What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2023-02-16 compared with 2022-02-18 · 125 added, 161 removed, 210 unchanged (58% of the section changed)

6 unchanged sentences

Discussions of fiscal year 2020 and year-to-year comparisons between fiscal years 2021 and 2020 that are not included in this Annual Report can be found in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our Annual Report for the fiscal year ended December 31, 2021 filed with the SEC on February 18, 2022.

We operate in two reportable segments:

the platform segment and the player segment.

Platform revenue is generated from the sale of digital advertising and related services including our OneView ad platform, content distribution services (such as subscription and transaction revenue shares, media and entertainment promotional spending, the sale of Premium Subscriptions, and the sale of branded channel buttons on remote controls), and licensing arrangements with service operators and TV brands.

Player revenue is generated primarily from the sale of streaming players and audio products.

We expect to continue to manage the average selling prices (“ASP”) of our streaming players to increase our active accounts.

We expect that the trade off from player gross profit or loss to grow active accounts will result in increased platform revenue and platform gross profit.

COVID-19 Update

The widespread global impact from the COVID-19 pandemic continued through 2021.

Governmental authorities have put in place various precautionary measures and promoted vaccination programs to slow down the spread of the virus.

The impact of the pandemic continues to vary by geography as well as over time as different variants of the virus surface.

The majority of our workforce continues to work from home to protect the health and safety of our employees, and business travel continues to be curtailed.

We evaluate and refine our return to office strategy by geography as circumstances change.

We expect that most employees will adopt a hybrid work schedule (consisting of both in-person work and working from home) in 2022.

The COVID-19 pandemic, and the resulting precautionary measures, have caused, and are expected to continue to cause, economic uncertainty both in the United States and globally as well as significant volatility in, and disruption to, financial markets and supply chains.

Global supply chain disruptions have resulted in shipping delays, increased shipping costs, component shortages, and increases in component prices.

In addition, some of our TV brand partners have faced inventory challenges that have negatively impacted their unit sales.

The COVID-19 pandemic has accelerated the shift of TV viewing away from legacy TV to streaming TV.

During the year ended December 31, 2021, we continued to see an increase in the number of active accounts , but the growth rate was slower than in the prior year .

Active accounts increased to 60.1 million as of December 31, 2021, growing 17% year-over-year.

Streaming hours for the year ended December 31, 2021 increased to 73.2 billion, growing 25% year-over-year.

We have largely been able to maintain an inventory of our players, audio products, and accessories in stock at retailers and online stores throughout the COVID-19 pandemic.

However, like many companies, we have been negatively affected by the constraints in the global supply chain, which have resulted in shortages of certain components, increased component costs, shipping constraints, and increased shipping costs.

Player unit sales were down in the second half of 2021, year-over-year, due to the demand spike in the second half of 2020 because of the COVID-19 pandemic.

In 2021, we insulated our customers from the rising player-related costs and prioritized account acquisition growth, which strategically supports our Average Revenue per User (“ARPU”) growth.

The increasing component costs put additional constraints on our player gross margin resulting in a gross loss in the player segment for the year ended December 31, 2021.

Though we do not believe that the cost constraints and supply chain issues are permanent, they may continue to impact us in the near future, and we expect player gross margin to be negative until such conditions normalize.

Our platform segment continues to perform well, with platform revenue increasing to $2,284.9 million for the year ended December 31, 2021, reflecting year-over-year growth of 80%.

Our ARPU grew to $41.03, up 43% year-over-year.

Almost every major media company has reorganized around streaming and, as a result, our content distribution business has benefited as our active accounts growth was accompanied by continued consumer demand for both ad-supported and subscription services, and increased media and entertainment promotional spending by our content partners.

We believe advertising budgets will continue to shift from legacy TV to streaming TV and that we will benefit from this shift due to our advanced advertising capabilities.

During the fourth quarter of 2021, however, certain advertising verticals experienced supply chain disruptions that negatively impacted product availability and resulted in reduced advertising spend.

While we have experienced an increase in TV streaming during the COVID-19 pandemic and our business generally has benefited, there can be no assurance that these patterns will continue into 2022.

Effective as of the fourth quarter of fiscal 2022, we reorganized our reportable segments to better align with management’s reporting of information reviewed by the Chief Operating Decision Maker (“CODM”) for each segment.

We renamed our “player” segment to “devices” which now includes our licensing arrangements with service operators and licensed Roku TV partners in addition to sales of our streaming players, audio products, smart home products and Roku-branded TVs that will be designed, made, and sold by us in 2023.

Our historical segment information is recast to conform to our new presentation in our financial statements and accompanying notes included in Item 8 of this Annual Report.

Our two reportable segments are the platform segment and the devices segment.

Platform revenue is generated from the sale of digital advertising and related services including the demand-side platform and content distribution services such as subscription and transaction revenue shares, media and entertainment promotional spending, the sale of Premium Subscriptions, and the sale of branded channel buttons on remote controls.

Devices revenue is generated from the sale of streaming players, audio products, smart home products, and, beginning in 2023, Roku-branded TVs, and related accessories as well as from licensing arrangements with service operators and licensed Roku TV partners.

