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Roku, Inc. (NASDAQ: ROKU) Q4 2019 Earnings Call Transcript

Final Transcript

Roku, Inc.  (NASDAQ: ROKU) Q4 2019 Earnings Conference Call

February 13, 2020

Corporate Participants:

Tricia Mifsud — Vice President of Communications

Anthony Wood — Founder, Chairman and Chief Executive Officer

Steve Louden — Chief Financial Officer

Scott Rosenberg — Senior Vice President and General Manager of Platform Business

Analysts:

Elliot Alper — D.A. Davidson — Analyst

Vasily Karasyov — Cannonball Research — Analyst

Laura Martin — Needham — Analyst

Mark Mahaney — RBC Capital Markets — Analyst

Ryan — Susquehanna — Analyst

Matthew Thornton — SunTrust — Analyst

Benjamin Swinburne — Morgan Stanley — Analyst

Timothy Nollen — Macquarie — Analyst

Jason Helfstein — Oppenheimer — Analyst

Christopher Sakai — Singular Research — Analyst

Alan Gould — Loop Capital — Analyst

Michael Morris — Guggenheim Securities — Analyst

Ziv Israel — Bank of America Merrill Lynch — Analyst

Kyle Evans — Stephens — Analyst

Mark Zgutowicz — Rosenblatt Securities — Analyst

Presentation:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Q4 2019 Roku Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker, Ms. Tricia Mifsud, Vice President of Communications. Please go ahead.

Tricia Mifsud — Vice President of Communications

Thank you. Good afternoon and welcome to Roku’s financial results conference call for the fourth quarter ended December 31, 2019. 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, SVP and GM of our Platform business who will be available for Q&A. Full details of our results and additional management commentary are available in our shareholder letter, which can be found on the Investor Relations section of our website at ir.roku.com.

The following discussion including responses to your questions reflect management’s views as of today, February 13, 2020 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 the future performance of Roku including expected financial results for the first quarter and full year 2020 and the future growth in our business in our industry. 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 periodic filings with the SEC for information about factors which could cause our actual results to differ materially from these forward-looking statements.

You will find reconciliations of non-GAAP measures to the most comparable measures discussed today in our shareholder letter, which is posted on our 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 of 2018. Now I’d like to hand the call over to Anthony.

Anthony Wood — Founder, Chairman and Chief Executive Officer

Thank you, Tricia. And thanks everyone for joining today’s call. In Q4, we exceeded our outlook for revenue, gross profit and EBITDA. Moreover, 2019 was a tremendous year both for the streaming industry and for Roku. Our revenue topped $1.1 billion and our customer stream, roughly 40 billion hours. In only two years, we have doubled our top-line and increased streaming hours by 170%.

Streaming has come a long way in the last decade. 10 years ago, Netflix was about all I could stream on my TV and in fairly low resolution. But recently I enjoyed streaming the Super Bowl in brilliant 4K via FOX Sports on my Quantum Dot Roku TV with my Roku wireless speakers and subwoofer. In fact, streaming is often the easiest and sometimes the only way for people to watch in 4K. Most TV is still delivered the old fashioned way. Streaming still has a long way to go and the streaming decade lies before us. I couldn’t be more excited about the innovation we have planned for our TV software, our advertising platform, The Roku Channel and international expansion. I will now turn the call over to Steve to discuss the financial details and our outlook.

Steve Louden — Chief Financial Officer

Thanks, Anthony. Our strong fourth quarter performance, which exceeded our outlook capped off another great year. We executed well and delivered record results. Before taking your questions, I’ll walk through operational and financial highlights and address outlook. We saw strong demand for our players and TVs in the fourth quarter, which resulted in an incremental 9.8 million active accounts for the year. And we ended 2018 with 36.9 million active accounts. Our scale has expanded rapidly over the last several years. We added just under 6 million active accounts in 2017, nearly 8 million more in 2018 and almost 10 million more in 2019.

In addition to increasing our scale, we continue to see growing engagement on our platform. 2019 streaming hours up 16.3 billion year-over-year to a record 40 billion hours. In Q4, the streaming hour growth rate moderated somewhat versus Q4 2018, due in part to the timing of Black Friday following a week later in 2019 and the partial rollout of the “are you still watching” feature, which prompts users to confirm they’re still watching after a period of inactivity. Leading channel partners like Netflix have already implemented similar features that we think create a level of consistency and establish a best practice across our platform. As of early Q1, we have completed rolling out this feature to our entire installed base and estimate that it will moderate our streaming hour year-over-year growth by approximately 10 to 15 percentage points in 2020. We do not expect the rollout of this feature to have a material impact on our financial performance.

Please see our shareholder letter for the full financial details from the quarter and fiscal year. I’ll highlight a few items and provide our Q1 and full year 2020 outlook. Q4 total revenue exceeded our outlook, increasing 49% year-over-year, to $411.2 million with the Platform segment revenue up 71% year-over-year to a record $259.6 million and represented 63% of total revenue. Player segment revenue growth of 22% year-over-year again came in ahead of expectations, driven by strong player sales with units up 33% year-over-year. Highly effective holiday promotion strategy led to a 10% decrease in ASP.

Our key financial performance metric is gross profit, which exceeded our outlook and was up 44% year-over-year in Q4, to a record $161.6 million. Gross margin was 39.3% reflecting solid platform margins consistent with the prior quarter, partially offset by our decision to run the Player business at roughly zero gross margin.

Q4 adjusted EBITDA of $15.1 million exceeded our outlook. Q4 opex was $179 million, up 68% year-over-year as we continue to invest to extend our strategic advantages. Excluding approximately $13 million of dataxu-related opex and deal costs, opex would have grown roughly 56% year-over-year. To date, we are making good progress on our integration of dataxu’s operations with Roku’s ad business and it’s Q4 performance was consistent with expectations. As we mentioned on the last call, given the relative size of dataxu, and our integration plans, we do not expect to break out dataxu going forward. Rather, it will be included as part of our Platform segment.

We ended the quarter with $517.3 million of cash, cash equivalents, restricted cash and short term investments which included net proceeds of $151 million from the sale of Class A common stock in an at-the-market offering transaction during the quarter. Net proceeds of $100 million from drawing on our term loan as part of our credit facility and reflecting the use of $68 million in net cash as part of the funding for the dataxu acquisition.

