Roku Inc

NASDAQ:ROKU

Earnings Call Transcript 2018-Q3

[Operator]

Good day, ladies and gentlemen, and welcome to the Third Quarter of 2018 Roku Earnings Conference Call.

At this time, all lines are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be provided at that time [Operator Instructions]. And as a reminder, this conference is being recorded.

I would now like to hand the conference over to James Samford, Head of Investor Relations. Please go ahead

[James Samford, VP, IR]

Thank you. Good afternoon. And welcome to Roku's financial results conference call for the third quarter ended September 30, 2018. I'm pleased to be joined on the call today with Anthony Wood, Roku's Founder and CEO; Steve Louden, our CFO; and Scott Rosenberg, the GM of our Platform Business, who will be available for Q&A. Please be sure to review our shareholder letter, which contains much more details than we will cover in the introductory remarks.

The following discussion, including responses to your questions, reflects management's views as of today, November 07, 2018 only and we do not undertake any obligation to update or revise this information. Some of the statements made on today's call are forward-looking and are based on our current expectations, forecasts and assumptions, and involve risks and uncertainties. These statements include, but are not limited to, statements regarding future performance of Roku, including expected financial results for the fourth quarter and full-year 2018 and the future growth of our business.

Our actual results may differ materially from those discussed on this call for a variety of reasons. Please refer to today's shareholder letter and the Company's filings with the SEC for information about factors, which could cause our actual results to differ materially from these forward-looking statements. You'll find reconciliations of our non-GAAP measures to the most comparable measures discussed today in our shareholder letter, which is posted on Company's Investor Relations Website at ir.roku.com and I encourage you to periodically visit our IR Website for important content.

Finally, unless otherwise stated, all comparisons on this call will be against our results for the comparable period in 2017.

Now, I'd like to turn the call over to Anthony.

[Anthony Wood, Founder & CEO]

Thank you, James and thanks everyone for joining today's call. We had another great quarter with outstanding results. The transition to streaming is creating huge opportunities for Roku. We are executing well and the fundamentals of our business are strong.

Cord cutting continues to alter the TV landscape. We believe the trend will accelerate as more consumers understand the choice and value that streaming offers and as traditional Pay TV bundle shrink, more content will move to streaming.

The scale of our customer base now rivals large traditional US cable and satellite companies and while they are losing video subscribe, we continue to grow quickly and I'm encouraged by the high level of engagement from our nearly 24 million active accounts.

In our shareholder letter, we set out a number of ways that OTT is a superior solution for advertisers. For example, this quarter we announced our measurement partner program; our ability to demonstrate effectiveness is unlocking larger and larger budgets. Already around two thirds of the Ad Age top 200 advertisers have worked with Roku.

The Roku channel celebrated its first anniversary this quarter. We launched it only a year ago and we made huge progress growing it's reach and engagement and is now a meaningful part of our advertising growth strategy.

Roku has the unique position in the industry and we continue to execute well in a competitive marketplace. The opportunity before us is large and it's a great time to be in the streaming business.

Now I'll turn it over to Steve for brief comments on our results and outlook.

[Steve Louden, CFO]

Thanks Anthony. Our strong third quarter results have put us on track for another record year. Active account growth of 43% year-over-year and streaming our growth of 63% year-over-year help deliver another quarter above our outlook. Please see our shareholder letter for the full financial details from the quarter, but I'll highlight a few items and provide some color on Q4 outlook.

Total Q3 revenue increased 39% year-over-year to $173.4 million with platform revenue up 74% to a milestone of $100 million and representing 58% of total revenue. There are several key components to our platform business and I'd highlight that video ad sales, the largest part of the platform more than doubled year-over-year again this quarter.

We also saw very strong results from the audience development business, which is closely linked to our content distribution business since many of our content partners take advantage of our marketing tools to attract audiences to their services.

Player revenue growth of 9% was ahead of the outlook we provided with another strong quarter from retail channels. Player units were up 15% year-over-year and ASPs were down 5% as we continue to see strong demand for sub $50 players, particularly our new 4k Premiere Plus, which is priced at an incredible $49.99 at retail.

We tightened our Q4 revenue outlook slightly but as a reminder, Q4 is seasonally our strongest quarter and is very backend loaded with the bulk of our revenues occurring between Black Friday and the end of the year. So Q4 is still heavily dependent on how the holidays stack up given the highly competitive retail environment.