We expect to continue to manage the average selling prices (“ASP”) of Roku streaming devices to increase our active accounts.

We expect that the trade off from devices gross profit or loss to grow active accounts will result in increased platform revenue and platform gross profit.

Business Conditions and Macroeconomic Factors

Macroeconomic factors, such as increased inflation and interest rates, recessionary fears, financial and credit market fluctuations, changes in economic policy, the prolonged COVID-19 pandemic, global supply chain constraints, and geopolitical developments (such as the war in Ukraine), have had, and we believe will continue to have, an impact on our business and results of operations.

For example, in 2022, some of our licensed Roku TV partners faced inventory challenges that negatively impacted their unit sales.

In addition, some of our advertising verticals experienced supply chain disruptions that negatively impacted their product availability, which, together with inflation and other macroeconomic factors, have resulted in advertisers in a variety of industries reducing their overall advertising spend, which has adversely affected our platform revenue.

We believe rising inflation and recessionary fears also have led to a reduction in consumer discretionary spending, which has driven a decrease in our devices revenue.

The COVID-19 pandemic continues to affect our business, although to a lesser extent than in the past.

The ongoing effects of the pandemic and associated economic conditions remain difficult to predict due to numerous uncertainties.

We believe that the direct and indirect impacts of these business conditions and macroeconomic factors are difficult to isolate or quantify.

See Item 1A, Risk Factors, and the Note Regarding Forward Looking Statements elsewhere in this Annual Report for additional details.

Table o f Contents

Key Performance Metrics

1 unchanged sentence

We use gross profit as the primary metric to measure the performance of our business because we have two revenue segments that have different margin profiles, and we aim to maximize our higher margin platform revenue from our active accounts as they stream content on our platform.

Substantially all of our gross profit is generated from our platform segment.

All of our gross profit is generated from our platform segment.

Our gross profit was $1,441.1 million and $1,408.6 million for the years ended December 31, 2022 and 2021, respectively, reflecting an increase of 2%.

3 unchanged sentences

Users who streamed content from The Roku Channel only on non-Roku platforms are not included in this metric.

Additionally, users who only register an account for use of one of our smart home products are not included in our reported number of active accounts.

The number of active accounts also does not correspond to the number of unique individuals who actively utilize our platform, or the number of devices associated with an account.

1 unchanged sentence

We had 70.0 million and 60.1 million active accounts as of December 31, 2022 and 2021, respectively reflecting an increase of 16%.

Hours Streamed

Streaming Hours

We believe the number of streaming hours on our platform is an effective measure of user engagement and that the growth in the number of hours of content streamed across our platform reflects our success in addressing the growing user demand for TV streaming.

1 unchanged sentence

Hours streamed from The Roku Channel on non-Roku platforms are not included in this metric.

Additionally, smart home products do not contribute to our streaming hours.

We report streaming hours on a calendar basis.

1 unchanged sentence

However, our revenue from content publishers is not tied to the hours streamed on their streaming channels, and the number of streaming hours does not correlate to revenue earned from such content publishers or ARPU on a period-by-period basis.

Moreover, streaming hours on our platform are measured whenever a Roku player or a Roku TV is streaming content, whether a viewer is actively watching or not.

Moreover, streaming hours on our platform are measured whenever a streaming device is streaming content, whether a viewer is actively watching or not.

For example, if a Roku 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 channel may continue to play content for a period of time determined by the streaming channel.

We believe that this also occurs across a wide variety of non-Roku streaming devices and other set-top boxes.

Since the first quarter of 2020, all of our devices include a Roku OS feature that is designed to identify when content has been continuously streaming on a channel for an extended period of time without user interaction.

Since the first quarter of 2020, all of our Roku streaming devices include a Roku OS feature that is designed to identify when content has been continuously streaming on a channel for an extended period of time without user interaction.

This feature, which we refer to as “Are you still watching,” periodically prompts the user to confirm that they are still watching the selected channel and closes the channel 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 implemented similar features within their channels.

Some of our leading channel partners, including Netflix, also have implemented similar features within their channels.

This Roku OS feature supplements these channel features.

1 unchanged sentence

We streamed 87.4 billion and 73.2 billion h ours during the years ended December 31, 2022 and 2021, respectively reflecting an increase of 19%.

Note About Our Streaming Hours Adjustments

To calculate and report our streaming hours, we utilize data from event logs generated by the firmware running on the Roku devices that are recorded in a central database.

The event information (play, pause, stop, time counts, etc.) is generated by the firmware running on the Roku streaming devices, and event data is transmitted to our central database at regular intervals when a device is connected to the internet.

Pause time is not intended to be included in streaming hours.

During the second quarter of 2020 we discovered that some pause time was inadvertently included in the streaming hours information recorded in our central database.

Upon discovering these errors in the log data, we promptly reviewed and analyzed the issue utilizing our firmware, data engineering and core analytics teams.

We concluded that certain past Roku OS releases inadvertently caused the logging errors.