With that, let’s turn to our outlook for the full year 2020 which calls for $1.6 billion in revenues at the midpoint, up 42% year-over-year and $730 million of gross profit at the midpoint, up 47% year-over-year. The mix of revenue will continue to move towards the faster-growing Platform segment, which we anticipate will generate roughly three quarters of total revenues. For modeling purposes, you should plan for full year Platform gross margin in the high-50s to 60% as a percentage of revenue driven by continued mix shift to video advertising, the inclusion of dataxu and growth of premium subscriptions. For Players, you should expect us to manage full year gross margin to roughly zero. We remind you that we are not optimizing for Player gross profit given our focus on device sales as an important driver of account growth. We believe that our strategy of trading Player margin for account growth and Platform revenue growth is working well.

Given our strong position within the shift towards streaming, our goal for 2020 is to continue to invest our incremental gross profit back into our strategic growth opportunities and to manage the business to roughly breakeven on a full-year adjusted EBITDA basis. For modeling purposes, please note the 2020 adjusted EBITDA excludes stock-based compensation of roughly $135 million and an estimated $35 million of depreciation and amortization and net other income. Implied in our 2020 outlook is roughly $905 million of GAAP operating expenses, and while our revenue and gross profit can be quite seasonal, our opex is not particularly seasonal, but instead is better looked at on a sequential growth basis due to headcount and facility-related expenses, traditionally accounting for roughly three quarters of total opex.

Approximately 60% of our anticipated increases in operating expenses in 2020 are related to the full year impact of the 32% organic headcount growth in 2019, increased facility costs primarily related to our new headquarters and the inclusion of dataxu operating expenses. In addition, we also plan to hire new employees at a similar organic rate to 2019.

Turning to our Q1 outlook, we remind you that Q1 is our seasonally softest quarter from a revenue perspective with revenue that is roughly 25% lower sequentially than our seasonally strong fourth quarter. Our Q1 outlook calls for similar seasonality with the midpoint of total revenues of $305 million, up 48% year-over-year with Platform accounting for roughly three quarters of the mix. Gross profit of roughly $145 million at the midpoint is expected to be more than offset by higher operating expenses, resulting in an adjusted EBITDA loss of roughly $20 million.

In Q1, we expect Player gross margins to be in the mid-to-high single-digits reflecting a traditionally lighter promotional period within the retail calendar. Please note that our outlook does not include any material impacts resulting from the current novel coronavirus outbreak. We are closely monitoring this outbreak and to date have only experienced minor impacts, but there is potential for more significant manufacturing and supply chain disruptions if the outbreak becomes more severe, which may hamper our, and our partners abilities to replenish inventory after a strong holiday season.

I’ll summarize by saying how pleased we are with the trajectory of the business and would like to share a little perspective on our historical and anticipated revenue growth. Our 2020 revenue outlook of $1.6 billion at the midpoint represents roughly two times 2018 revenue, three times 2017 revenue, four times 2016 revenue and five times 2015 revenue. The sustained level of robust revenue growth speaks to the fundamentals of our business, the difficulty of replicating our strategic advantages and market-leading position and our laser focus and leadership in streaming.

In addition, we are encouraged by the significant opportunities ahead as we are only just beginning the streaming decade. With that, let’s turn the call over for questions. Operator?

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from Elliot Alper with D.A. Davidson.

Elliot Alper — D.A. Davidson — Analyst

Great, thank you. I wanted to ask a little bit on duplicate ads and how it pertains to Roku and how ACR technology is allowing you to do that. And secondly, have you spoken on the number of active accounts that are equipped with ACR?

Scott Rosenberg — Senior Vice President and General Manager of Platform Business

Hi, Elliot. This is Scott Rosenberg. Can you just repeat the question around ACR, please?

Elliot Alper — D.A. Davidson — Analyst

Yeah, mainly on duplicate ads and kind of how it pertains to Roku and how the ACR technology is maybe allowing you to do that. And also kind of if you’ve ever spoken on the number of active accounts that are equipped with ACR. Thanks.

Scott Rosenberg — Senior Vice President and General Manager of Platform Business

Okay. Gotcha. So just for background, ACR is a fingerprinting technology, it helps us to determine what programs and ads the users are being exposed to. It’s broadly deployed in our televisions. It’s a very important component in our ad business and it’s central to how we help advertisers figure out the incremental reach delivered on the Roku ad platform. That’s one of the core value propositions of an advertiser investing in OTT. It’s knowledge that they’re reaching users who are no longer reachable in linear television. So we use the ACR information together with OTT ad exposure to produce a de-duplicated view of who an advertiser has reached. That answered your question, Elliot?

Elliot Alper — D.A. Davidson — Analyst

Yeah, thanks. And then also you spoke more about the shareholder letter about adding more content on to The Roku Channel in 2020. Could you expand or add any more color on that? It would be helpful.

Scott Rosenberg — Senior Vice President and General Manager of Platform Business

Sure. The Roku Channel had an amazing 2019. Reached active accounts was about 56 million viewers, Parks Associates called it a top-3 ad supported service in the U.S. It’s growing significantly faster than our already fast-growing platform. We added 40 premium services, 55 linear channels, Kids & Family. This is just a demonstration of the growth of content available to consumers in The Roku Channel. Every quarter we’ve had new announcements in that regard and it’s led The Roku Channel to be one of the largest channels on the platform and to deliver great reach for our advertisers. It’s also a place where we can deploy new ad capabilities, sponsorships and other types of brand integrations. Those types of integrations are exciting for brands because they go beyond the 15 to 30 seconds spot and create a new way for them to reach viewers in this new streaming experience.

Anthony Wood — Founder, Chairman and Chief Executive Officer

This is Anthony. I’ll just add that The Roku Channel is an example of an area where we are investing in and it’s a strategy that’s working really well for us. It’s driving a lot of engagement. The content, you asked about in The Roku Channel, obviously that — we’ve been improving that and that gets a deeper library and more breadth every quarter, but a big part of our focus is improving the capabilities of The Roku Channel, making it more integrated with our platform, things like machine learning. So there are many ways we can drive viewership as well as content in that particular application.

Elliot Alper — D.A. Davidson — Analyst

Great. Appreciate it.