Our key financial performance metric is gross profit, which was up 58% year-over-year this quarter to a record $79 million. Gross margin was 45.6% up 560 basis points year-over-year, slightly ahead of expectations, due to strong audience development and solid player gross profit upside in the quarter.

Q4 is more promotional for players and the mix shift to video ad generally pulls platform margins down from Q3 levels. We expect to see that pattern again this quarter with platform gross margins down modestly, sequentially and player gross profit dipping to low to mid-single-digit margins.

We are investing in a wide range of growth opportunities for 2019 and beyond. So we continue to invest in attracting top talent to pursue them. OpEx in the quarter grew 57% to $90.7 million driven by a combination of continued rapid headcount growth and significantly higher stock-based comp and payroll taxes from stock option exercises.

Adjusted EBITDA came in at a positive $2 million in Q3, our first positive adjusted EBITDA Q3 ever and well ahead of our outlook as a result of higher revenue and gross profit. With that brief overview, let me turn to our outlook for the full year.

Based on our strong performance year-to-date and what we know as of today about account growth, engagement and monetization trends, we are again raising our full-year outlook. Our updated full-year outlook increases to 42% revenue growth and 63% gross profit growth at the midpoint, up from the prior growth rates of 40% and 60% respectively when we provided outlook in August.

As a reminder we plan to reinvest gross profit upside back into R&D and sales and marketing to fuel continued growth and innovation, managing the business to roughly breakeven EBITDA during this period of market expansion. However, based on the strength of the first three quarters of 2018, we expect to deliver between $21 million and $28 million in adjusted EBITDA for the full year, up from our prior estimate of $11 million to $23 million.

For Q4, our outlook is for year-over-year revenue growth of 38% at the midpoint with player and platform revenue growth roughly in line with Q3 levels. Continued mix shift to video advertising and seasonality in player margins is reflected in our outlook for year-over-year total gross profit growth of roughly 41% at the midpoint.

While we expect to report positive EBITDA margins of roughly 6% in Q4, stock-based comp is expected to increase to roughly $15 million in the quarter as we see the full impact of RSU grants issued in Q3 to new and existing employees, which are expensed in the quarter that they are granted and as they vest.

We look forward to providing more color on 2019 when we report our full 2018 results in February. Given the strength of the fundamentals of our business and our leadership position, we continue to see plenty of opportunity to reinvest our business to achieve our long-term growth potential.

And with that, let's turn the call over for questions, operator?

[Operator]

Thank you. [Operator Instructions] Our first question comes from Mark Mahaney with RBC Capital Markets. Your line is now open.

[Mark Mahaney, RBC Capital Markets]

Great. Thanks. Two questions. One on the Roku Channel and one on the Roku Everywhere strategy, on the Roku Channel any comments on improvements in the pricing or ad load versus the last couple of quarters, and just talk about the forward growth outlook for the Roku channel and then on this Roku Everywhere strategy, just talk about traction you've seen forward so far, how do we think about -- how should we think about the materiality of that, maybe not near-term but over the next course of the next year or two? Thanks a lot.

[Scott Rosenberg, GM of Platform Business]

Hey Mark, Scott Rosenberg here. Great question. Roku channel continues to hit on all cylinders. We mentioned in the shareholder letter, it's a top five channel in terms of the engagement, it's grown faster than any channel in the history of the platform and continues to be a very fertile area of investment for us in terms of putting new content into it.

We got a bunch of news channels more recently. We had a great night last night for example with the midterms, the events of news drive a lot of engagement and so in general we continue to put more wood behind that fire and drive the growth of the Roku channel on platform.

We think that value proposition of free has been proven strong on our platform by the growth of the Roku channel. We do think that, that proposition extends off of Roku as well. We don't have anything more to say about off Roku plans at this point, but we do think we've demonstrated how powerful that pre-proposition is with the Roku channel.

[Operator]

Thank you. Our next question comes from the line of Mark May with Citi. Your line is now open.

[Zachary Morrissey, Citi]

This is Zach on from Mark. First question, could you just provide us an update on some of your new initiatives that you announced last quarter, the featured free and the Roku Channel on the web how those are tracking relative to expectations?

And then secondly, last month you announced favorable ruling in Mexico to resume sales of Roku [indiscernible] there, so how should we be thinking about that opportunity and then kind of taking more broader picture, just how should we think about international expansion opportunities as we head into 2019, thanks?