The error rates varied over time and across different types of devices and firmware versions.

As a result, we reported higher streaming hours and streaming hours growth rates for the affected periods than we would have if all pause time had been excluded from streaming hours as we had intended.

Neither these logging errors, nor the resulting adjustments that we made to our streaming hours calculations, has had any impact on our financial results, and do not require us to revise any of our previously reported key operating metrics other than streaming hours.

The affected log data was for the periods from February 2016 to August 2020.

After adjusting for logging errors, we estimate that our streaming hours were, on average, approximately 0.5% lower than previously reported for the period January 2017 through September 2018, and approximately 5.8% lower for the period October 2018 through March 2020.

By the end of August 2020, we fully deployed a software update that addressed the root cause of the pause time logging errors and prevented them from continuing.

The roll out of the “Are you still watching” feature had no impact on the adjustments we made to our streaming hours calculations.

While our revenue from content publishers is not based on the hours streamed on their streaming channels, and the number of streaming hours does not directly correlate to revenue earned from such content publishers or ARPU on a period-by-period basis;

we believe that the growth in the number of hours of content streamed across our platform reflects our success in addressing the growing user demand for TV streaming.

After adjusting our streaming hours as discussed above, our estimated year-over-year streaming hour growth rates for fiscal year 2018 versus fiscal year 2017, fiscal year 2019 versus fiscal year 2018, and the first quarter of 2020 versus the first quarter of 2019 were 60.5%, 59.3%, and 46.8%, respectively.

The estimated year-over-year streaming hour growth rate for the second quarter of 2020 versus the second quarter of 2019 was 65%.

The following table presents the estimated impacts on streaming hours (in billions) for periods from January 1, 2017 through March 31, 2020 and streaming hours growth rates on a year-over-year (“YoY”) basis by quarter for periods from January 1, 2018 through March 31, 2020 and annually for fiscal year 2018 and 2019.

Revised streaming hours for 2016 are not estimated and therefore revised 2017 YoY growth rates are not available.

Quarter Published SHs Revised SHs SHs % Delta Published YoY Revised YoY

2017 Q1 3.3B 3.2B (0.5)% 63.4% NA

2017 Q2 3.5B 3.5B (0.4)% 60.0% NA

2017 Q3 3.8B 3.8B (0.4)% 57.8% NA

2017 Q4 4.3B 4.3B (0.2)% 55.3% NA

2018 Q1 5.1B 5.1B (0.5)% 56.0% 56.1%

2018 Q2 5.5B 5.4B (0.5)% 57.2% 57.0%

2018 Q3 6.2B 6.1B (0.7)% 62.7% 62.1%

2018 Q4 7.3B 7.1B (2.2)% 68.6% 65.2%

2019 Q1 8.9B 8.4B (5.4)% 74.1% 65.5%

2019 Q2 9.4B 8.8B (6.0)% 72.1% 62.6%

2019 Q3 10.3B 9.6B (6.5)% 67.6% 57.9%

2019 Q4 11.7B 10.9B (6.3)% 60.2% 53.7%

2020 Q1 13.2B 12.3B (7.0)% 49.3% 46.8%

Year Published SHs Revised SHs SHs % Delta Published YoY Revised YoY

2017 14.8B 14.8B (0.4)% 58.8% NA

2018 24.0B 23.7B (1.1)% 61.7% 60.5%

2019 40.3B 37.8B (6.1)% 67.8% 59.3%

Average Revenue per User

2 unchanged sentences

ARPU measures the rate at which we are monetizing our active account base and the progress of our platform business.

ARPU was $41.03 as of December 31, 2021 as compared to $28.76 as of December 31, 2020.

ARPU was $41.68 as of December 31, 2022 as compared to $40.67 as of December 31, 2021, reflecting an increase of 2%.

Table o f Contents

Components of Results of Operations

Platform Revenue

We generate platform revenue from digital advertising sales and related services including our OneView ad platform, content distribution services (such as subscription and transaction revenue sharing arrangements, media and entertainment promotional spending, the sale of Premium Subscriptions, and the sale of branded channel buttons on remote controls), and licensing arrangements with service operators and TV brands.

We generate platform revenue from digital advertising sales and related services including our demand-side ad platform and content distribution services such as subscription and transaction revenue sharing arrangements, media and entertainment promotional spending, the sale of Premium Subscriptions, and the sale of branded channel buttons on remote controls.

Our ad inventory includes video ad inventory from AVOD content in The Roku Channel, native display ads on our home screen and screen saver, as well as ad inventory we obtain through our content distribution agreements with publishers.

1 unchanged sentence

To date, we have generated most of our platform revenue in the United States.

Player Revenue

We generate player revenue primarily from the sale of streaming players through consumer retail distribution channels, including major brick and mortar retailers, such as Best Buy and Walmart, and online retailers, including Amazon.

We generate most of our player revenue in the United States.

In our international markets, we primarily sell our players through wholesale distributors which, in turn, re-sell to retailers.

We currently distribute our players in various countries in North America, South America, and Europe.