Operator

Thank you. Our next question comes from Vasily Karasyov with Cannonball Research.

Vasily Karasyov — Cannonball Research — Analyst

Thank you. I have a clarification and a question. In the investor letter, shareholder letter, you say that advertisers can use your capabilities to buy ads from publishers directly. Can you clarify what that means? Does it mean that you sell third-party apps inventory using dataxu’s DSP? And, if so, what is the economics of this relationship?

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Scott Rosenberg — Senior Vice President and General Manager of Platform Business

Sure. Thanks for the question, Vasily. Roku has built the leading ad platform on the core value proposition of our scale, our first-party consumer relationships, our data, our management, our targeting capabilities and the dataxu acquisition really helped to accelerate our ability to provide those same capabilities to an advertiser as they buy media more broadly across the Roku platform and off the platform. It is a DSP, a demand side platform. So it’s ultimately a tool set to help brands plan and buy advertising programmatically across the platform, and while they will buy Roku media through our DSP, they will also buy third-party media. That’s what we meant by the comments in the shareholder letter.

Vasily Karasyov — Cannonball Research — Analyst

And do you get a commission for that or you don’t participate at all in that?

Scott Rosenberg — Senior Vice President and General Manager of Platform Business

No, we can definitely participate. I mean it’s part of the core business that we, as an artifact of adding data and transactional capabilities, machine learning and optimization to help an advertiser optimize to outcomes. Those are all things that that we earn from as an advertiser uses our tools. And one of my favorite anecdotes of an early execution was with a direct-to-consumer brand called ThirdLove. It’s a women’s underwear company. And just as an example, they are now using our DSP to both buy media on Roku and then follow up with exposures on desktop and mobile, and they showed a 319% improvement in conversion rates by doing that one-two punch. That’s just an example of the kinds of executions that we’re able to offer advertisers with this new capability.

Vasily Karasyov — Cannonball Research — Analyst

Well, great, so the follow-up — sorry.

Anthony Wood — Founder, Chairman and Chief Executive Officer

I was just going to say that the dataxu acquisition was a big milestone for us and it is going well. We’ve started integrating the team. The teams are actually mostly integrated and we’re starting to see some early success. It’s obviously — shows that we believe that the TV advertising world will eventually move to data-driven self-serve programmatic tools like the traditional web and mobile industries.

Vasily Karasyov — Cannonball Research — Analyst

So the follow-up to this is then while — since you bought dataxu, Amazon publisher services has been actively on-boarding Fire TV apps on its private marketplace to sell their inventory. So it seems that a completely different — a new competitive dynamic emerged in the past several months here. So would it be correct to say that it’s more that, that is competition to the service you just described? And if so, what gives you confidence about your positioning in this situation and ability to win budgets and hopefully grow share going forward with APS competing against you for budgets most probably?

Scott Rosenberg — Senior Vice President and General Manager of Platform Business

Sure. Amazon of course is both a partner and a competitor. The thing I’d remind you of is, our main competition here is inertia, it’s the traditional TV spending pattern. We offer a platform that’s at that scale with logged in user, proprietary data and broad reach across the platform. These are all the hallmarks of leading ad platforms and what we think positions us uniquely to help marketers reach Roku users in the — on their Roku devices as well as off platform in the example I just gave you with ThirdLove. So we think we’re uniquely positioned to compete aggressively in the space.

Vasily Karasyov — Cannonball Research — Analyst

Thank you very much.

Operator

Thank you. Our next question comes from Laura Martin with Needham.

Laura Martin — Needham — Analyst

Hey, there. Can you guys hear me okay?

Scott Rosenberg — Senior Vice President and General Manager of Platform Business

Yeah.

Laura Martin — Needham — Analyst

Can you hear me?

Scott Rosenberg — Senior Vice President and General Manager of Platform Business

We can hear you.

Laura Martin — Needham — Analyst

Okay, great. Great numbers, you guys. So I got a couple. Steve, the most important one is you. 606, when you sell at Disney, if you signed up, in the hypothetical world, the Disney Plus sub, does — do you have to owe Disney the $5 but then accrue on this cash flow statements, the deferred revenue, because you can’t recognize it? And is that why we’re seeing these big swings in deferred revenue? And please just remind us every single line item, not on the income statement where Disney Plus sign up happens, please.

Steve Louden — Chief Financial Officer

Hey, Laura.

Laura Martin — Needham — Analyst

Hi.

Steve Louden — Chief Financial Officer

Thanks for leading up to the 606 question, I appreciate that. Well, not talking about any specific terms in any one deal. In general, our content distribution agreements are multiple element arrangements. Certainly for SVOD services, our traditional structure is a rev share. But there is often other components of that, be it minimum guarantees or promotions that we might give. As a result, these — the material agreements under 606 come under the multiple element arrangement accounting. So it really just depends in terms of the different elements, the value that we have described for these elements and then the performance obligations that are basically put against these revenue streams. And so that can lead to some lumpiness within the life of the deal where we’re valuing the entire agreement and placing value on that and so it’s not necessarily immediately and 100% correlated with the underlying cash or business stream to your point.

So, it can be lumpy over time and, certainly with some of these new services, that can lead to a bit of a disconnect between the underlying driver and how it shows up on the P&L or the balance sheet.

Laura Martin — Needham — Analyst

Okay, so you — can you give us the line items that it mostly affects?

Steve Louden — Chief Financial Officer

Well, again, it depends on the deal, but certainly there can be on the P&L a revenue or a COGS impact hence a gross profit impact from content distribution agreements. And then, there can be an impact on the deferred side on the balance sheet. Again it’s highly dependent.

Laura Martin — Needham — Analyst

On the deal. Okay. Just wanted to make sure. And then the — Anthony, one of the things you’ve told us in the past is that — I’m interested in an update to, A, number of TVs sold in Q4 that were Roku TVs and, B, number of people that you reach, that linear TV does not reach any longer, if you have those two numbers, please.

Anthony Wood — Founder, Chairman and Chief Executive Officer

Yeah, well Roku TV obviously is a great program for us, hugely successful. We’ve seen consistent growth there in terms of driving our active accounts. For the full year, last year, just under one in three smart TVs sold in the United States were Roku TVs, making Roku TV the number one streaming TV brand in the United States. And that was up from the prior year, it was one in four smart TVs sold.