[Anthony Wood, Founder & CEO]

Hey this is Anthony. I'll take the Mexico and international question and then maybe Scott can talk a little bit about Feature Free and TRC. Yeah, we won, just to recap, we've been hand cuffed in Mexico for a while. We won a court case on that. We're back in full force in Mexico. So we're happy about that and that will help our Mexico business.

In terms of international, the way we think about streaming is that the global business, it's international opportunity. We launched TRC in Canada. TCL just launched Roku TVs in Canada; we're in other countries, but it is also a fact that most of our active accounts are US active accounts.

The domestic market is a large market for us and we believe there is a big opportunity internationally, but it's an area that we traditionally haven't focused on. We are starting to focus on it, but we don't have anything new to announce there yet.

[Scott Rosenberg, GM of Platform Business]

Mark with regards to your question about new things that we launched in the quarter as you mentioned featured free was a feature that we launched. This is yet another way, another cut for us on celebrating free across the platform. It's been quite popular as a means to drive consumer awareness of free content that's available across the platform, just as is launching TRC on the web, on desktop, on Samsung. These are all part of our broader theses which is borne out in last year of how important great, free ad supported programming is for consumers.

One other thing I'll mention about a new item in the quarter was we announced our measurement partner program which is a partnership across 11 different research companies, sort of a who's who in the measurement space from Nielsen, comScore, Oracle, Kantar, Placed.

These are partnerships that in conjunction with our ad sales allow us to prove just how much more effective an ad placed on Roku is relative to traditional linear television. It's a signal of our confidence in our transparency improving to brands that they should be shifting their budgets to OTT.

[Operator]

Thank you. Our next question comes from Laura Martin with Needham. Your line is now open.

[Laura Martin, Needham & Co]

Hi guys. Great numbers and thanks for another very nice quarter. So I was really intrigued, I really like the advertising section, I was really intrigued, you said that you could measure effectiveness and return on investment of the ads, which has been the sort of Holy Grail like you're combining visual and liner and I am just wondering if you could give us any harder data points or just examples of that. I don't really get how you couldn't go end to end, which is the holy grail of what ROI is on your ads.

That's one and then Anthony for you this hardware number is much better than we had in our estimates and so I'd like to -- do I put that into this bigger -- Amazon shoot itself in the foot by only now being an insignia brand in Best Buy and one of the reasons its hardware number over delivered player revenue is because your basically - is there a pivot going on towards Costco and Walmart where you're over-delivering this player revenue, did you see a mix shift where Amazon [indiscernible] itself competitively by aligning with Best Buy. Those are my two questions. Thank you.

[Scott Rosenberg, GM of Platform Business]

Laura, let me tackle your question about ad effectiveness and I'll share with you just a couple of stats before I get into some examples. So two thirds of top 200 national advertisers have spent with the seven of the top 10 brands, eight of the top 10 auto brands, four of the top six wireless brands.

We have made incredible progress in penetrating in these accounts, convincing them of the value proposition of spending in OTT and one of the best ways we do that is by bringing research to the table. In the last quarter, almost half of every ad impression that ran on our platform was associated with some sort of research study in which we were showing back to the brand the ROI of their investment with Roku.

And because every ad that we serve on Roku can be measured on an individualized basis, we can tie out and add exposure to a mid or bottom funnel KPI that an advertiser cares about. So just as an example we mentioned it in the letter, but with Carnival Cruises, we are able to directly correlate exposure to an ad on our platform with a visit to their website.

With Jack-in-the-Box and a partnership with Placed which does location-based measurement, we are able to prove that we drove 160,000 incremental visits to Jack-in-the-Box stores, restaurants and perhaps the most influential type of measurement that we're doing right now with TV advertisers is we're leveraging our ACR data to be able to show it to an advertiser who they reached through their traditional linear investment and more importantly, who they didn't reach and who they could be reaching if they were investing in OTT.

So on a pre-campaign basis, we've given an estimate of the incremental TV viewers they can reach by spending with Roku and then on a post campaign basis, we prove it and we've done dozens of those types of incremental reach studies with brands like Dell, Home Depot, Panera, [Amica] [ph], Duracell, it’s one of the most attractive aspects for a TV advertising team when they are investing with us.

Ultimately what we think helps us win in this space is providing a superior ad solution. We think the TV ad product that we're selling is the future of TV advertising.

