,425 | |
Research and development credits | | | 104,110 | | | | 73,442 | |
Lease Obligation | | | 91,373 | | | | 81,639 | |
| Operating lease liabilities | |
Stock-based compensation | | | 28,318 | | | | 17,494 | |
| Depreciation and amortization | |
| Section 174 capitalization | |
| Other | |
Total deferred tax assets | | | 617,545 | | | | 446,512 | |
Deferred tax liabilities: | | | | | | | | |
Right-of-use asset | | | (70,755 | ) | | | (72,243 | ) |
Depreciation and amortization | | | (11,707 | ) | | | (10,916 | ) |
| Operating lease right-of-use assets | |
| Operating lease right-of-use assets | |
| Operating lease right-of-use assets | |
| Other | |
Total deferred tax liabilities | | | (82,462 | ) | | | (83,159 | ) |
Valuation allowance | | | (530,887 | ) | | | (361,233 | ) |
Net deferred tax assets | | $ | 4,196 | | | $ | 2,120 | |
Beginning in 2022, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) eliminated the right to deduct research and development expenses for tax purposes in the period the expenses were incurred and instead requires all U.S. and foreign research and development expenses to be amortized over five and fifteen tax years, respectively. Due to this required capitalization of research and development expenses, the Company has recorded U.S. current income tax expense of $3.7 million for the year ended December 31, 2023.
A valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized through future operations. As a result of the Company’s analysis of all available objective evidence, both positive and negative, as of December 31,
2020, management2023, the Company believes it is more likely than not that the U.S.
and Netherlands deferred tax assets will not be fully realizable. Accordingly, the Company has provided a full valuation allowance against its U.S.
and Netherlands deferred tax assets.
The Company'sCompany’s U.S. federal and state valuation allowance increased by $169.7$166.0 million and $178.9$199.2 million during the years ended December 31, 20202023 and 2019, respectively,2022, respectively.
The change in the valuation allowance during the years ended December 31, 2023 and December 31, 2022 is primarily
dueattributable to
an increase in deferred tax assets generated through capitalization of section 174 research and development expenses for U.S. federal and
conforming state
tax losses and credits incurred during the period.purposes.
For federal and state income tax reporting purposes, respective net operating loss carryforwards of $1,423.1$1,807.3 million and $1,273.9$1,604.0 million are available to reduce future taxable income. The federal net operating loss carryforwards will begin to expire in 2037, and certain state net operating losses have expired in 2023.
For Brazil, Netherlands, and U.K. income tax reporting purposes, the net operating loss carryforwards of $8.6 million, $47.6 million, and $14.0 million, respectively, are available to reduce future taxable income, if any.
TheseBrazil and U.K. net operating
loss carryforwards will begin to expire in 2028 for federal and certain state net operating losses
have expired in 2020. The federal net operating loss generated subsequent to 2017 can be carried forward indefinitely.
For U.K. and Denmark income tax reporting purposes, the Netherlands net operating loss carryforward of $17.6 million and $0.8 million, respectively, is available to reduce the future taxable income, if any. U.K. and Denmark net operating losslosses can be carried forward indefinitely. The Company also has U.K. researchback one year and development tax credit carryforwards of $0.3 million. The credit can be carried forward indefinitely.
As of December 31,
2020,2023, the Company has research and development tax credit carryforwards of
$82.6$194.7 million and
$59.4$149.5 million for federal and state income tax purposes, respectively. If not utilized, the federal and state carryforwards will begin to expire in
20282030 and
2035,2039, respectively.
The Internal Revenue Code
The total amount of unrecognized tax benefits as of December 31, 20202023 is $29.2$88.5 million, of which $28.3$71.8 million is composed of research and development credits and $0.9$16.7 million is related to international activities.
A reconciliation of the beginning and ending
amountbalance of unrecognized tax benefits is as follows (in thousands):
| | | As of December 31, | | | As of December 31, |
| | 2020 | | | 2019 | | | 2023 | | 2022 |
Unrecognized tax benefits at beginning of year | | $ | 19,487 | | | $ | 14,541 | |
Gross increase for tax positions of current year | | | 9,959 | | | | 10,378 | |
Gross decrease due to statue expiration | | | (75 | ) | | | (88 | ) |
| Gross decrease due to statute expiration | |
| Gross increase for tax positions of prior years | |
Gross decrease for tax positions of prior years | | | (196 | ) | | | (5,344 | ) |
| Decrease relating to settlements with taxing authorities | |
Unrecognized tax benefits balance at end of year | | $ | 29,175 | | | $ | 19,487 | |
As of December 31, 2023, $5.2 million of the Company's gross unrecognized tax benefits, if recognized, would affect the effective tax rate and $83.3 million would result in an adjustment to deferred tax assets with corresponding adjustments to the valuation allowance. The Company does not expect its gross unrecognized tax benefits to change significantly within the next 12 months.
The Company recognizes interest and penalties related to unrecognized tax benefits as a component of its income tax expense. As of December 31, 2020, theThe Company recorded $0.2$1.0 million and $0.8 million of accrued interest and penalties related to uncertain tax positions.positions as of December 31, 2023 and December 31, 2022, respectively.
