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How Does Roku Actually Make Money?

Devices from Roku (NASDAQ: ROKU) and Roku-driven smart TVs are an incredibly popular way to watch your favorite streaming channels. But investors may be wondering how the company monetizes its platform. On a Fool Live episode recorded on May 12, Fool contributors Toby Bordelon and Brian Withers discuss the streaming service device manufacturer's most recent results and explain how it makes money.

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Toby Bordelon: We got Roku, makers of those little boxes and sticks you plug into your TV, streaming devices. Good quarter for them, net revenue up 79 percent this quarter. They're at 575 million in revenue for the quarter. The platform revenue nearly doubled, where it's 466 million for that. This is just to recap, they have two main buckets they put their revenue in. Platform revenue is what they get on a software basis from their OS platform, and they have the device sales themselves, they count separately, so that's the difference between those two.

Gross profit, up 132 percent to 327 million. Good stuff there. 2.4 million new active accounts there at 53.6 million active accounts now, and the big one here, which you'll always want to see from a subscription company like this or at a user-based company, average revenue per user up 32 percent, so that's really nice. All-in-all, I like what I'm seeing here. They're not on the same level as say, Disney with its Disney+ or even Netflix, but in the streaming space they are significant and doing well.

Brian Withers: Yeah, Toby. I've owned a Roku and I have used Roku to watch Netflix since 2010. Recently we've added a number of other streaming apps; Spectrum, HBO Max, Amazon Prime, and Disney+ when The Mandalorian has a new season. But I've never paid any subscription fees to Roku. Does Roku make money off our family?

Toby Bordelon: The answer is yes, they do in a couple of ways. First, you bought the device presumably or someone did.

Brian Withers: Yes, I did.

Toby Bordelon: You got the device, they made some money that way. They have a new channel called the Roku Channel. I don't know if you've watched that at all? If you do, there's advertising revenue on there. That's their own homegrown stuff, their own content that they're making money with the advertising through that channel. If you know your remote's got a little Netflix button on it probably, maybe a Hulu button.

Brian Withers: It does.

Toby Bordelon: Those companies pay for that. It's not like someone at Roku is deciding, hey, let's just put this on there for kicks. They pay Roku for placement of their branded button on that remote so they make money that way. Other ways which may not apply to you specifically, they license their OS to TV manufacturers, so it's built into TVs. They do billing services. If someone were actually to subscribe on Roku, they get a cut of that revenue for the service. That you're not buying subscriptions through Roku, maybe you're not their most profitable customer, but they get a little bit of cash from you, and it all adds up over time if they can do that with 50 million people now.

Brian Withers: Yeah. Very cool, very cool. Thanks for explaining that, Toby, that's helpful.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Brian Withers has no position in any of the stocks mentioned. Toby Bordelon owns shares of Amazon, Netflix, and Walt Disney. The Motley Fool owns shares of and recommends Amazon, Netflix, Roku, and Walt Disney. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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