[Anthony Wood, Founder & CEO]

Hey Laura, this is Anthony. Before I get on -- before I discuss hardware and Best Buy for a second, I just want to add to the measurements and advertising question. 10% of 18 to 34-year-olds watch their television on Roku and so if you're an advertiser and you want to target the video ad at them, Roku is the place you have to go to reach them.

But 10% of the budgets have not moved over to Roku yet or the streaming and the biggest obstacle there is just the way the advertiser is used to buying ads, just their traditional spending pattern and so by using measurement and ROI analysis, we can help move that along by showing advertisers that this new way of advertising really, really works and so 10% of viewers are on Roku in that demographic, but the budgets haven't moved yet, but they will and it's just a question of time.

So in terms of your question on hardware and Best Buy, yes, player sales continue to do well. Why is that? Well I think it's a combination of factors. One is we build great products. Our focus on value, ease-of-use, content really pays off for example, we recently won the CNET Editor’s Choice award for the Roku Streaming Stick Plus. So that's one reason.

The other is streaming and cord cutting is really happening. Traditional pay TV operators lost a million subscribers in the quarter, two million year-to-date with a million in the quarter alone whereas Roku added 1.8 million active accounts in Q3. So cord cutting is happening, people are streaming more and we make great products at a great value.

Our business model is to grow our active account by licensing our Roku TV platform to TV companies and also selling players. We also work with operators. In terms of TV is you mentioned Best Buy. Best Buy signed a deal with Amazon, but we expect the number of Roku TVs to be sold at Best Buy this year to actually increase versus last year.

So Best Buy is an important partner for us. We sell a lot of TVs there, member of TVs to seller is growing and of course we can, our dealer is allowed to sell anywhere, not just at Best Buy. So that's great and then even the result of all that is the one in four TVs so far, one in four smart TVs sold so far this year in the United States are Roku TVs. So the business is working well for us.

[Operator]

Thank you. Our next question comes from Ben Swinburne with Morgan Stanley. Your line is now open.

[Ben Swinburne, Morgan Stanley]

Thanks. Good afternoon, guys. Maybe for Scott if you look at the growth of the platform business 75% this quarter expected for next quarter, what's the limiting factor for that growth because obviously you guys are doing lots of things for advertisers that are unique and differentiated. Is it access to inventory? Is it advertiser demand for inventory or is it is hours? I am just curious if we think about the sort of levers of growth, what is the limiting factor to drive that faster?

[Steve Louden, CFO]

Hey Ben, this is Steve, let me just talk to you a little bit about overall platform trends and then Scott can add some color on top of that. So Q3 was a very strong quarter overall for the business and platform. Had great growth at 74% year-over-year. Important to note that it hit a great milestone of the $100 million in revenue for the quarter which is the first time that's happened.

And looking into platform, there are three major components; ads, content distribution and licensing and so I think the most important takeaway of the growth trajectory there is that the ad business itself, which is the majority of platform has is shown consistent strong growth throughout the year in each of the quarters year-to-date.

The content distribution side and the licensing side can be a bit more lumpy and where we've seen strong quarters in licensing in Q1 and a particularly strong quarter in content distribution in Q2, so those can vary each quarter depending on that. So overall I think it's a great trajectory for platform and especially the ad business.

[Scott Rosenberg, GM of Platform Business]

Ben, with regards to your question about limiters, we don't see a near-term ceiling on our growth opportunity the video ad business grew over 100% year-over-year. I think Anthony mentioned, if we have competition, it's really the traditional spending pattern of advertisers, its traditional TV and basically constantly coaching our client to move their spending to Roku.

We've been very effective at showing them the ROI math that last dollar that they put in the linear TV is reaching a smaller and smaller base and then as they move that dollar to Roku it's going to deliver much more reach and ROI.

Just backing out more broadly and thinking about our advantages as an ad platform, the reason advertisers come to us in the first place is we're an ad scale platform with the largest most engaged user base. It's a unique audience that can only be reached on Roku. We've got that direct consumer relationships in all the data that flows from it and ultimately it's ad that work.

One of that themes of this call and in our letters how much work we're doing on the research front to prove to our advertisers that their investment with us delivers more effect than their other options for spending their money.