Change in the Company’s unrecognized tax benefits, if any, would have an immaterial impact on its effective tax rate. The Company does not expect its gross unrecognized tax benefits to change significantly within the next 12 months.
The Company files income tax returns in the U.S. federal jurisdiction, and various state jurisdictions. The Company is currently under examination by Texas Comptroller for calendar tax years 2015, 2016,jurisdictions, and 2017.certain foreign jurisdictions. All tax years remain subject to examination by federal and state authorities. These audits include questioning the timing and amount of deductions;deductions, the nexus of income among various tax jurisdictions;jurisdictions, and compliance with federal, state, and local tax laws.
The Company will continue to indefinitely reinvest earnings from its foreign subsidiaries, which are not significant. While federal income tax expense has been recognized as a result of the Tax
Cuts and Jobs Act,
of 2017, the Company has not provided any additional deferred taxes with respect to items such as foreign withholding taxes, state income tax or foreign exchange gain or loss. It is not practicable for the Company to determine the amount of unrecognized tax expense on these reinvested international earnings.
14.
RELATED-PARTY TRANSACTIONSThe Company did not engage in any material related party transactions for the year ended December 31, 2020. There were 0 material amounts payable to or receivable from related parties as of December 31, 2020.
In prior years, the Company engaged in transactions with one of its strategic investors. With respect to this investor, the Company recorded revenue of $8.5 million and $4.1 million for the years ended December 31, 2019 and 2018, respectively. The Company had an accounts receivable balance of $2.4 million as of December 31, 2019 related to transactions with this investor. The Company incurred expenses of $1.3 million and $1.3 million with this investor for the years ended December 31, 2019 and 2018, respectively. The Company had a payable of $0.4 million to this investor as of December 31, 2019.
In addition, the Company had engaged in transactions with another company in which the Company’s Chief Executive Officer holds a majority voting interest and is a member of such company’s board of directors, and another member of the Company’s Board of Directors is such company’s Chief Executive Officer. With respect to transactions with this other company, the Company incurred expenses of $1.2 million for the year ended December 31, 2019. There were 0 outstanding amounts payable to this other company as of December 31, 2019. The Company did 0t consummate any transactions with the other company for the year ended December 31, 2018.
15. RETIREMENT PLANS
The Company maintains a 401(k) tax deferred saving plan (the “Savings Plan”) for the benefit of qualified employees. Qualified employees may elect to make contributions to the Savings Plan on a biweekly basis, subject to certain limitations. The Company may make contributions to the Savings Plan at the discretion of the Board of Directors.
NaNNo Company contributions were made for the years ended December 31,
2020, 20192023, 2022, and
2018.In 2014, the2021.
The Company
established ahas defined contribution
planplans in the U.K.
and Korea for
its U.K.-based employees.the employees in those countries. The Company contributed
$0.7$3.2 million,
$0.5$2.3 million, and
$0.4$1.3 million
in total to
the planthese plans for the years ended December 31,
2020, 20192023, 2022, and
2018,2021, respectively.
16.
15. NET
LOSSINCOME (LOSS) PER SHARE
The Company’s basic net lossincome (loss) per share is calculated by dividing the net lossincome (loss) by the weighted-average number of shares of common stock outstanding for the period. The Company uses the two-class method to calculate net income (loss) per share. Except with respect to certain voting, conversion, and transfer rights and as otherwise expressly provided in the Company’s amended and restated certificate of incorporation or required by applicable law, shares of the Company’s Class A common stock and Class B common stock have the same rights and privileges and rank equally, share ratably, and are identical in all respects as to all matters. Accordingly, basic and diluted net income (loss) per share are the same for both classes.
For purposes of the calculation of diluted net lossincome (loss) per share, options to purchase common stock and restricted stock units and unvestedare considered common stock equivalents. Dilutive shares of common stock issued uponare determined by applying the early exercise oftreasury stock options and business acquisitionsmethod. The dilutive shares are considered common stock equivalents, but have been excluded from the calculation of diluted net loss per share in the period of net loss, as their effect is antidilutive. Because the Company has reported a net loss for the years ended December 31, 2020, 2019 and 2018, diluted net loss per common share is the same as the basic net loss per share for those years.