Player revenue also includes the sale of our audio products, including wireless speakers, smart soundbars and wireless subwoofers.

Cost of Platform Revenue

Cost of platform revenue primarily consists of costs associated with acquiring advertising inventory and amortization costs of content, both licensed and produced.

Cost of platform revenue also includes other costs such as payment processing fees, allocated expenses associated with the delivery of our services that primarily include costs of third-party cloud services and salaries, benefits, and stock-based compensation for our platform operations personnel, and amortization of acquired developed technology.

Cost of Player Revenue

Cost of player revenue is comprised mostly of manufacturing costs for streaming players and audio products payable to our third-party contract manufacturers and technology licenses or royalty fees.

Cost of player revenue also includes inbound and outbound freight, duty and logistics costs, third-party packaging, inventory reserves, and allocated overhead costs related to facilities and customer support, and salaries, benefits, and stock-based compensation for operations personnel.

Devices Revenue

We generate devices revenue from the sale of streaming players and other devices such as audio products, smart home products and accessories through consumer retail distribution channels and online retailers.

Our devices revenue also includes licensing arrangements with service operators and licensed Roku TV partners.

We generate most of our devices revenue in the United States.

In our international markets, we primarily sell our devices through wholesale distributors which, in turn, re-sell to retailers.

Cost of Revenue

Cost of Revenue, Platform

Cost of revenue, platform primarily consists of costs associated with acquiring advertising inventory and amortization costs of content, both licensed and produced, and revenue share with content publishers.

Cost of revenue, platform also includes other costs such as payment processing fees, allocated expenses associated with the delivery of our services that primarily include costs of third-party cloud services and salaries, benefits, and stock-based compensation for our customer support and platform operations personnel, and amortization of acquired developed technology.

Cost of Revenue, Devices

Cost of revenue, devices is comprised mostly of manufacturing costs payable to third party manufacturers for devices we sell which include streaming players, audio products and smart home products.

Cost of revenue, devices also includes technology licenses or royalty fees on devices we sell or license, inbound and outbound freight, duty and logistics costs, third-party packaging, inventory provisions, and allocated overhead costs related to facilities, customer support, and salaries, benefits, and stock-based compensation for operations personnel.

Operating and Other Expenses

2 unchanged sentences

In addition, research and development expenses include allocated facilities and overhead costs.

We expect research and development expenses to increase in absolute dollars as we continue to invest in the development of our platform and player products and services.

We expect research and development expenses to increase in absolute dollars as we continue to invest in the development of our platform and devices products and services.

Sales and Marketing

Sales and marketing expenses consist primarily of personnel-related costs, including salaries, benefits, commissions, and stock-based compensation for our employees engaged in sales and sales support, marketing, communications, data science and analytics, business development, product management, and partner and customer support functions.

Sales and marketing expenses also include marketing, retail and merchandising costs, and allocated facilities and overhead expenses.

We expect sales and marketing expenses to increase in absolute dollars in future periods as we focus on growing active accounts, platform and player revenue, and expanding our business internationally.

We expect sales and marketing expenses to increase in absolute dollars in future periods as we focus on growing active accounts, platform and devices revenue, and expanding our business internationally.

General and Administrative

General and administrative expenses consist primarily of salaries, benefits, and stock-based compensation for our finance, legal, information technology, human resources, and other administrative personnel.

General and administrative expenses also include outside legal, accounting, and other professional service fees as well as allocated facility expenses.

We expect our general and administrative expenses to increase due to the expansion of our business and related infrastructure.

General and administrative expenses also include outside legal, accounting, and other professional service fees as well as allocated facility and overhead expenses.

We expect our general and administrative expenses to increase in absolute dollars due to the expansion of our business and related infrastructure.

Table o f Contents

Other Income (Expense), Net

For the years ended December 31, 2022 and 2021, other income (expense), net consists of interest income on cash and cash equivalents, income recognized related to non-cash consideration associated with the delivery of services as part of a strategic commercial arrangement, i nter est expense that includes interest on our debt and amortization of deferred debt costs, foreign currency re-measurement, and transaction gains and losses.

Income Tax (Benefit) Expense

Our income tax (benefit) expense consists primarily of income taxes in certain foreign jurisdictions where we conduct business and state income taxes in the United States.

We have a valuation allowance for U.S.

and Netherlands deferred tax assets, including net operating loss carryforwards.

deferred tax assets include tax credits related primarily to research and development.

For the year ended December 31, 2022, other income (expense), net also includes the change in the fair value of the strategic investment.

Income Tax Expense (Benefit)

Our income tax expense (benefit) consists primarily of income taxes in certain foreign jurisdictions where we conduct business and income taxes in the United States.

We have a full valuation allowance for deferred tax assets, including net operating losses primarily for the U.S.

and any jurisdiction where we do not expect to realize their benefits in the future.

We expect to maintain this valuation allowance for the foreseeable future.