Laura Martin — Needham — Analyst

Okay.

Anthony Wood — Founder, Chairman and Chief Executive Officer

So, it’s going well. It’s been a great business for us.

Scott Rosenberg — Senior Vice President and General Manager of Platform Business

Hey, Laura, let me take the question about that reach. So we’ve been mentioning in prior calls that half our user base doesn’t have a pay TV package in their home. So by definition, they are not reachable through linear television. The other half tend to be very light linear TV viewers. So, on the whole, across dozens and dozens of campaigns, really hundreds, we’ve been able to show advertisers that the vast majority of the users that they reach when they buy advertising from Roku have not actually been reached through linear. There is very little duplication between the executions.

Laura Martin — Needham — Analyst

Okay. That is super helpful. And that’s up a lot from a year ago. So thanks very much.

Operator

Thank you. Our next question comes from Mark Mahaney with RBC.

Mark Mahaney — RBC Capital Markets — Analyst

Okay, thanks. Two questions. Platform gross margins have been trending down and you gave guidance for this next year but Platform gross margins were flattish Q3 to Q4. Any particular reason why they went down? And then secondly, international — is international contributing at all materially so far to any of the metrics streamed hours, active accounts, those two in particular? And if not, do you want to lay out any benchmarks in your guidance for this next year? Is there — is there some sort of fudged number in there for international or early guess number? When does it become material especially to those metrics? Thanks a lot.

Steve Louden — Chief Financial Officer

Hey Mark. This is Steve. I can hit those and then we can get some color from the other gentlemen if they want. In terms of the Platform gross margins, you referenced the outlook there, which is for the high 50s, around 60% in the quarter. Q4, it was very similar on the Platform gross margin side to last quarter, in the low 60s percent. A lot of it has to do with just the the relative mix of the video advertising business. And so it was similar between Q3 and Q4 and the outlook for 2020 assumes that because of the video advertising business is the biggest opportunity and it’s been fast growing that the mix of that continues to shift.

2020 has also factored in the premium subscription business, which is on a gross revenue treatment. Hence, a lower gross margin, it’s great for revenue dollars and gross profit dollars but because of the gross treatment, it’s — it shows up as a lower gross margin. But we assume that, that will continue to grow and then it also includes the dataxu business, which historically has been a mix of net and gross treatment. So that’s what’s on the margins. Those are some of the contributing factors.

In terms of international, we haven’t broken out the metrics. The vast majority of the active account base is still in the U.S., although international is growing. And we are continuing to expand our presence in existing international markets. We mentioned that our share of TVs is continuing to increase and it’s now one in four TV’s in Canada, which is great progress there. Mexico, we’re going from two TV brands to nine, kind of, in recent — we just signed up recently seven. So there’s a lot of progress in international. And as we go, we’ll have more announcements and I do think at some point, we’ll be breaking that out, although probably not for a bit.

Mark Mahaney — RBC Capital Markets — Analyst

Okay. Thank you, Steve.

Steve Louden — Chief Financial Officer

Thanks, Mark.

Operator

Thank you. Our next question comes from Shyam Patil with Susquehanna.

Ryan — Susquehanna — Analyst

Thanks. It’s Ryan on for Shyam. So first, I was wondering if you could talk about how we should think about OEM deal economics and how those might evolve over the next few years. And then secondly, could you just talk about your progress on the dataxu integration so far, kind of where are you in that roadmap and how long will it be until you kind of get to where you’d like to be? Thanks.

Anthony Wood — Founder, Chairman and Chief Executive Officer

This is Anthony. I’ll take the question on OEMs. And then Scott will probably answer the question on dataxu. So you know, I think you’re talking about TV OEMs like where we license our TV operating system to TV manufacturers. That obviously, as we discussed, has been a great program for us. It’s doing extremely well as well as the progress we’ve made in market share in active accounts. We believe we’re the best partner for TV manufacturers. We have a lot of advantages of purpose-built operating system for television that brings them a lower cost structure, lower returns, automatic software updates and it’s a brand that consumers love.

In terms of what attracts OEMs to the Roku program, I mean the number one — the primary reason the Roku TV program is so successful — I mean obviously it’s the number one streaming TV brand in the United States and the primary reason it’s successful is it is very valuable to our partners for the reasons I discussed. It’s — it brings them a lot of benefits in terms of technology, customers, retailers, managing the content and the software updates and consumers and retailers are asking for it. So that’s the main reason that we see partners attracted to the Roku TV program.

Scott Rosenberg — Senior Vice President and General Manager of Platform Business

Ryan, I’ll take your question on dataxu. We’re about 90 days in, post-close. The integration has gone great. It’s a testament I think to the clarity of vision we had in acquiring them and integrating them into our plans and accelerating our ad tech roadmap as well as the strength of the team. So we’ve already released a number of features, enhancements, for example, the ability to use Roku data, around the info and there is a whole very compelling roadmap of things that we’re doing together as part of the new combined roadmap. The teams, as Anthony mentioned, have already been fully integrated into Roku and we’re in market although still early and the proposition — the core proposition, I mentioned earlier of of having Roku’s data measurement targeting capabilities natively available in a planning and buying platform is really resonating with our clients. So, so far so good And, and we’re executing well on that integration.

Operator

Thank you. Our next question…

Anthony Wood — Founder, Chairman and Chief Executive Officer

This is Anthony. I’ll just add that I’m super excited about the dataxu acquisition is going extremely well. I think it’s shaping up to be one of our best investments yet.

Operator

Thank you. Our next question comes from Matthew Thornton with SunTrust.

Matthew Thornton — SunTrust — Analyst

Hey, good afternoon, guys. Thanks for taking the question. Maybe two if I could. First, just going coming back to the question on OEM kind of economics. Steve, remind me, I think you guys typically recognize some licensing revenue from a TV OEM partner. And I think there was also probably some co-marketing and kind of a retail channel support that would flow back through, I think the retail, the marketing lot, if I’m not mistaken, I think the net output was kind of like a zero. So I’m just curious if you think that, that will change as we kind of go forward here from having been maybe become a neutral economic to maybe by the shift toward the TV OEM or towards you guys, any color there.

And then just secondly, the 2020 guidance. Just curious what that assumes for, A, political spend for the year, any lift there? And then just also some of the new services that are there coming online, whether it’s HBO Max or Peacock or obviously Disney Plus going international, just any color on kind of what you’re thinking there in the 2020 guidance. Thanks, guys.

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Anthony Wood — Founder, Chairman and Chief Executive Officer

I’ll start. This is Anthony. With the — just some more color on the OS licensing business, and I’ll let Scott or Steve take the rest of the question. The business deals obviously vary by OEM and we’re not really going to get into the details of the deal. I mean it is true that the biggest reason that they come to us or that we strike a partnership is that we bring a lot of value, a lot of non-direct monetary value to their business. We help them gain market share, Roku OEMs are generally gaining market share. We help them with retail placement. We do have a retail merchandising budget that we spend to promote Roku TV with retailers and they benefit from that. And then of course all the other reasons I mentioned. We also have, for example, very strong reference designs for hardware. We take a lot of the engineering load, there’s just a lot of benefits. And I think the result of all these benefits and just generally in the industry is that we expect all smart TVs to end up licensing in OS. It’s just a much better economic model for the TV business.

Steve Louden — Chief Financial Officer

Yeah, hey, it’s Steve. Just in terms of 2020 guidance. I mean certainly factors like anticipated new service launches and the upcoming elections are factored into the outlook. We do sell some political ads. It’s not a major focus for us and so really the opportunity there is largely around bringing more traditional TV ad spend over as they need viewership and certainly the new services are good for Roku in general. The more content we get on the platform, the more it attracts people to streaming and Roku in particular and drives engagement. So that’s all good and reflected in the numbers that we put out today.

Operator

Thank you. Our next question comes from Ben Swinburne with Morgan Stanley.

Benjamin Swinburne — Morgan Stanley — Analyst

Thank you. Scott, I was curious if the shorter holiday period last quarter had any impact on the fourth quarter advertising. And secondly, just to go back to the Roku Channel content discussion earlier, how do you guys think about sort of the pitch to publishers moving their content sort of out of their apps into the Roku Channel and sort of the opportunity that offers them versus maybe their own desire to keep the consumer in the app? There’s been a lot of sort of press coverage recently about your relationships with your publishers and that’s come up. So I’m just curious about, if you could shed a little bit of light on how you think about that and what the sort of pitch is to publishing partners on bringing content over into the Roku Channel for monetization.

Scott Rosenberg — Senior Vice President and General Manager of Platform Business

Okay. Hi, Ben. So on your first question about Thanksgiving, basically coming in a week later than it typically has, we didn’t see that as a major factor in our ad business in Q4. With regards to The Roku Channel, we had a great year. That’s why you think about the Roku Channel as just ultimately another tool to help content owners succeed in streaming. It’s got a best-in-class user experience, machine learning driven recommendations best-in-class marketing and monetization capabilities and our view is it can play an essential role in helping content owners reach yet more audience and monetize more effectively. It’s not an either/or proposition to having a channel on our platform, but it does represent a large incremental opportunity to clearly having a standalone app.

Benjamin Swinburne — Morgan Stanley — Analyst

Thanks a lot.

Operator

Thank you. Our next question comes from Tim Nollen with Macquarie.

Timothy Nollen — Macquarie — Analyst

Hi, thanks. I’d like to come back on the topic of international, If I could, please. Is there anything you can tell us about whether it’s more player devices or whether it’s more TV OEM integrations that are leading the way in your early phase as you move into more international sales? And then, how long does it take to establish an installed base, so that you can then build and monetize in that business or are you already doing some good work monetizing that on the advertising side? And lastly and relatedly again on international, can we assume that a good chunk of the investment that you laid out in 2020 will be for international expansion, or have you already taken care of a lot of that cost in 2019? Thanks.

Anthony Wood — Founder, Chairman and Chief Executive Officer

This is Anthony. I’ll take the first question on Players versus TVs. I mean, generally, we believe that the strategies that work for us in the United States to become the number one streaming OS will work for us and are working for us internationally as well. And so, obviously, the two big components of that are Players and TVs. So they’re both tools that we’ll use internationally and the order and the specifics are country dependent. So, we recently launched TVs and Roku TVs in Brazil, we don’t yet have Players in Brazil. So I think that’s probably the first market where we led with TVs. We’ve added more TV partners in Mexico, which is a very fast growing market for us. We mentioned that Canada is now one in — we have a market share of one in four. So I think just generally you’re going to see us use both tools in our international expansion.

Steve Louden — Chief Financial Officer

Hey Tim, this is Steve. Just on your last question about the investments, certainly international was a investment area in 2019 along with Roku TV, Roku Channel and the ad business and we — those investments have been working well and we’re continuing to invest in them in 2020. Certainly, we’ve made great progress internationally. Anthony described some of the milestones we had but international is a big opportunity for us. And there is certainly more countries and more parts of the Roku ecosystem that we can bring to bear. I think, Canada might be a good one to just talk about the different phasing. Right. We want to gain scale in the market. We want to drive engagement. And then we can start to monetize and in Canada, we’ve gained good scale with most notably that one in four smart TVs sold stat, it represents great progress on that market share side.

But in addition, we’ve launched The Roku Channel in that market. We are starting to ramp up the ad sales post component of that and you know like TRC is already top-5 by reach in Canada. So you can start to see that the model of scale engagement and monetization is going in Canada a bit farther ahead of some of the other ones, but I think it’s a good proof point about that the model can work.

Timothy Nollen — Macquarie — Analyst

Great info. Thanks very much.

Operator

Thank you. Our next question comes from Jason Helfstein with Oppenheimer.

Jason Helfstein — Oppenheimer — Analyst

Thanks. two questions. So you talked about the Canada smart TV market. So just think about when you first entered Canada and kind of what the competitive landscape looked like Samsung versus Android supported TVs versus others. And obviously, kind of, you said, kind of where it is today and how successful you’ve been. Do you think that’s representative of what U.K., Brazil and Mexico look like today and kind of that was the point for the example?

And then the second question, just to dig a little bit deeper into publisher deals, maybe just talk about how you think about AVOD versus SVOD and Roku’s role in monetization. And so for SVOD, it’s reasonably straightforward with respect to revenues share for sign-ups and retention and obviously differs by publisher. But I think we all kind of get it. For free AVOD services, are you drawing a red line in the sand that requires economics for every channel, perhaps maybe YouTube being kind of the early, early exemption. So, just any color specifically on how we should think about monetizing third-party AVOD services besides the Roku Channel. Thank you.

Anthony Wood — Founder, Chairman and Chief Executive Officer

This is Anthony. I’ll take the international question. I would say that every country is quite different. So in terms of like where they are on their streaming curve, what are the factors that go into making us successful. We really do customize it by country. So for example, I think, Canada was more mature when it comes to streaming than say Brazil is, but Brazil on the other hand, still has a lot of streaming, the dynamics of the type of streaming are also different. So I think our strategy, if we have one is to customize the approach by country and figure out the right set of local partners to be successful in that country and that’s working for us.

Scott Rosenberg — Senior Vice President and General Manager of Platform Business

Jason, with regards to your question about publisher deals. First, I’ll say that our philosophy is the same across both AVOD and SVOD which is that we are an essential platform, we can play a key role in helping streaming services succeed in our platform and as we help them create value, we look to participate to share in that upside. So philosophically, that’s our goal is to first help them succeed and second participate in the upside.

In the subscription services model, it’s rev share in marketing relationship and in the AVOD model, its participation in the ad business that the publisher runs. This is an important part of our relationship with publishers that we participate in those economics.

Operator

Thank you. Our next question comes from Chris Sakai with Singular Research.

Christopher Sakai — Singular Research — Analyst

Hi, everyone. I had a question on Mexico. I wanted to see, is Mexico your fastest growing country right now?

Steve Louden — Chief Financial Officer

Hey, Chris, this is Steve. We haven’t broken out that. It’s certainly — we have been growing fast in Mexico and many other markets and certainly the Player business has done well there. Historically, we launched the TV business with a couple OEMs and we’ve had great reception there and we’ve signed up seven new TV brands for this year. So — and certainly the engagement on the platform is growing nicely. So in the last year or so, Mexico has been a very strong growth market for us.

Anthony Wood — Founder, Chairman and Chief Executive Officer

This is Anthony. I was just going to say that in terms of Mexico, the growth rate that we’re experiencing — that we experienced last year is the fastest rate of growth in Mexico since we launched there.

Christopher Sakai — Singular Research — Analyst

Okay and you mentioned that involves nine TVs now — nine TV brands with Roku in Mexico, is there — are you guys going to cap it at some point? I mean, or are you going to keep adding, adding and adding?

Anthony Wood — Founder, Chairman and Chief Executive Officer

Yeah, we said that we’ve added seven — we added seven brands last year in Mexico to bring the total to nine. We don’t have a hard cap. It depends — it just depends on a lot of factors. And it’s not just a number. I mean, we’re obviously proud that we have nine different brands selling Roku TV in Mexico and the Mexican market is going well for us. But there’s a lot of factors, including retailers, retail demand, these market shares, OEMs. So there’s a lot of different factors that drive the number of brands we do deals with.

Christopher Sakai — Singular Research — Analyst

Okay, thanks. Thanks for that.

Anthony Wood — Founder, Chairman and Chief Executive Officer

Sure.

Operator

Thank you. Our next question comes from Alan Gould with Loop Capital.

Alan Gould — Loop Capital — Analyst

Thanks for taking the question. Three questions please. First, Scott, over the — a few years ago, advertisers were buying you I think more in their experimental pool. A few years later, how has that relationship changed? Are you getting into the upfront buying cycle with the advertisers and the agencies? Is there any change on the CPMs etc?

Second for Anthony. It was interesting that you led off with talking about watching the Super Bowl on Fox, there was a little issue with you and FOX right before the Super Bowl. Is that a one-off or should we expect more of those similar to how we see happening with the cable operators and cable networks?

And lastly for Steve. I know you said you’re not going to breakout dataxu, but can you give us some color as so what portion of the growth — some sense of how much of the growth rate in the going forward in the model and the outlook is due to adding dataxu into the platform revenue? Thank you.

Scott Rosenberg — Senior Vice President and General Manager of Platform Business

Alan, I’ll take your first question. We’re years past the mode of advertisers buying us in an experimental fashion. We’ve got annual upfronts with all the major agency, holding companies, most brands that are buying with us are in multiple years of renewal with us. They — often an advertiser will come to us and their first goal in working with us is simple, it’s incremental reach, it’s reaching people who are no longer available in linear television. And then they get to see the outcomes, the measurement, the advanced capabilities of OTT and they expand their business with us. That’s the general flow of our relationships with advertisers.

I should also mention as well that we’re significantly diversifying the client base with the acquisition of dataxu and new capabilities we felt we are making great inroads in performance, direct-to-consumer brands, advertising, mid-market, local advertising, basically anybody who invest in TV and then brands who historically have been digital-only now can participate in TV advertising, because it’s a digital medium are buying from us. So very significant progress on our ad business.

Anthony Wood — Founder, Chairman and Chief Executive Officer

Alan, this is Anthony. You asked about the relationship with partners and content partners. I guess I would say that we’ve invested a lot in building our platform, aggregating a large audience, developing the tools that partners can use to reach that audience, sell them subscriptions, sign them up, produce churn. So we’ve built a lot of capabilities into our platform and our business model and our philosophy is to help our partners — our streaming content partners build their streaming business reach this large audience, help make them make their business very successful. And then when we do that, when they succeed, we succeed. We participate in some of that upside that we help create.

In terms of deals, I mean we renew thousands of deals a year and generally we’re able to reach mutually agreeable terms, it’s not a zero-sum game. Like compare and contrast it to the traditional distribution deal on Roku versus say a traditional pay TV deal, in the pay TV world, there was a fixed-sized bill. Consumer would spend, let’s say, $1,000 a year on a bundle. And then there would be a fight between the distributor and the networks over how to split that bill. In the case of streaming, it’s a new business for everyone. It’s just a different dynamic. The dynamic is we’re trying to help build businesses and we’re trying to succeed when our partners succeed. So it’s just a different business, it’s not a zero-sum game at all.