The following table presents the calculation of basic and diluted net lossincome (loss) per share as follows (in thousands, except per share data):
| | Years Ended December 31, | |
| | 2020 | | | 2019 | | | 2018 | |
Numerator: | | | | | | | | | | | | |
Net loss attributable to common stockholders | | $ | (17,507 | ) | | $ | (59,937 | ) | | $ | (8,857 | ) |
Denominator: | | | | | | | | | | | | |
Weighted-average shares used in computing net loss per share, basic and diluted | | | 123,978 | | | | 115,218 | | | | 104,618 | |
Net loss per share, basic and diluted | | $ | (0.14 | ) | | $ | (0.52 | ) | | $ | (0.08 | ) |
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2023 | | 2022 | | 2021 |
| Numerator: | | | | | |
| Net income (loss) | $ | (709,561) | | | $ | (498,005) | | | $ | 242,385 | |
| Denominator: | | | | | |
| Basic net income (loss) per share: | | | | | |
| Weighted-average common shares outstanding — basic | 141,572 | | 137,668 | | 132,710 |
| Net income (loss) per share — basic | $ | (5.01) | | | $ | (3.62) | | | $ | 1.83 | |
| | | | | |
| Diluted net income (loss) per share: | | | | | |
| Weighted-average common shares outstanding — basic | 141,572 | | 137,668 | | 132,710 |
| Effect of potentially dilutive securities: | | | | | |
| Restricted stock units | — | | | — | | | 2,744 | |
| Stock options | — | | | — | | | 6,214 | |
| Weighted-average common shares outstanding — diluted | 141,572 | | 137,668 | | 141,668 |
| Net income (loss) per share — diluted | $ | (5.01) | | | $ | (3.62) | | | $ | 1.71 | |
The potential common shares that were
Common stock equivalents excluded from the calculation of diluted net
lossincome (loss) per share because
of their
anti-dilutive effect
would have been antidilutivewere 14.0 million, 14.4 million and 1.1 million units of equity awards to purchase common stock granted under the Company’s equity plans for the
periods presented are as follows (in thousands):years ended December 31, 2023, 2022, and 2021, respectively. | | Years Ended December 31, | |
| | 2020 | | | 2019 | | | 2018 | |
Equity awards to purchase common stock | | | 13,088 | | | | 15,668 | | | | 20,057 | |
Unvested shares of common stock issued upon early exercise of stock options and business acquisition | | | 1 | | | | 31 | | | | 70 | |
Total | | | 13,089 | | | | 15,699 | | | | 20,127 | |
An operating segment is defined as a component of an entity for which discrete financial information is available that is evaluated regularly by the
chief operating decision makerChief Operating Decision Maker (“CODM”) for purposes of allocating resources and evaluating financial performance. The Company’s CODM is its Chief Executive Officer, and the CODM evaluates performance and makes decisions about allocating resources to its operating segments based on financial information presented on a consolidated basis and on revenue and gross profit for each operating segment. The Company uses the management approach to determine the segment financial information that should be disaggregated and presented separately in the Company’s notes to its consolidated financial statements. The management approach is based on the manner by which management has organized the segments within the Company for making operating decisions, allocating resources, and assessing performance.
The Company reports its financial results consistent with the manner in which financial information is viewed by management for decision-making purposes. The Company does not manage operating expenses such as research and development, sales and marketing and general and administrative expenses at the segment level.
The Company is organized into 2 reportable segments as follows:
Platform
Consists of revenue generated from sale of digital advertising, content distribution services, subscription and transaction revenue share including Premium Subscriptions, sale of branded buttons on remote controls and licensing arrangements with service operators and TV brands.
Player
Consists of revenue generated from sale of streaming players, audio products and accessories through retailers and distributors, as well as directly to customers through the Company’s website.
The Company does not allocate property and equipment or any other assets or capital expenditures to reportable segments. Operating expenses are not managed at
Descriptions of the
segment level.
The Company evaluates the performance of itsCompany’s two reportable segments basedare as follows:
Platform
Platform revenue is generated from the sale of digital advertising (including direct and programmatic video advertising, media and entertainment promotional spending, and related services) and streaming services distribution (including subscription and transaction revenue shares, the sale of Premium Subscriptions, and the sale of branded app buttons on remote controls).
Devices
Devices revenue is generated from the
financial measures, including segment gross profit, which are regularly reviewed by the CODMsale of streaming players, Roku-branded TVs, smart home products and
provide insight into the individual segmentsservices, audio products, and
their ability to contribute to Company’s operating results.related accessories as well as revenue from licensing arrangements with service operators.
Customers accounting for 10% or more of segment revenue, net, were as follows:
| | | Years Ended December 31, | | | Years Ended December 31, |
| | 2020 | | | 2019 | | | 2018 | | | 2023 | | 2022 | | 2021 |
Platform segment revenue | | | | | | | | | | | | |
Customer H | | | 13 | % | | * | | | * | |
| Customer H | |
| Customer H | | * | | * | | 10 | % |
| Customer I | | Customer I | 13 | % | | * |
| | | | | | | | | | | | |
Player segment revenue | | | | | | | | | | | | |
| Devices segment revenue | |
| Devices segment revenue | |
| Devices segment revenue | |
| Customer A | |
| Customer A | |
Customer A | | | 10 | % | | | 16 | % | | | 15 | % | 15 | % | | * |
Customer B | | | 18 | % | | | 17 | % | | | 15 | % | Customer B | 15 | % | | 21 | % | | 22 | % |
Customer C | | | 40 | % | | | 39 | % | | | 38 | % | Customer C | 41 | % | | 38 | % | | 35 | % |
* Less than 10%
Revenue in international markets was less than 10% in each of the periods presented. Substantially all Company
Long-lived assets,
were held in the United States and were attributable to the operations in the United States as of December 31, 2020 and 2019.18. QUARTERLY FINANCIAL DATA (Unaudited)
net
The following table summarizespresents long-lived assets, net, which consist primarily of property and equipment and operating lease right-of-use assets, by geographic area (in thousands):
| | | | | | | | | | | |
| As of December 31, |
| 2023 | | 2022 |
| United States | $ | 497,024 | | | $ | 686,902 | |
| United Kingdom | 109,315 | | | 127,538 | |
| Other countries | 29,661 | | | 42,286 | |
| Total | $ | 636,000 | | | $ | 856,726 | |
17. RESTRUCTURING CHARGES
The Company began efforts to reduce its operating expense growth rate due to economic conditions in the Company’s information on total revenue, gross profit, net income (loss)fourth quarter of fiscal 2022. The Company recorded employee termination expenses, and earnings per share by quarteran impairment charge related to abandoned technology assets during the year ended December 31, 2022.