[Anthony Wood, Founder & CEO]

And this is Anthony. I'll just -- let me just say that our platform business is fundamentally strong. It's well positioned and we're executing well. If you just think about it big picture, there is $70 billion a year spent on TV advertising. Our platform business in the quarter was $100 million. There's a lot -- we're very proud of that but there's a lot of room to grow there.

[Operator]

Thank you. Our next question comes from Vasily Karasyov with Cannonball Research. Your line is now open.

[Vasily Karasyov, Cannonball Research]

Thank you. I was wondering if you could provide some color Scott. I think this question is for you what is the retention rate or whatever is the right metric of how much repeat business you do with the advertisers. You've cited very impressive list of clients there.

And what are the major hurdles that you have to get them over to spend more with you and how do resolve those bottlenecks? You mentioned data, but is there structural issue, are the media buyers unwilling to lend their clients buy. So if you could give some color on that, would appreciate that.

[Scott Rosenberg, GM of Platform Business]

Yeah it's a great question and it's part of our everyday operation as a team. We've extremely, extremely high retention rates. Typically their relationship with us starts with a small pat spend and as I said we aggressively package research with that first spend because of our confidence that that researcher is going to show high ROI. Very quickly that rolls into multiple spending from that brand.

That said, while we work with two thirds of the top 200 national advertisers there is another third out there and that's just in the top 200 list. So I would say our focus is both on renewal and importantly expansion of current accounts as well as tapping into all the accounts that have not yet started to talk to work with us.

All that both renewal and expansion as well as new account acquisition is driving 100% growth in our video ad business.

[Vasily Karasyov, Cannonball Research]

All right. And a quick follow-up Sling TV reported subscriber ads that people were disappointed with. Do you see any divergence in how virtual MVPD is performing on your platform?

[Anthony Wood, Founder & CEO]

Hey, this is Anthony. MVPD is a great category for us. They are a great way to get access to certain contents for us for example ESPN all virtual MVPDs are growing on their platform. So we can't talk about anyone in particular, but we carry all of them I believe and it's a good business for us.

They are actively using the tools that we offer and the product we sell to help them build audience and expand their engagement.

[Vasily Karasyov, Cannonball Research]

Okay Thank you.

[Operator]

Thank you. Our next question comes from Jason Helfstein with Oppenheimer. Your line is now open.

[Jason Helfstein, Oppenheimer]

Thanks. Two questions. First can you talk about how the mix between ads and then content distribution impacted ARPU in the third quarter and then, particularly about supply and demand factors in the ad business i.e. you said supply likely outstripping demand right now.

And then secondly, can you talk about how your participation in upfront will impact fourth quarter in 2019, given that this is new versus last year and kind of how you strategically use that event, thank you?

[Steve Louden, CFO]

Yeah hey Jason, it's Steve. I'll take the first part of that. So in terms of ARPU, ARPU along with all the other key operating metrics are on a great trajectory. ARPU was up over $17 on a TTM basis up 37% year-over-year.

In terms of kind of the mix within that, as we mentioned in the letter and as Scott mentioned earlier, the ad business continues to have strong consistent growth throughout the year with video advertising notably more than doubling yet again year-over-year basis.

So in terms of mix that continues to grow the mix there. As I mentioned on a answer earlier in the call, the content distribution side can bounce around depending on the quarter and this is one of those quarters where it bounced down on a relative growth basis, but important to note that all parts of the platform business are growing over time. So we're very happy with the trajectory there.

[Scott Rosenberg, GM of Platform Business]

Jason with regards to your question about supply and demand, I'll talk about both our audience development and our brand advertising business. It depends on the time of the year and the growth of the business. There are times on the home screen when we're supply constrained because of the activity and the interest from our content partners in promoting on the platform.

But in general most of that task is focused on optimizing what ad we're going to a user in order to drive the highest possible outcome. So I wouldn’t say it's as much supply constrained as it is about an optimization problem.

On the JDO advertising side of the equation, the platform, the ad opportunities on the platform continue to grow very aggressively. Ad supported viewership is our fastest-growing segment. The Roku channel is growing very aggressively ad supported publishers on our platform who we partner with from advertiser growing aggressively, we generally are worry less about supply and focus more on stoking more demand along wise what we've been talking about on this call is partnering with advertisers to show them the unduplicated incremental users that could be reaching in OTT.

That's a good get set up for your question about up-fronts. Our goal going into upfront discussions with advertisers was to engage them literally as they're planning out their annual TV spending cycle and to show them what they needed to be spending in OTT to complete their TV reach plans. We've been very effect to add that and there are really two main results from those upfront discussions.

One is significant increases in spending commitments from agencies and brands in that cycle and importantly two, we've been asked because we're a leader in this space to help agencies and brands proactively plan for OTT as a category and because of our scale and our reach our tool set like our ACR tools, we've been able to help them with that planning cycle, which ultimately for us is a much deeper relationship with the right side of this business.

[Anthony Wood, Founder & CEO]

This is Anthony. I'll just add that there is a lot of things we're working on to improve our platform, a lot of tactical things to make sure we're scaling correctly. A lot of things we do regard our ad business, but really the fundamental limiter is this an ultimate indicator that it's going to be a large market is what's happening here is what happened in mobile and in another words moved first three platforms and viewed to mobile a few years before the ad dollars caught up. I wish they eventually did and that's the same phenomena we're seeing on OTT where viewers are moving to stream like I said 10% of that key demographic 18 to 34-year-olds now only reach will not just on stream but only on Roku.

And the ad dollars will flung over and that's growing fast, but it's going to take a little bit of time for it completely move over.

[Operator]

Thank you. Our next question comes from Evan Wingren with KeyBanc Capital Markets. Your line is now open.

[Evan Wingren, KeyBanc Capital Markets]

Thanks. And I joined a bit late. So apologies if this is duplicative at all, but just wanted to ask about the Roku channel extending internationally, just wanted to understand at this point what that gating factors that are at all if any as you continue to expand it globally pass Canada?

And then on the content side, it seems like a lot of the incremental content that you're adding on the live side is around news. Just trying to understand if what with the gating factors similar are on the additions of content in terms of how you're partnering with the media companies as well, thank you.

[Anthony Wood, Founder & CEO]

This is Anthony. So in terms of international we think there is a large international opportunity. We don't have anything new to announce there. I'm just repeating our strategy of the Roku channel is to continue to expand the amount of content that's available in the channel to expand the geography that's available and to continue to add different content category.

In terms of content categories, so we started with movies, entertainment movies and TV show. We continue to add a deeper depth of the TV show to the channel. We then added news. We continue to add more news partners. So for the midterms, we focus on beating up our news offering, which was a very successful strategy for us.

We're proud that we delivered broadcast quality live news services from a great set of partners for free to our customers. So that's been a good strategy for us and we'll keep adding more categories, so we don't have any to announce today.

[Operator]

Thank you. [Operator Instructions] Our next question comes from Scott McConnell with DA Davidson. Your line is now open.

[Scott McConnell, DA Davidson]

Great. Thanks for taking my question. So a question on tariff. In the event the next round of tariffs is on everything out of China what could you do to mitigate the risk and maybe such as moving your manufacturing out of China or possibly negotiating manufacture thanks.

[Anthony Wood, Founder & CEO]

This is Anthony. So far we haven't seen any with the tariffs that have been announced so far, we haven't seen any impact on our business there in applied, so televisions or streaming players. Our monitoring the situation carefully, but we don't have anything other than that to say.

[Scott McConnell, DA Davidson]

Okay. And if I can get one follow-up, so you shared your impressive market share gains with Roku TV in the US smart TV market any comments on how smart TV market shares gains are going to international markets thanks?

[Anthony Wood, Founder & CEO]

Yeah, so, so far we've launched Roku TVs in the U.S., Canada and Mexico. They're doing well in all those market. There's obviously a lot more countries in the world than those three and like as we said in the past our goal is to keep expanding internationally, but we don't have any plans.

I will say that I think the same strategy we use in the U.S. for TVs will also work internationally, which is the focus on a purpose built Roku operating system, sorry, a purpose billed operating system for TV specifically versus porting a mobile operating system that has some fundamental event is that will result in TVs that cost less to build, that have a more TV optimize user interface and they're just letter TVs.

And so we think that strategy will be effective internationally, but we don't have any plans yet.

[Operator]

Thank you. Our next question comes from Ralph Schackart with William Blair. Your line is now open.

[Ralph Schackart, William Blair]

Good afternoon. First, can you maybe provide an update on the Samsung partnership, give us a sense of how it's progressing versus your expectation? And then a follow-up question, Steve I think in the remarks, you talk about managing the business at actually breakeven in 2019. As you look at '18 you'll do about $25 million in EBITDA.

So just trying to get some more color on the '19 comments and perhaps is it contemplative step up in spend? Thank you.