4 unchanged sentences

Platform 87 % 82 % 70 %

Player 17 % 29 % 34 %

Devices 13 % 18 % 30 %

Total net revenue 100 % 100 % 100 %

1 unchanged sentence

Platform 38 % 30 % 28 %

Player 19 % 27 % 33 %

Devices 16 % 19 % 27 %

Total cost of revenue 54 % 49 % 55 %

1 unchanged sentence

Platform 49 % 52 % 42 %

Player (2) % 2 % 1 %

Devices (3) % (1) % 3 %

Total gross profit 46 % 51 % 45 %

10 unchanged sentences

Income (Loss) Before Income Taxes (16) % 9 % (2) %

Income tax benefit — % — % — %

Income tax expense (benefit) — % — % — %

Net Income (Loss) (16) % 9 % (2) %

Table o f Contents

Comparison of Years Ended December 31, 2022 and 2021

3 unchanged sentences

Platform $ 2,711,441 $ 2,264,920 $ 446,521 20 %

Player 479,659 510,644 (30,985) (6) %

Devices 415,093 499,664 (84,571) (17) %

Total net revenue $ 3,126,534 $ 2,764,584 $ 361,950 13 %

Platform revenue increased by $1,017.2 million, or 80%, during the year ended December 31, 2021 as compared to the year ended December 31, 2020, primarily attributable to higher content distribution services, including higher revenue from media and entertainment promotional spending and Premium Subscriptions, we well as higher advertising revenue which includes revenue from our OneView ad platform.

Player revenue decreased by $31.0 million, or 6%, during the year ended December 31, 2021 as compared to the year ended December 31, 2020, primarily due to a decrease in both the volume of streaming players sold and average selling prices, offset by a slight increase in revenue from the sale of audio products and accessories.

During the year ended December 31, 2021, the volume of streaming players sold decreased by 4% and the average selling price of players decreased by 7% as compared to the year ended December 31, 2020.

The decrease in the volume of players sold is due to the slowdown in growth in the year ended December 31, 2021 as compared to the year ended December 31, 2020 when the growth was aided by the COVID-19 pandemic.

Platform revenue increased by $446.5 million, or 20%, during the year ended December 31, 2022 as compared to the year ended December 31, 2021, primarily attributable to higher advertising revenue which includes revenue from our demand-side ad platform as well as higher content distribution services, including higher revenue from media and entertainment promotional spending and Premium Subscriptions.

Devices revenue decreased by $84.6 million, or 17%, during the year ended December 31, 2022 as compared to the year ended December 31, 2021, primarily due to a decrease in both the volume of streaming players sold and average selling prices.

During the year ended December 31, 2022, the volume of streaming players sold decreased by 14% and the average selling price of streaming players decreased by 5% as compared to the year ended December 31, 2021.

We believe the decrease in the volume of streaming players sold is due to a reduction in consumer discretionary spend as a result of inflationary pressures.

The decrease in the average selling price is due to higher promotions during the year ended December 31, 2022 as compared to the year ended December 31, 2021 where the volume was aided by the COVID-19 pandemic and required fewer promotions.

The slowdown in growth also impacted the revenue from sale of audio products and revenue from licensing arrangements with service operators and licensed Roku TV partners which was slightly offset by revenue from sale of accessories and smart home products.

Cost of Revenue

4 unchanged sentences

Platform $ 1,179,675 $ 818,506 $ 361,169 44 %

Player 532,060 466,992 65,068 14 %

Devices 505,737 537,478 (31,741) (6) %

Total cost of revenue $ 1,685,412 $ 1,355,984 $ 329,428 24 %

1 unchanged sentence

Platform $ 1,531,766 $ 1,446,414 $ 85,352 6 %

Player (52,401) 43,652 (96,053) (220) %

Devices (90,644) (37,814) (52,830) 140 %

Total gross profit $ 1,441,122 $ 1,408,600 $ 32,522 2 %

The cost of platform revenue increased by $320.7 million, or 64%, during the year ended December 31, 2021 as compared to the year ended December 31, 2020.

This increase is primarily driven by higher advertising inventory costs, higher content amortization costs, Premium Subscription costs, and credit card processing fees totaling $303.1 million.

Platform costs increased an additional $15.3 million due to increases in cloud services costs for supporting the platform and higher personnel costs.

Gross profit for platform revenue increased by $696.4 million, or 91%, during the year ended December 31, 2021 as compared to the year ended December 31, 2020, primarily driven by the overall growth in our platform revenue.

The cost of player revenue increased by $65.1 million, or 14%, during the year ended December 31, 2021 as compared to the year ended December 31, 2020.

The increase is primarily due to higher product costs of $35.6 million, an increase in freight costs of $15.0 million, an increase in overhead costs such as cloud services, outsourced consulting services, and personnel costs totaling to $9.4 million, higher royalty expenses of $5.7 million, and an increase in inventory reserves of $2.8 million offset by a reduction in other manufacturing related costs of $3.3 million.

Gross profit for player revenue decreased by $96.1 million, or 220%, during the year ended December 31, 2021 as compared to the year ended December 31, 2020, resulting in a gross loss for fiscal year 2021.