During the year ended December 31, 2023, the Company implemented additional measures including consolidating its office space utilization, performing a strategic review of its content portfolio, reducing outside services expenses, and slowing its year-over-year headcount expense growth rate through a workforce reduction and limiting new hires, among other measures. As a result of these measures, the Company recorded restructuring charges associated with employee termination expenses consisting primarily of severance payments, employee benefits contributions, payroll taxes and related costs, impairment charges related to decisions to sub-lease and cease the use of certain office facilities and related property and equipment, and impairment charges related to removing select licensed and produced content from The Roku Channel.
The restructuring charges for the years ended December 31, 20202023 and 2019. This data was derived from2022 are recorded as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2023 | | Year Ended December 31, 2022 |
| Employee Terminations | | Facilities Exit Costs | | Asset Impairment Charges | | Total | | Employee Terminations | | | | Asset Impairment Charges | | Total |
| Cost of revenue, platform | $ | 1,164 | | | $ | 1 | | | $ | 65,867 | | | $ | 67,032 | | | $ | — | | | | | $ | — | | | $ | — | |
| Cost of revenue, devices | 524 | | | 6 | | | 2,793 | | | 3,323 | | | — | | | | | — | | | — | |
| Research and development | 31,160 | | | 1,320 | | | 78,011 | | | 110,491 | | | 12,092 | | | | | 7,500 | | | 19,592 | |
| Sales and marketing | 29,786 | | | 517 | | | 83,411 | | | 113,714 | | | 10,904 | | | | | — | | | 10,904 | |
| General and administrative | 20,531 | | | 1,683 | | | 39,320 | | | 61,534 | | | 7,644 | | | | | — | | | 7,644 | |
| Total restructuring charges | $ | 83,165 | | | $ | 3,527 | | | $ | 269,402 | | | $ | 356,094 | | | $ | 30,640 | | | | | $ | 7,500 | | | $ | 38,140 | |
The asset impairment charges for the Company’s unauditedyear ended December 31, 2023 include $131.6 million of operating lease right-of-use assets impairment, $72.3 million of property and equipment impairment, and $65.5 million of content assets impairment. The asset impairment charge for the year ended December 31, 2022 includes a $7.5 million impairment charge related to abandoned technology assets.
A reconciliation of the beginning and ending balance of employee termination restructuring charges and facility exit costs, which are included in Accrued liabilities in the consolidated
financial statementsbalance sheets, is as follows (in
thousands, except per share data)thousands):
| | Three Months Ended | |
| | Dec 31, 2020 | | | Sep 30, 2020 | | | Jun 30, 2020 | | | Mar 31, 2020 | |
Total Revenue | | $ | 649,886 | | | $ | 451,663 | | | $ | 356,073 | | | $ | 320,766 | |
Gross Profit | | | 305,458 | | | | 214,824 | | | | 146,836 | | | | 141,101 | |
Net income (loss) attributable to common stockholders | | | 67,306 | | | | 12,947 | | | | (43,148 | ) | | | (54,612 | ) |
Basic net income (loss) per share attributable to common stockholders | | | 0.53 | | | | 0.10 | | | | (0.35 | ) | | | (0.45 | ) |
Diluted net income (loss) per share attributable to common stockholders | | | 0.49 | | | | 0.09 | | | | (0.35 | ) | | | (0.45 | ) |
| | | | | | | | | | | | | | | | |
| | Three Months Ended | |
| | Dec 31, 2019 | | | Sep 30, 2019 | | | Jun 30, 2019 | | | Mar 31, 2019 | |
Total Revenue | | $ | 411,230 | | | $ | 260,928 | | | $ | 250,101 | | | $ | 206,662 | |
Gross Profit | | | 161,647 | | | | 118,477 | | | | 114,209 | | | | 100,891 | |
Net loss attributable to common stockholders | | | (15,717 | ) | | | (25,155 | ) | | | (9,333 | ) | | | (9,732 | ) |
Basic and diluted net loss per share attributable to common stockholders | | | (0.13 | ) | | | (0.22 | ) | | | (0.08 | ) | | | (0.09 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2023 | | Year Ended December 31, 2022 |
| Employee Terminations | | Facilities Exit Costs | | Total | | Employee Terminations | | | | Total |
| Beginning balance | $ | 22,093 | | | $ | — | | | $ | 22,093 | | | $ | — | | | | | $ | — | |
Add: Restructuring charges incurred | 83,165 | | | 3,527 | | | 86,692 | | | 30,640 | | | | | 30,640 | |
| Less: Payments made | (92,597) | | | (2,329) | | | (94,926) | | | (8,547) | | | | | (8,547) | |
| Ending balance | $ | 12,661 | | | $ | 1,198 | | | $ | 13,859 | | | $ | 22,093 | | | | | $ | 22,093 | |
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities and Exchange Act of 1934, as amended, or the Exchange Act) prior to the filing of this Annual
Report on Form 10-K.Report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this Annual Report,
on Form 10-K, our disclosure controls and procedures were, in design and operation, effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended December 31,
20202023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework set forth in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework set forth in Internal Control — Integrated Framework (2013), our management concluded that our internal control over financial reporting was effective as of December 31, 2020.2023.
The effectiveness of our internal control over financial reporting as of December 31,
20202023 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in its report which is included
below.herein.
Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Our disclosure controls and procedures and our internal controls over financial reporting have been designed to provide reasonable assurance of achieving their objectives. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Roku, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Roku, Inc. and subsidiaries (the “Company”) as of December 31, 2020,2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020,2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31,
2020,2023, of the Company and our report dated February
25, 2021,16, 2024, expressed an unqualified opinion on those financial
statements and included an explanatory paragraph related to the Company’s change in method of accounting for leases in fiscal year 2019 due to the adoption of Accounting Standards Update No. 2016-02, Leases (Topic 842).statements.
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP February 25, 202116, 2024
Item 9B. Other Information Insider Trading Arrangements
During the three months ended December 31, 2023, each of the following officers (as defined in Rule 16a-1(f) under the Exchange Act) of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
| | | | | | | | | | | | | | | | | | | | |
| Name | Action | Adoption/Termination Date | Trading Arrangement | Total Shares of Class A Common Stock to be Sold | Expiration Date |
| Rule 10b5-1* | Non-Rule 10b5-1** |
Anthony Wood*** (Chief Executive Officer, President, and Chairman) | Adoption | November 15, 2023 | X | | 300,000 | | September 9, 2024 |
Charles Collier (President, Roku Media) | Termination | November 17, 2023 | X | | 117,359 | | June 17, 2024 |
| Adoption | November 21, 2023 | X | | 626,636 | | November 21, 2024 |
Stephen Kay (Senior Vice President, General Counsel and Secretary) | Adoption | November 7, 2023 | X | | 143,267 | | February 22, 2025 |
___________________
* Contract, instruction or written plan intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act.
** “Non-Rule 10b5-1 trading arrangement” as defined in Item 408(c) of Regulation S-K under the Exchange Act.
*** Trading arrangement adopted by the Wood Revocable Trust, of which Mr. Wood and his spouse are co-trustees.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item is incorporated by reference to the information contained in the sections “Voting and Meeting Information,” “Board of Directors and Corporate Governance,” “Executive Officer Biographies,” and “Other Matters” in our definitive Proxy Statement for the 20202024 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our year ended December 31, 2020.2023 (our “Proxy Statement”).
Item 11. Executive Compensation
The information required by this item is incorporated by reference to the information contained in the sections “Compensation Discussion and Analysis” and “Executive Compensation” in our definitive Proxy Statement for the 2020 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our year ended December 31, 2020.Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item is incorporated by reference to the information contained in the sections “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” in our definitive Proxy Statement for the 2020 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our year ended December 31, 2020.Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item is incorporated by reference to the information contained in the sections “Certain Relationships and Related Transactions” and “Director Independence” in our definitive Proxy Statement for the 2020 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our year ended December 31, 2020.Statement.
Item 14. Principal Accounting Fees and Services
The information required by this item is incorporated by reference to the information contained in the section “Ratification of Selection of Independent Registered Public Accounting Firm” in our definitive Proxy Statement for the 2020 Annual MeetingStatement.
PART IV
Item 15. Exhibits
and Financial Statement Schedules
(a)(1) Financial Statements See Index to Financial Statements in Item 8 of this
Annual Report.
(a)(2) Financial Statement Schedule All financial statement schedules have been omitted as the information is not required under the related instructions or is not applicable or because the information required is already included in the financial statements or the notes to those financial statements.
