$Roku Inc(ROKU)$welcome back to my part 2 of my friend's interview with Roku's cfo.

Enjoy.

Steve(continued from part 1):But Apple are using their iOS operating system. Google uses their Android operating system. And then the Amazon Fire TV is a port version of Amazon [FireOS]. They all are optimizing their mobile ecosystem, not the TV ecosystem. And as a result, it's still cheaper to build a Roku TV, in terms of, we can go on lower-power chips, we have a smaller memory footprint.

 That's especially important in times like this when the component costs are going way up. Not only are the SOCs [system-on-chip, a class of highly integrated semiconductor that serves as the main applications processor in an appliance such as a smart TV or player], but also memory cost. And so you still have gaps where we have the only purpose built operating system. It's cheaper to build, it's a better mouse trap versus Android.

You know, we do more for the OEMs. In some cases, when people hear that Android is paying money to the OEM, primarily what they're [Google] focused on is to try to minimize or eliminate the gap because it is cheaper for an OEM to go with a Roku TV. And so that's an important part of that competitive dynamic.

And I think the best thing for us to look at is the fact that Android TV was out there for a number of years before we even started the Roku TV program. We've gone from no market share to we're number one in North America in terms of our market share at roughly a third of TV's sold.

We feel pretty good about how we’ve been competing, and will continue to compete well with all of those sorts.

My friend: And Amazon? Is there, conversely, an opportunity for you if they're alienating partners by becoming a TV OEM, does that maybe help you in some of these markets?

Steve: Yeah, look, partnering with Amazon, I think, has been a challenge regardless of whether you're an OEM, whether you're a retailer. And so I think that's definitely something in terms of their go-to-market growth that’s been a challenge for them in terms of some of the retailers won't carry them.

Some of the OEMs, they have deals with those same retailers, are a bit cautious about partnering with them. But I do think that's a challenge for them in general for go-to-market.

Like I said, we've been competing well for years, and so I'm not sure that that that one move changes the dynamic. But for us, it's just about being neutral, being a good partner, and that's the important thing for us.

My friend: And Vizio, anything you’d care to note about them?

Steve: No. again, we went from being — our OEMs have been competing with Vizio for a long time. Obviously, Vizio has taken some pages from a lot of the other playbooks around monetization side. And so we'll continue to compete well, I think, with the rest of the players in the ecosystem.

My friend: Partnering with OEMs internationally by sharing in some small platform revenue is now an idea that has widely been discussed by analysts.

How do you see the opportunity to lock up OEMs, even the majority of the multi-year revenue share deal, in return for exclusive Roku OS positioning while excluding the US market?

Steve: Yeah, no, I think the idea of rev share has been bandied about for a long time, so I'm not sure that's a new phenomenon. And, certainly, we're a public company, so that, basically, we've been very successful at growing the platform monetization.

What a lot of people don't understand is, it's the third phase of that business model where you need to first gain scale, you need to drive engagement, and then you can monetize. Like I said, for us, on the Roku TV side, we have an approach where we want to become the default OS out there in the globe.

We believe that streaming is a global phenomenon, and certainly the US is ahead in terms of its shift over to streaming. But we think it's a global opportunity, and so we'll continue to expand our footprint.

But, as I said to the earlier question, we give a lot of value to the TV OEM just by the simple fact that when they partner with Roku, it's cheaper to build, which is a big deal for them. We can get them retailer placements they can't get on their own. And then we do a lot of the work on the backend software updates that they often struggle with. Yeah, we don't talk about the deals, but I feel that we have a great value proposition, whether it's domestically or internationally, with the OEMs. And even that's reflected in things like TCL has been a great partner in the US, and we announced over last year that that relationship is going international, and we're starting to see some of those things roll out.

My friend: I love it. In the waning minutes that we have together, I know that you've had a couple quarters to go, maybe a few quarters where new accounts added and streaming hours viewed per quarter were a little light — not a lot, but a little bit light of the Street consensus.

Is there anything that still needs to be communicated about that dynamic to the extent that two or three quarters are a trend in those two metrics?

Steve: Yeah, that's what we were talking — we spent a lot of time trying to talk about the results. And I think the biggest thing that we're trying to with the hardware folks — and this is, I think, more of a macro or an industry trend as opposed to a Roku-specific trend — is the supply chain disruptions have gotten quite a bit more harsh throughout the world, throughout especially certain industries.

What we're talking about is, what are the macro effects in the economy right now, what are the industry impacts, and then what are the Roku impacts. And so let’s take active accounts, then, we’ll talk about streaming hours.

On the active accounts side, really, what's happened is these supply chain disruptions around cost increases, around inventory availability challenges, the shipping issues as well, that's a macro and industry thing. But when you think about our active account growth is dependent on unit sales of both players and TVs, let's talk about the players.

We obviously sell our own players, we manage our own supply chain. We've done a pretty good job in terms of avoiding significant inventory availability issues. We've had our players in stock, which is great. That's in part because of the scale that we operate at, with the components manufacturers, and the rest of the supply chain partners. As well as the fact that we've chosen to insulate consumers from the cost increase.

We're fortunate to be able to do that. Because, like I said, our monetization engine is working really well in order to increase our platform gross profit dollars increase, we have more flexibility. And so we know these supply chain disruptions, they're very painful, but they're temporary. And so we've decided to keep pricing consistent because we've always been about driving accounts growth.

As a result we've seen the player unit sales, the player revenue, they've come down from 2020 because that was just a very unusual demand spike based on the pandemic and the lockdown. What you see is the player unit sales and player revenue is above 2019, which is what we wanted to see.

What's been more different over the last few months is that the amount of impact on the TV industry overall in the US has been more substantial than we figured.

The TV market in the US in terms of sales of TVs is down 31%, year over year, according to NPD. That's driven by a few things. One, U.S. TV prices, according to NPD, are up 42%, year over year, which is an amazing change in a year. And the second piece is that there's certain OEMs, including some of ours, are particularly hit hard with inventory availability issue. And so, as a result, TV sales overall are actually down below 2019 levels. And so that's really the part of the ecosystem that was hit harder than we would have thought three, four months ago. That's really the big difference, and that caused the active account growth to slow down in the short-term. And we did say that we think similar conditions persist in Q4 here, and then into sometime in 2022.

My friend: Wow, we covered a lot, thanks for your time, Steve.

SL: Yeah, great questions. Great seeing you.

In conclusion, Roku's bears if you have a point to make this is the kind of quality that I expect you to bring to the table. If not it is a straight up 'L' to you. I believe Roku's bears can do much better than this. Just try harder next time I guess.