The increase in costs was driven primarily by higher direct manufacturing costs for player products and accessories as a result of disruptions in the global supply chain driving component prices higher, combined with reduced player revenue in 2021 as compared to 2020.

We believe that the cost increases and supply chain issues will continue in the near future, and we expect to incur negative gross margin in the player segment until such conditions normalize.

The cost of revenue, platform increased by $361.2 million, or 44%, during the year ended December 31, 2022 as compared to the year ended December 31, 2021.

This increase is primarily driven by higher advertising inventory costs, higher content amortization costs, Premium Subscription costs, and credit card processing fees all totaling $293.4 million.

Platform costs increased an additional $67.3 million due to higher personnel costs and increases in cloud services costs for supporting the platform.

Gross profit for the platform segment increased by $85.4 million, or 6%, during the year ended December 31, 2022 as compared to the year ended December 31, 2021, primarily driven by the overall growth in our platform revenue.

Table o f Contents

The cost of revenue, devices decreased by $31.7 million, or 6%, during the year ended December 31, 2022 as compared to the year ended December 31, 2021.

The decrease is primarily due to lower cost of revenue of $25.2 million due to a decrease in the volume of streaming players sold, a decrease in royalty expenses of $6.2 million and a decrease in freight costs of $4.1 million, offset by an increase in inventory reserve, purchase commitment losses and reduction in supplier rebates totaling $5.7 million.

Gross loss for the devices segment increased by $52.8 million, or 140%, during the year ended December 31, 2022 as compared to the year ended December 31, 2021.

We believe the gross loss was driven by lower devices revenue due to overall decrease in consumer spending combined with disruptions in the global supply chain driving component prices higher in 2022 as compared to 2021.

We expect to incur negative gross margin in the devices segment in the near future as we continue to insulate consumers from price increases and incur costs from expected promotional activities related to new product launches.

Operating Expenses

8 unchanged sentences

Research and development expenses increased by $327.3 million, or 71%, during the year ended December 31, 2022 as compared to the year ended December 31, 2021.

The increase is primarily due to increases in personnel-related costs of $84.3 million, as a result of increased engineering headcount and related stock-based compensation, and higher consulting, professional services, and cloud services costs of $17.4 million.

The increase is primarily due to increases in personnel-related costs of $241.1 million as a result of increased engineering headcount and related stock-based compensation, an increase in facilities costs of $52.7 million due to expansion of office spaces and IT infrastructure, an increase of $19.6 million related to restructuring charges, and higher consulting, professional services, and cloud services costs of $13.4 million.

Sales and marketing

1 unchanged sentence

The increase is primarily due to increases in personnel-related costs of $172.7 million related to increased headcount and related stock-based compensation in sales and sales support, product management, marketing, and business analytics to support efforts to grow our business.

Sales and marketing expenses also include an increase of $44.7 million mainly due to increases in advertising expenses to promote the Roku brand, marketing, retail and merchandising costs, and general sales promotions, an increase of $9.5 million in professional services and consulting fees, and an increase in facilities costs of $8.3 million due to expansion of office spaces.

Sales and marketing expenses also include an increase of $160.0 million mainly due to increases in marketing, retail and merchandising costs and general sales promotions, an increase in facilities costs of $20.9 million due to expansion of office spaces and IT infrastructure, an increase of $11.0 million in professional services and consulting fees, and an increase of $10.9 million related to restructuring charges.

General and administrative

General and administrative expenses increased by $88.4 million, or 34%, during the year ended December 31, 2022 as compared to the year ended December 31, 2021.

The increase is primarily due to increases in personnel-related costs of $50.0 million related to increased headcount and related stock-based compensation, an increase of $28.3 million related to higher legal expenses, consulting, and professional services fees, and a net increase of $4.8 million related to higher general overhead, business taxes, and similar costs offset by recoveries of credit losses.

The increase is primarily due to increases in personnel-related costs of $72.5 million related to increased headcount and related stock-based compensation, an increase in facilities costs of $16.2 million due to expansion of office spaces and IT infrastructure, an increase of $7.6 million related to restructuring charges, a net increase of $4.6 million related to higher travel expenses, an increase in credit losses and higher general overhead, offset by a decrease of $11.2 million related to lower legal expenses, consulting, and professional services fees.

Table o f Contents

Other Income (Expense), Net

4 unchanged sentences

Other income (expense), net 43,766 4,467 39,299 880 %

Total other income (expense), net $ 1,487 $ 1,801 $ (314) (17) %

Total other income (expense), net $ 38,605 $ 1,487 $ 37,118 n/m

Other income (expense), net

Total other income (expense), net, decreased by $0.3 million, or 17%, during the year ended December 31, 2021 as compared to the year ended December 31, 2020.

The decrease was primarily driven by foreign exchange losses of $2.5 million and lower interest income of $1.4 million from a decline in interest rates, which impacted our investment yields.

This was offset by $3.1 million of other income recognized related to non-cash consideration associated with the delivery of services for a strategic commercial arrangement and decreased interest expense of $0.5 million.

Income Tax Benefit

Total other income (expense), net, increased by $37.1 million, during the year ended December 31, 2022 as compared to the year ended December 31, 2021.