(a)(3) Exhibits
The documents set forth below are filed herewith or incorporated herein by reference to the location indicated.
| | | | | | |
| | Incorporated by Reference | |
Number | Exhibit Title | Form | File No. | Exhibit | Filing Date | Filed Herewith |
| | | | | | |
2.1 | Agreement and Plan of Merger, dated October 22, 2019, by and among Roku, Inc., Delaware Acquisition Company, Inc., dataxu, Inc. and Shareholder Representative Services LLC, as Stockholder Representative and Amendment No. 1 to Agreement and Plan of Merger, dated November 8, 2019, by and among Roku, Inc., Delaware Acquisition Company, Inc., dataxu, Inc. and Shareholder Representative Services LLC, as Stockholder Representative. | 8-K | 001-38211 | 2.1 | 11/14/2019 | |
| | | | | | |
3.1 | Amended and Restated Certificate of Incorporation. | 8-K | 001-38211 | 3.1 | 10/3/2017 | |
| | | | | | |
3.2 | Amended and Restated Bylaws. | S-1/A | 333-220318 | 3.4 | 9/18/2017 | |
| | | | | | |
4.1 | Reference is made to Exhibit 3.1. | | | | | |
| | | | | | |
4.2 | Form of Class A Common Stock Certificate. | S-1/A | 333-220318 | 4.1 | 9/18/2017 | |
| | | | | | |
4.3 | Description of Securities. | 10-K | 001-38211 | 4.3 | 3/2/2020 | |
| | | | | | |
10.1 + | Roku, Inc. 2008 Equity Incentive Plan. | S-1 | 333-220318 | 10.3 | 9/1/2017 | |
| | | | | | |
10.2 + | Forms of Option Agreement and Option Grant Notice under 2008 Equity Incentive Plan. | S-1 | 333-220318 | 10.4 | 9/1/2017 | |
| | | | | | |
10.3 + | Roku, Inc. 2017 Equity Incentive Plan. | S-1/A | 333-220318 | 10.5 | 9/18/2017 | |
| | | | | | |
10.4 + | Forms of Option Agreement and Option Grant Notice under 2017 Equity Incentive Plan. | S-1/A | 333-220318 | 10.6 | 9/18/2017 | |
| | | | | | |
10.5 + | Forms of Restricted Stock Unit Grant Notice and Award Agreement under 2017 Equity Incentive Plan. | S-1/A | 333-220318 | 10.7 | 9/18/2017 | |
| | | | | | |
10.6 + | Forms of Option Agreement and Option Grant Notice under 2017 Equity Incentive Plan. | 10-Q | 001-38211 | 10.24 | 8/10/2018 | |
| | | | | | |
10.7 + | Forms of Restricted Stock Unit Grant Notice and Award Agreement under 2017 Equity Incentive Plan (Non-Employee Directors). | 10-Q | 001-38211 | 10.7 | 8/9/2019 | |
| | | | | | |
10.8 + | Forms of Option Grant Notice and Option Agreement under 2017 Equity Incentive Plan (Non-Employee Directors). | 10-Q | 001-38211 | 10.8 | 8/9/2019 | |
| | | | | | |
10.9 + | Forms of Restricted Stock Unit Grant Notice and Award Agreement under 2017 Equity Incentive Plan (Employees). | 10-K | 001-38211 | 10.7 | 3/2/2020 | |
| | | | | | |
10.10 + | Forms of Restricted Stock Unit Grant Notice and Award Agreement under 2017 Equity Incentive Plan. | 10-Q | 001-38211 | 10.5 | 11/6/2020 | |
| | | | | | |
10.11 + | Forms of Option Grant Notice and Award Agreement under 2017 Equity Incentive Plan. | 10-Q | 001-38211 | 10.6 | 11/6/2020 | |
| | | | | | |
10.12 + | Forms of Stock Option Grant Notice and Option Agreement Under 2017 Equity Incentive Plan (Non-Employee Directors Initial Award). | | | | | X |
| | | | | | |
10.13 + | Forms of Stock Option Grant Notice and Option Agreement Under 2017 Equity Incentive Plan (Non-Employee Directors Annual Award). | | | | | X |
| | | | | | |
10.14 + | Forms of Restricted Stock Unit Grant Notice and Award Agreement Under 2017 Equity Incentive Plan (Non-Employee Directors). | | | | | X |
| | | | | | |
| | | | | | |
10.15 + | Executive Supplemental Stock Option Program 2021 Enrollment Form. | 8-K | 001-38211 | 10.1 | 10/6/2020 | |
| | | | | | |
10.16 + | Forms of Option Grant Notice and Executive Supplemental Stock Option Agreement and Option Grant Notice under 2017 Equity Incentive Plan. | 8-K | 001-38211 | 10.2 | 12/7/2018 | |
| | | | | | |
10.17 + | Roku, Inc. 2017 Employee Stock Purchase Plan. | S-1/A | 333-220318 | 10.8 | 9/18/2017 | |
| | | | | | |
10.18 + | Form of Indemnification Agreement, by and between Roku, Inc. and each of its directors and executive officers. | S-1A | 333-220318 | 10.9 | 9/18/2017 | |
| | | | | | |