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You mentioned Fox. I mean we have a long term relationship with Fox. I’m happy that we reached the deal with Fox. It was a deal that was good for both parties and I’m looking forward to continuing to work with them. Like I said in my introductory remarks, I enjoyed streaming the Super Bowl in 4K on FOX Sports on my Roku TV.

Steve Louden — Chief Financial Officer

Hey, Alan. This is Steve. Just on your question around dataxu, as you mentioned, due to the integration plan Scott was talking about there, dataxu is already largely being integrated in the various Roku departments in the relatively small size so we will not be breaking that out. We published pro formas — historical pro formas of dataxu, so you can see their stand-alone growth trajectory, which was basically fairly flat and running at a bit of a EBITDA loss. But we think integrated into the offering that there is a lot of synergies over time. And so those expectations are encompassed within the outlook we provided.

Alan Gould — Loop Capital — Analyst

Okay, thank you, gentlemen.

Operator

Thank you. Our next question comes from Michael Morris with Guggenheim.

Michael Morris — Guggenheim Securities — Analyst

Hi, thank you. Good afternoon. Two questions. I’ll start with the first one which is Disney Plus added 26 million subscribers in the fourth quarter. Can you talk about how that impacted your business financially and how it might impact you going forward?

Steve Louden — Chief Financial Officer

Hey, Michael, it’s Steve. Certainly as new services come on, that’s good overall for Roku in terms of driving folks to the platform and increasing engagement. And, certainly, our business models are set up so that when partners create value on our platform, we’re well-positioned to bring them a large audience and best-in-class tools that they can create value and we can share in that. As I mentioned in Laura’s question, certainly, these are multiple element arrangements. And so there can be some lumpiness on there, but in general, the new services are good for us.

Michael Morris — Guggenheim Securities — Analyst

But nothing specific in terms of Disney in the quarter, whether it was being able to participate in those sign-ups, whether it was their advertising on your platform, anything like that, that represented a step up.

Steve Louden — Chief Financial Officer

Yeah, again we don’t talk about specific commercial terms, but certainly we signed up subscribers for Disney and there was dollars in the quarter and dollars in the outlook related to new services like Disney Plus or Apple or others.

Anthony Wood — Founder, Chairman and Chief Executive Officer

This is Anthony. I’ll just — I’d just add, hats off to Disney for reaching 26.5 million subscribers in three months. I mean that was incredible. I think an important sign that the streaming decade has really started. And you know, they have great content, effective marketing. But one of the things, Disney did is, they really lean into the tools that we have available on our platform and when companies do that, I mean, we’ve built a lot of great ways to sign up subscribers. So I think we were an important part of them reaching that milestone.

Michael Morris — Guggenheim Securities — Analyst

Great, thanks for that. They did in six weeks actually, even more impressive. My second question is about Flex from Comcast. They talked about having a good success with that product and leaning into it more going forward. What’s your view of the competitive dynamic there, especially given that they can deliver that with their broadband subscriptions? How do you compete with that if it’s being delivered, sort of for free with a broadband subscription?

Anthony Wood — Founder, Chairman and Chief Executive Officer

The Roku offers a — I mean, our customers love the Roku experience, it’s sticky. They like the content selection we have, they like the fact that we’re built into their TVs often. We don’t — we just don’t see competing with cable distributors — traditional cable distributors as a big part of our competitive dynamic. But I think I would say that there’s a lot of reasons people love their Roku and price is one of them. It’s — we offer a great price, but there’s a lot of other reasons as well. We also have the Xfinity app on Roku. I have it on my Roku and that’s what I use to watch TV sometimes.

Michael Morris — Guggenheim Securities — Analyst

Would you also expect then to conversely have the Peacock app on Roku?

Anthony Wood — Founder, Chairman and Chief Executive Officer

We’re an essential partner for any streaming service who is trying to build a national audience in the United States. So I think it would be natural to saying that there’ll be some sort of deal done there. But we haven’t — I don’t think we’ve announced anything with — we haven’t announced anything yet.

Michael Morris — Guggenheim Securities — Analyst

Great, thank you.

Operator

Thank you. Our next question comes from Ziv Israel with Bank of America.

Ziv Israel — Bank of America Merrill Lynch — Analyst

Great, thanks for taking my question and congrats on the great results. So following the introduction of Disney Plus and Apple Plus, have you seen any users shifting away from watching free content even temporarily? And maybe more broadly, is it true to say — is it still true to say that AVOD is growing faster than SVOD despite new SVOD services coming to market?

Scott Rosenberg — Senior Vice President and General Manager of Platform Business

Ziv, I’ll take that question. So generally, these new services are additive. They create yet more reasons for consumers to cut or shape the cord and spend more time streaming and we’ve seen that for years now across lots of new service launches and would say that’s the case here as well. It’s stealing time from linear from traditional TV viewing rather than from streaming. And, yes, it is still true that AVOD is growing faster than other segments. 70% of Roku users watch AVOD on the platform and so the prospect of free — that value proposition is very powerful with consumers.

Ziv Israel — Bank of America Merrill Lynch — Analyst

Great, thanks…

Anthony Wood — Founder, Chairman and Chief Executive Officer

The streaming hours…

Ziv Israel — Bank of America Merrill Lynch — Analyst

Yeah, go ahead.

Anthony Wood — Founder, Chairman and Chief Executive Officer

Sorry, I was just saying the streaming hours were over 40 billion hours last year. So it was an incredible year and ARPU increased over $5. A lot of that was driven by advertising.

Ziv Israel — Bank of America Merrill Lynch — Analyst

Yeah, that’s great. And then for Steve. So you mentioned that video ads should continue to grow its percent of Platform revenue in 2020. So how do you balance that with the growing opportunity from — for content distribution revenues given new asset services recent launch and new ones that are already announced?

Steve Louden — Chief Financial Officer

Yeah. So, yeah we have a strong outlook. And certainly, we said the platform overall, the mix was continuing to move forward, that given it’s faster growing and so it was about two-thirds of overall revenue in ’19. And we think that will be about three quarter. I think it’s an opportunity. There is a big opportunity on both sides of the equation. Right? It’s certainly the move to streaming in terms of the account growth. We signed up almost or net increase of almost 10 million active accounts in 2019 and we’re still — have a ways to go in the U.S. and then certainly international. And I think both are important components of the value proposition of streaming. So I don’t think it’s a zero-sum game in terms of that AVOD or SVOD need to steal from one another. What we see on the platform is that the per user engagement continues to tick up over time. We’re a little over half of the — if you believe the estimate of about seven hours of household viewing per day, our account — our streaming hours per account is, I think roughly 3.6 hours per day and that’s been moving up over time. And so I think it’s a matter of the pace that both of them are moving up as opposed to one has to take from the other.