The increase was primarily driven by an increase in interest income of $31.8 million from higher interest rates on our cash balances during the period, foreign exchange net gain of $9.4 million from a stronger dollar on remeasurement of our foreign currency denominated assets and liabilities, offset by higher interest expense of $2.2 million.

Income Tax Expense (Benefit)

Years Ended December 31,

1 unchanged sentence

(in thousands, except percentages)

Income tax benefit $ (5,798) $ (945) $ (4,853) 514 %

Income tax benefit

Income tax benefit increased by $4.9 million during the year ended December 31, 2021 as compared to the year ended December 31, 2020, driven primarily by stock-based compensation excess tax benefits, increased losses in a foreign jurisdiction with no valuation allowance, and a tax rate change in a foreign jurisdiction.

Income tax expense (benefit) $ 5,722 $ (5,798) $ 11,520 (199) %

Income tax expense (benefit)

Income tax expense of $5.7 million for the year ended December 31, 2022 was driven by increases in foreign taxes and increases in U.S.

taxes from the capitalization of research and development expenses effective January 1, 2022 as part of the Tax Cuts and Jobs Act of 2017.

Income tax benefit of $5.8 million for the year ended December 31, 2021 was driven primarily by stock-based compensation excess tax benefits, increased losses in a foreign jurisdiction with no valuation allowance, and a tax rate change in a foreign jurisdiction.

Liquidity and Capital Resources

1 unchanged sentence

Less than 2% 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 equity incentive plans.

The primary uses of cash are costs of revenue, including costs to acquire advertising inventory, costs to license and produce content, third-party manufacturing costs, as well as operating expenses including payroll-related expenses, consulting and professional service fees, and facility and marketing expenses.

Our primary sources of cash are receipts from platform and devices revenue and proceeds from equity sales, including equity issued pursuant to our employee equity incentive plans.

The primary uses of cash are costs of revenue including costs to acquire advertising inventory, costs to license and produce content, third-party manufacturing costs for our products, as well as operating expenses including payroll-related expenses, consulting and professional service fees, and facility and marketing expenses.

Other uses of cash include purchases of property and equipment and mergers and acquisitions.

As our business and workforce continue to expand, we expect to continue to incur expenses for facility and building related costs for our office locations in the United States and internationally.

We expect to continue to incur expenses for facility and building related costs for our office locations in the United States and internationally.

In addition, we expect to continue our investments in purchases of computer systems and other property and equipment.

We have pursued merger and acquisition activities, such as the acquisition of the Nielsen AVA business, the This Old House business, and content rights from Quibi, and we may pursue additional merger and acquisition activities in the future, including the acquisition of rights to programming and content assets.

We have pursued merger and acquisition activities in the past, such as the acquisition of the Nielsen AVA business, the This Old House business, and content rights from Quibi in fiscal 2021, and we may pursue additional merger and acquisition activities in the future, including the acquisition of rights to programming and content assets.

These activities can materially impact our liquidity and capital resources.

We believe our existing cash and cash equivalents balance, cash flow from operations, and our undrawn available balance under our Credit Agreement will be sufficient to meet our working capital, capital expenditures, and material cash requirements from known contractual obligations for the next twelve 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 COVID-19 pandemic.

While the pandemic 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 believe our existing cash and cash equivalents balance and cash flow from operations will be sufficient to meet our working capital, capital expenditures, and material cash requirements from known contractual obligations for the next twelve months and beyond.

While the current 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.

Table o f Contents

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.

Our Credit Facility (described below) matures in February 2023, upon which we expect to pay off the remaining balance of $80.0 million.

If we raise additional financing by the incurrence of additional indebtedness, we may be subject to fixed payment obligations and also to restrictive covenants.

Additionally, due to the current macroeconomic environment, we may be unable to obtain debt financing on terms that are acceptable to us.

At-the-Market Offering

6 unchanged sentences

For our current borrowings, we have elected a Eurodollar borrowing with 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 under the facility mature or have to be repaid in full by February 2023.

The borrowings under the facility will be repaid in full in February 2023.

Our obligations under the Credit Agreement are secured by substantially all of our assets.

3 unchanged sentences

We had outstanding letters of credit of $37.7 million and $38.0 million as of December 31, 2022 and 2021, respectively, against the Revolving Credit Facility.

Upon maturity of the Credit Facility, we expect to roll over the outstanding letters of credit into a new, cash secured, bilateral facility.

We expect this to require the use of approximately $44 million of existing cash and cash equivalents to secure the outstanding letters of credit.

The following table summarizes our cash flows for the periods presented (in thousands):

6 unchanged sentences

Our operating activities provided cash of $11.8 million for the year ended December 31, 2022.

Our net income of $242.4 million for the year ended December 31, 2021 was adjusted by non-cash charges of $355.7 million comprised mainly of stock-based compensation, amortization of content assets, depreciation and amortization on property and equipment and intangible assets, and amortization of operating right-of-use assets.