10.19 + | Employment Terms Agreement, by and between Roku, Inc. and Stephen Kay, dated November 15, 2013. | S-1 | 333-220318 | 10.9 | 9/1/2017 | |
| | | | | | |
10.20 + | Employment Terms Agreement, by and between Roku, Inc. and Steve Louden, dated June 11, 2015. | S-1 | 333-220318 | 10.11 | 9/1/2017 | |
| | | | | | |
10.21 + | Employment Terms Agreement, by and between Roku, Inc. and Scott Rosenberg, dated October 30, 2012. | S-1 | 333-220318 | 10.13 | 9/1/2017 | |
| | | | | | |
10.22 + | Employment Terms Agreement, by and between Roku, Inc. and Mustafa Ozgen, dated January 17, 2019. | 10-K | 001-38211 | 10.18 | 3/2/2020 | |
| | | | | | |
10.23 + | Independent Contractor Services Agreement by and between Roku, Inc. and Neil Hunt, dated September 10, 2017. | S-1/A | 333-220318 | 10.30 | 9/18/2017 | |
| | | | | | |
10.24 + | Roku, Inc. Amended and Restated Severance Benefit Plan. | 8-K | 001-38211 | 99.1 | 7/16/2019 | |
| | | | | | |
10.25 | Coleman Highline Office Lease by and between Roku, Inc. and Cap Phase 1, LLC dated August 1, 2018 (1155 Coleman Ave). | 10-Q | 001-38211 | 10.26 | 8/10/2018 | |
| | | | | | |
10.26 | Coleman Highline Office Lease by and between Roku, Inc. and Cap Oz 34, LLC dated August 1, 2018 (1173/1167/1161 Coleman Ave). | 10-Q | 001-38211 | 10.27 | 8/10/2018 | |
| | | | | | |
10.27 | First Amendment to Coleman Highline Office Lease by and between Roku, Inc. and Cap Phase 1, LLC dated November 12, 2018 (1155 Coleman Ave). | 10-K | 001-38211 | 10.30 | 3/1/2019 | |
| | | | | | |
10.28 | First Amendment to Coleman Highline Office Lease by and between Roku, Inc. and Cap Oz 34, LLC dated November 18, 2018 (1173/1167/1161 Coleman Ave). | 10-K | 001-38211 | 10.31 | 3/1/2019 | |
| | | | | | |
10.29 | Credit Agreement, dated as of February 19, 2019, by and among Roku, Inc., Morgan Stanley Senior Funding, Inc., as lender, issuing bank, administrative agent and collateral agent, and the other issuing banks and lenders party thereto from time to time. | 10-K | 001-38211 | 10.32 | 3/1/2019 | |
| | | | | | |
10.30 | Assignment and Assumption of Lease, Landlord’s Consent and First Amendment of Lease, dated as of April 30, 2019, by and among Roku, Inc., 8x8, Inc. and CAP Phase I, LLC. | 10-Q | 001-38211 | 10.1 | 8/9/2019 | |
| | | | | | |
10.31 | Second Amendment to Coleman Highline Office Lease by and between Roku, Inc. and Cap Phase 1, LLC dated April 30, 2019 (1155 Coleman Ave). | 10-Q | 001-38211 | 10.2 | 8/9/2019 | |
| | | | | | |
10.32 | Second Amendment to Coleman Highline Office Lease by and between Roku, Inc. and Cap Oz 34, LLC dated April 30, 2019 (1173/1167/1161 Coleman Ave). | 10-Q | 001-38211 | 10.3 | 8/9/2019 | |
| | | | | | |
10.33 | Incremental Assumption and Amendment No. 1 to Credit Agreement, dated as of May 3, 2019, by and among Roku, Inc., Morgan Stanley Senior Funding, Inc., as administrative agent and issuing bank, and the other issuing banks and lenders party thereto from time to time. | 10-Q | 001-38211 | 10.4 | 8/9/2019 | |
| | | | | | |
10.34 | Equity Distribution Agreement, dated May 13, 2020, by and among Roku, Inc., Morgan Stanley & Co. LLC and Citigroup Global Markets Inc. | 10-Q | 001-38211 | 1.1 | 5/13/2020 | |
| | | | | | |
21.1 | List of Subsidiaries of Roku, Inc. | | | | | X |
| | | | | | | | | | | | | | | | | | | | |
| | | Incorporated by Reference | |
| Number | Exhibit Title | Form | File No. | Exhibit | Filing Date | Filed Herewith |
| 3.1 | | 8-K | 001-38211 | 3.1 | 10/3/2017 | |
| 3.2 | | S-1/A | 333-220318 | 3.4 | 9/18/2017 | |
| 4.1 | | | | | | |
| 4.2 | | S-1/A | 333-220318 | 4.1 | 9/18/2017 | |
| 4.3 | | 10-K | 001-38211 | 4.3 | 3/2/2020 | |
| 10.1 + | | S-1 | 333-220318 | 10.3 | 9/1/2017 | |
| 10.2 + | | S-1 | 333-220318 | 10.4 | 9/1/2017 | |
| 10.3 + | | S-1/A | 333-220318 | 10.5 | 9/18/2017 | |
| 10.4 + | | 10-K | 001-38211 | 10.4 | 2/18/2022 | |
| 10.5 + | | 10-K | 001-38211 | 10.5 | 2/18/2022 | |
| 10.6 + | | | | | | X |
| 10.7 + | | S-1/A | 333-220318 | 10.8 | 9/18/2017 | |
| 10.8 + | | S-1/A | 333-220318 | 10.9 | 9/18/2017 | |
| 10.9 + | | S-1 | 333-220318 | 10.9 | 9/1/2017 | |