Ziv Israel — Bank of America Merrill Lynch — Analyst

Okay, great. Thank you.

Operator

Thank you. Our next question comes from Kyle Evans with Stephens.

Kyle Evans — Stephens — Analyst

Hi, thanks. I know it’s still early and you clearly are not going to break dataxu out, but you do sound very pleased with it. I wondered if there were other parts of the ad tech stack that you might look to add in the future and I’m specifically interested in commentary around data management platform or supply side platforms.

Scott Rosenberg — Senior Vice President and General Manager of Platform Business

Sure. I’m not going to comment generally — this is Scott, on forward-looking product capabilities. I will note, we have our own DMP. We built it a long time ago and it’s pretty powerful asset for us in terms of understanding our users applying machine learning to recommendations and ad targeting. We continue to innovate broadly in our ad strategy. For several years now, we’ve helped the advertisers understand the incremental reach they can achieve when they buy ads on Roku. For example with RBS, as an example, we were able to guarantee incremental reach. So that’s an example of taking the next step in delivering an even richer ad product to a partner.

We also are innovating a lot in the sponsorships area. The video ad business remains the backbone, the core of our ad sale. But the opportunity to cozy up against cool content is very attractive and brings deep involvement with the brand. So Jaguar and Discovery for example sponsored the red carpet pre-show with PeopleTV and we’ve done dozens of sponsorship executions in the quarter. So we continue to innovate not just new placements within the home screen, but also new interactive formats around video ads themselves as well.

Kyle Evans — Stephens — Analyst

Great. And I feel like I’m probably taking the sixth crack at international, but could you talk about any R&D kind of engineering hurdles that are still — you still need to clear so you can get kind of broad European launch? Thank you.

Anthony Wood — Founder, Chairman and Chief Executive Officer

This is Anthony. So just in terms of engineering, I mean, generally speaking, the software capabilities we’ve built over the last several years are generally applicable to international markets as well as U.S. markets, I mean there is some region by region specific engineering work we often have to do and, as necessary, we’re doing that. So in terms of Europe, specifically, I mean, I don’t — there’s only a — there’s a few things, there is GDPR. But in general, we take our privacy with our customers very seriously. We’re happy to implement the kinds of features that GDPR requires us to implement. It has a lot of overlap with the California Privacy Law, for example. So those are — again those kinds of features are generally globally applicable. So, yeah, I think that there’s a lot of leverage in the engineering that we’ve built in our product.

Kyle Evans — Stephens — Analyst

Okay, thank you.

Operator

Thank you. And our final question will come from Mark Zgutowicz with Rosenblatt.

Mark Zgutowicz — Rosenblatt Securities — Analyst

Excellent. Hi, guys. Just a couple questions on audience development and also sponsorship ad mix. I think I’ve been seeing a lot more Netflix, Disney Plus sort of email marketing. I’m wondering if that’s a trend line that will continue with other platforms. And then on the sponsorship ad mix side, can you give us some direction in terms of what that mix looks like relative to video and sort of the premium level of CPM there relative to core video as well? Thanks.

Scott Rosenberg — Senior Vice President and General Manager of Platform Business

Sure. This is Scott. Audience development remains a core and significant part of our ad vertical. It’s a key way that we partner with content providers on our platform to drive awareness of their channels and their content. And if you use the device, you’ll see us messaging to you every day in the home screen through ads and on the right rail of our home screen, for example, placements in the channel store. If you’re a new user, we’re talking to you about these services, buttons. So there’s all kinds of placements throughout the Roku lifecycle where we’re helping partners drive discovery of the platform, I mean of these new services.

With regards to sponsorship executions, we just have a whole myriad of ways in which we place brands next to core content. I mentioned the Oscars Red Carpet execution, we do executions like limited commercial interruption, movies where you will just get an ad, one ad in a break. We’ll do content unlocks.

We showed an example in the earnings letter with Energizer sponsoring a discounted movie on Fandango. And we’re constantly innovating new ways to put brands creatively in front of users, the brands love it, consumers love it, because they get great value out of it. It is a minority part of the ad business but it is also growing very quickly and it’s a central way that we get advertisers to invest in OTT advertising.

Mark Zgutowicz — Rosenblatt Securities — Analyst

Thanks, Scott. That’s helpful. Maybe just a quick follow-up on audience development. I’m just trying to get a sense of whether there is an acceleration there and perhaps as it relates to more marketing around — more competitive marketing, if you will, kind of speaking to that Netflix, Disney Plus scenario there. Are you seeing, as you get more larger platforms on board, that they may be using you given your scale at 35 million as a critical sort of competitive tool on specific shows etc? Thanks.

Scott Rosenberg — Senior Vice President and General Manager of Platform Business

Absolutely. Audience development is a central way in which we partner with content providers to help them succeed and the most sophisticated partners are the ones that are really taking advantage of that. This is not your linear tune-in form of old linear channel marketing. We’ve got data that helps us predict who’s likely to be the next CBS All Access, the next Disney Plus, the next Apple viewer and we deploy those capabilities in partnership with content providers to help them do better, faster, customer acquisition and retention. It’s an essential tool for content providers to build big streaming services.

Mark Zgutowicz — Rosenblatt Securities — Analyst

Got it. Thanks so much.

Operator

Thank you. I’m showing no further questions from the phone lines at this time. I will now turn the call back over to Mr. Anthony Wood for any further remarks.

Anthony Wood — Founder, Chairman and Chief Executive Officer

Thanks. In summary, I would say we had a strong fourth quarter and increased active accounts by 4.65 million, our largest increase to date. For the full year, we passed the $1 billion revenue milestones and streamed 40 billion hours for the first time. The company is executing well, attracting outstanding talent and becoming stronger in fundamental ways. Roku is well-positioned as the industry enters the streaming decade. Thank you again for your support and happy streaming.

Operator

[Operator Closing Remarks]

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