[Scott Rosenberg, GM of Platform Business]

Hey Ralph. This is Scott here. I don't have any specific updates on the Samsung partnership except the comment that it's early days. We do think there is value proposition of great free ad supported programming exports beyond our set of Roku devices and that's what drove us to write the Samsung partnership. So it also got an ad relationship to it as well, but it's still early days for us in that relationship.

[Steve Louden, CFO]

Hey Ralph. It's Steve. Just talking about some more color on '19, yeah correct so as we mentioned before, our plan is to continue to run the business at around just an EBITDA breakeven, that was our goal this year and again in '19. So we are -- our plan is that as we generate incremental gross profit, they were funneling that back into the business.

We're fortunate to have a great set of roadmap for the business. We're the leading streaming TV platform in the U.S. and we're in the early days of a massive shift over to OTT and so we feel great about the opportunities for high ROI investments to continue to grow the platform, improve engagement and drive up monetization over the long-term.

We'll have a lot more detail in the next call as we unveil more specific 2019 outlook but I'll point to you since you mentioned the expense side, if you think we mentioned today we're continuing to hire, grow and hire great talent, there is a trend based on our transition from private to public company of our stock-based comp is increasing rapidly and then as we mentioned in last call and that was in our Q is that we've also factored in our new headquarters building or set of buildings or leases on that, which will phase in over '19 and '20.

So those are some factors and we'll give you more detail on the next call.

[Operator]

Thank you. Our next question comes from Richard Greenfield with BTIG. Your line is now open.

[Rich Greenfield, BTIG]

Hi, it's Rich Greenfield. Just real quick on when I think about the cable operators Anthony, you talked about how cord cutting obviously is accelerating or losing a lot of subs, There's been a lot of increased discussion Charter is leading the way that they're looking, I think they signed a deal with Apple where they're looking at basically shipping or leasing out Apple boxes versus their own boxes.

On the LT's call I asked them about it and they said they're open to working with third parties instead of their own LT’s one box. If I go back in time you were actually the first company to ever do that when you signed a deal with Time Warner Cable for one of their IP-based platforms. Just wondering as you think about kind of becoming the box that actually cable operators roll out, where are you -- is that a significant opportunity as we move into '19 for Roku?

You've got bigger market share than Apple and I was just curious like how people or how the cable companies are thinking about working with you versus Comcast has sound like it's building their own version of a box. Where do you fit in all of that and how big of an opportunity could that be as they get rid of their antiquated hardware?

[Anthony Wood, Founder & CEO]

Hey Rich, thanks. So operators are an important channel for us. We distribute our players through operator channel today. If you're an operator and you're launching a streaming service, one of the things you quickly figure out or even not just operators, but virtual MVPD's other services, one of the things, one of the first thing they figure out is consumers who use that service and watch it on TV through our streaming box versus just our streaming TV versus they just using a mobile device to access it or laptop have much higher engagement and higher retention.

So it's a common promotion for a service or an operator to offer discounted or free Roku player or other streaming device when a customer signs up for our cable operator as when the end customers signs up for their service. And we win those deals and those deals are usually competitive. The reason we often lend the usual reasons we have, we have a very low cost structure. So we often have an attractive price they can purchase the boxes for.

Also our products are incredibly simple to use, our customers love them, they get great reviews and in the streaming world even from operators it's much more competitive situation for having a great streaming player as part of the offer is important and for us this is the fundamental that we focus on; value, ease-of-use, content, just a great experience winning the reviews, help us win those deals as well.

[Rich Greenfield, BTIG]

Thanks very much.

[Operator]

Thank you. And with that, I show no further questions. So I'd like to turn the call back over to Mr. Wood for some closing remarks.

[Anthony Wood, Founder & CEO]

Thanks. So I'd just like to close by reiterating how pleased we are with the quarter's results. We're making great strides in growing active accounts, engaging added TV viewers and helping content publishers and brands reach there in efficient ways.

I'm particularly excited about how quickly we are bringing innovations to market from the new Roku TV and player models for the holidays to Roku TV wireless speakers ad measurement tools, enhancements to Roku channel and more. So thank you for your support and joining today's call and I look forward to seeing you again next quarter. Happy streaming.

[Operator]

Ladies and gentlemen, that does conclude today's conference. Thank you for your participation. You may all disconnect. Have a wonderful day.