| 10.10 + | | S-1 | 333-220318 | 10.11 | 9/1/2017 | |
| 10.11 + | | 10-K | 001-38211 | 10.18 | 3/2/2020 | |
| 10.12 + | | 10-K | 001-38211 | 10.18 | 2/16/2023 | |
| 10.13 + | | 10-Q | 001-38211 | 10.1 | 7/28/2023 | |
| 10.14 + | | 8-K | 001-38211 | 10.1 | 8/11/2023 | |
| 10.15 + | | 10-Q | 001-38211 | 10.1 | 11/2/2023 | |
| 10.16 | | 10-Q | 001-38211 | 10.26 | 8/10/2018 | |
| 10.17 | | 10-K | 001-38211 | 10.30 | 3/1/2019 | |
| 10.18 | | 10-Q | 001-38211 | 10.2 | 8/9/2019 | |
| | | | | | | | | | | | | | | | | | | | |
| 10.19 | | 10-Q | 001-38211 | 10.1 | 8/9/2019 | |
| 10.20 | | 10-Q | 001-38211 | 10.1 | 4/29/2022 | |
| 10.21 | | 10-Q | 001-38211 | 10.3 | 4/29/2022 | |
| 10.22 | | 10-Q | 001-38211 | 10.27 | 8/10/2018 | |
| 10.23 | | 10-K | 001-38211 | 10.31 | 3/1/2019 | |
| 10.24 | | 10-Q | 001-38211 | 10.3 | 8/9/2019 | |
| 10.25 | | 10-Q | 001-38211 | 10.2 | 4/29/2022 | |
| 21.1 | | | | | | X |
| 23.1 | | | | | | X |
| 24.1 | | | | | | X |
| 31.1 | | | | | | X |
| 31.2 | | | | | | X |
| 32.1 * | | | | | | X |
| 32.2 * | | | | | | X |
| 97.1 | | | | | | X |
| 101.INS | Inline XBRL Instance Document | | | | | X |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | | | | | X |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | | | | X |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | | | | | X |
| 101.LAB | Inline XBRL Taxonomy Extension Labels Linkbase Document | | | | | X |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | | | | X |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | | | | | |
* These exhibits are furnished with this Annual Report
on Form 10-K and are not deemed filed with the
Securities and Exchange CommissionSEC and are not incorporated by reference in any filing of Roku, Inc. under the Securities Act
of 1933, as amended, or the
Securities Exchange Act,
of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language contained in such filings.
+ Indicates a management contract or compensatory plan or arrangement.
Item 16. Form 10-K Summary
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, on this 2516th day of February 2021.2024. | | | | | | | | |
| Roku, Inc. |
Roku, Inc.
| | |
| By: | | |
By:
| | /s/ Anthony Wood |
| | Anthony Wood |
| | Anthony Wood
|
| | President, and Chief Executive Officer and Chairman |
| | (Principal Executive Officer) |
| | | | | | | | |
| By: | | /s/ Dan Jedda |
By:
| | /s/ Steve Louden
Dan Jedda |
| | |
| | Steve Louden
|
| | Chief Financial Officer |
| | (Principal Financial Officer) |
113
| | | | | | | | |
| By: | | /s/ Matthew Banks |
| | Matthew Banks |
| | Vice President, Corporate Controller and Chief Accounting Officer |
| | (Principal Accounting Officer) |
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Anthony Wood and Dan Jedda, and each of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in their name, place, and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming that all said attorneys-in-fact and agents, or any of them or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
| | | | | | | | |
| Name | Title | Date |
| | |
| /s/ ANTHONY WOOD | President, Chief Executive Officer and Chairman | February 16, 2024 |
| Anthony Wood | (Principal Executive Officer) | |
| | |
| /s/ DAN JEDDA | Chief Financial Officer | February 16, 2024 |
| Dan Jedda | (Principal Financial Officer) | |
| | |
| /s/ MATTHEW BANKS | Vice President, Corporate Controller and Chief Accounting Officer | February 16, 2024 |
| Matthew Banks | (Principal Accounting Officer) | |
| | |
| /s/ RAVI AHUJA | Director | February 16, 2024 |
| Ravi Ahuja | | |
| | |
| /s/ JEFFREY BLACKBURN | Director | February 16, 2024 |
| Jeffrey Blackburn | | |
| | |
| /s/ MAI FYFIELD | Director | February 16, 2024 |
| Mai Fyfield | | |
| | |
| /s/ JEFFREY HASTINGS | Director | February 16, 2024 |
| Jeffrey Hastings | | |
| | |
| /s/ LAURIE SIMON HODRICK | Director | February 16, 2024 |
| Laurie Simon Hodrick | | |
| | |
| /s/ GINA LUNA | Director | February 16, 2024 |
| Gina Luna | | |
| | |
| /s/ RAY ROTHROCK | Director | February 16, 2024 |
| Ray Rothrock | | |
