Roku (ROKU 1.84%) ended 2021 with more than 60 million active accounts streaming on its platform. Over the last 12 months, those users brought in an average of $41 in revenue for Roku. That comes from ads and its commission on selling subscriptions.
While that's up 43% year over year, CEO Anthony Wood thinks there's a lot of room to keep growing that number. He laid out the biggest opportunities the company is investing in at a recent investor conference.
Image source: Roku.
Billing platform
Wood says Roku's billing platform, which allows users to sign up for new paid streaming services within the Roku OS, is growing by leaps and bounds. That's likely due to the influx of new premium streaming services we've seen introduced over the last couple of years.
Wood thinks there's still a lot of room for improvement to make billing easier for users and publishers.
Additionally, climbing churn rates across the industry due to competition could be an opportunity for Roku to grow billing. As consumers switch from one service to another, Roku could win more billings as it offers an easy one-click solution for customers. Moreover, publishers that don't use Roku's billing platform could miss out on the opportunity to win switchers.
Search and discovery
Roku already offers a few ways to search for and discover new content, but Wood describes those tools as "pretty basic." He wants to make it easier for users to find the content they want to watch, regardless of what streaming service it's on.
When Roku improves the discoverability of content, it creates new monetization opportunities. For one, it could put sponsored listings or other advertising units in search results and discover sections of the OS. Second, if it pushes users toward more ad-supported content, Roku likely would take a cut of the ad inventory.
NASDAQ: ROKU
Key Data Points
New experiences
Roku has experimented with a few user experiences over the past few months. It had a New Year's experience, where it pushed content around the holiday. It also has a sports zone and celeb zone, which caters toward niche content interests.
Again, a new user experience serves to increase engagement and should lead to some high-value-ad units for publishers.
Roku Channel engagement
Wood says that Roku actually exercises a lot of control over engagement on the Roku Channel. It can drive viewership by promoting its content in its own ad units, and it can buy more and higher-quality content to drive engagement as well. In that way, it can control ad inventory to align with its content spending.
In fact, the Roku Channel plays a very important role in Roku's overall advertising business. Roku offers advertisers a demand-side platform to buy up ad inventory. At the same time, Roku only gets so much ad inventory from third-party publishers. So, as demand on its ad platform grows, Roku pushes more viewership to the Roku Channel, where it can exercise greater control over advertisements.
Investing heavily to get there
Roku is spending a lot of money to maximize its long-term potential. "We plan to maintain adjusted EBITDA roughly in line with 2020 levels on an absolute basis," CFO Steve Louden said on Roku's fourth-quarter earnings call. "We continue to invest against a significant opportunity and drive continued innovation on the platform."
Indeed, Guggenheim analyst Michael Morris pointed out Louden's outlook suggests spending will nearly double this year, going well above $1 billion. But that spending ought to go toward improving the monetization rate of its users. "It's not like we're using the money to buy market share. We're using the money to make the experience better," Wood said at the investors conference.
With the step up in investments, investors should look for ARPU to continue climbing in 2022 and beyond, leading to a more profitable business long term.