The changes in our operating assets and liabilities used cash of $370.0 million mainly from an increase in accounts receivable primarily driven by an increase in revenue, an increase in content assets, an increase in contract assets from revenue recognized from customers, payments made for operating lease liabilities, and a decrease in deferred revenue offset by inflows from an increase in accounts payable and accrued liabilities and a decrease in inventory balances.

Our net loss of $498.0 million for the year ended December 31, 2022 was adjusted by non-cash charges of $700.1 million comprised mainly of stock-based compensation, amortization of content assets, depreciation and amortization on property and equipment and intangible assets, amortization of operating right-of-use assets, and impairment of certain intangible technology assets adjusted by net gains on remeasurement of foreign currency denominated assets and liabilities.

The changes in our operating assets and liabilities used cash totaling $190.3 million mainly from an increase in content assets acquired and paid during the period, an increase in inventory on hand, an increase in prepaid expenses and accounts receivable balances offset by inflows from an increase in accounts payable and accrued liabilities and an increase in deferred revenue balances.

These changes are mainly due to overall growth in the business combined with the timing of receipts from customers and payments to vendors.

Table o f Contents

Cash Flows from Investing Activities

Our investing activities for the year ended December 31, 2021 included cash outflows of $176.8 million comprised of $136.8 million for the acquisition of businesses, mainly the Nielsen AVA business and This Old House, and $40.0 million for purchases of property and equipment and expenditures on leasehold improvements.

Our investing activities for the year ended December 31, 2022 included cash outflows of $201.7 million consisting of purchases of property and equipment and expenditures related to the expansion of our office facilities of $161.7 million and the purchase of a strategic investment of $40.0 million.

Cash Flows from Financing Activities

Our financing activities provided cash of $8.4 million for the year ended December 31, 2022.

The cash was received mainly from proceeds from an at-the-market offering of $989.6 million, net of issuance costs, and proceeds from the exercise of employee stock options of $18.5 million.

We received cash proceeds of $18.4 million from the exercise of employee stock options.

These inflows were offset by $10.0 million of repayments made on borrowings.

3 unchanged sentences

For additional information regarding the terms of the debt and interest payable, see Note 11 to the consolidated financial statements in Item 8 of this Annual Report.

• Commitments to purchase finished goods from our contract manufacturers and other inventory related items.

Consistent with industry practices, we enter into firm, 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 manufacturers source components and build 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.

• Commitments to purchase finished goods from our manufacturers and other inventory related items.

Consistent with industry practices, we enter into firm, non-cancelable, and unconditional purchase commitments with our manufacturers to acquire products through a combination of purchase orders, supplier contracts, and open orders based on projected demand information.

Our manufacturers source components and build 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 13 to the consolidated financial statements in Item 8 of this Annual Report.

• Commitments to license content from content publishers under contractual arrangements.

For additional information regarding licensed content commitments, see Note 12 to the consolidated financial statements in Item 8 of this Annual Report.

• Commitments to license content from content publishers and produce content under contractual arrangements.

For additional information regarding content commitments, see Note 13 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.

2 unchanged sentences

Obligations under contracts that we can cancel without a significant penalty are not included above.

In addition, we have $ 66.2 million of unrecognized income tax benefits, for which we are unable to reasonably predict the timing of settlement of liabilities.

These income tax benefits are not recognized in our consolidated balance sheets as of December 31, 2021.

In addition, we have $6.1 million of uncertain tax positions as of December 31, 2022.

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

1 unchanged sentence

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 in the current economic environment due to the ongoing COVID-19 pandemic.

These estimates and assumptions are based on historical experience, current trends and other factors that we believe to be reasonable at the 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.

2 unchanged sentences

Determining whether products and services are considered distinct performance obligations requires significant judgment.

Table o f Contents

Judgment is required to determine the stand-alone selling price (“SSP”) for each distinct performance obligation.

5 unchanged sentences

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 player revenue includes allowances for returns and sales incentives in the estimated transaction price.

Our devices revenue includes allowances for returns and sales incentives in the estimated transaction price.

The estimates for returns and sales incentives are based on historical experience and anticipated performance.

We provide unspecified upgrades and updates to our player end users.

We record the allocated value of these as deferred revenue and recognize it ratably on a time elapsed basis over the estimated economic life of the associated players.

We provide unspecified upgrades and updates to our devices end users.

We record the allocated value of these as deferred revenue and recognize it ratably on a time elapsed basis over the estimated economic life of the associated devices.

Shipping charges billed to customers are included in revenue and the related shipping costs are included in cost of revenue.

2 unchanged sentences

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 useful 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.

16 unchanged sentences

If our estimates regarding accounts receivable allowances differ from the actual results, the losses or gains could be material.

Table o f Contents

Provision for Income Taxes

3 unchanged sentences

A valuation allowance is provided 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 U.S.

We have established a full valuation allowance to offset the 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.

Our valuation allowance is attributable to the uncertainty of realizing future tax benefits from U.S.

Our valuation allowance is attributable to the uncertainty of realizing future tax benefits from the U.S.

and Netherlands net operating losses and other deferred tax assets.

4 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis