And if we see M&E accelerate from its current levels, it will have a positive impact on margins and our EBITDA, both on, if we see it on the SVOD and the AVOD side, we’ll grow subscribers and engagement across the platform, and that will have a positive impact for us. On the margin side, we guided platform margin in Q1 to 52%, which was similar to Q1 of last year. We’re not providing guidance going forward, but I would anticipate that our gross margin to improve on the platform side slightly from the Q1 levels as our volume of revenue grows. We do have some fixed costs up in platform margins, and I would expect us to see some sequential improvement in gross margin going forward. And then lastly, on the OpEx side, we ended Q4 at just over $500 million in OpEx. If you adjust for our Q4 impairment and restructuring charge, we talked a little bit about this in last quarter.
It’s similar this quarter. If you annualize that out and apply, a mid-single-digit growth rate, that’s the way I’m thinking of OpEx for 2024. And as we’ve stated previously, we do expect to see further improvements in 2024 in adjusted EBITDA. We had a very strong free cash flow year in 2023. We expect to be positive on free cash flow in 2024. And lastly, to where you see the reinvestment, Anthony touched on this in the earlier question. We have multiple areas on the monetization side that we’ll reinvest in, specifically on our subscriptions business as we look to expand that and accelerate that. And we have a lot of other initiatives on ad product and the monetization side that we’ll continue to reinvest as we look forward to accelerating growth in the years to come.
Justin Patterson: Thank you.
Operator: Thank you. One moment for our next question, please. And it’s from Shweta Khajuria with Evercore ISI. Shweta, please proceed.
Shweta Khajuria: Okay, thanks a lot for taking my questions. Let me try two, please. One is on just the overall ad demand trends that you saw in Q4 and into Q1 so far. And specifically as it relates to certain key verticals that you could comment on, or just the scatter market health and the caution or the lack of among, or the improvement of sentiment among brand advertisers. That’s question one. And just a quick follow-up on how are you, how should we be thinking about political impact this year for you? Thank you.
Anthony Wood: Hi, Shweta, thanks. This is Anthony, but Charlie will take questions.
Charlie Collier: Thank you. Hey, good to hear from you, Shweta. Thanks for the questions. We continue to see actually a really solid rebound in video advertising in fourth quarter. I’m really pleased with the way video advertising has strengthened in general, offsetting what has been and remains a challenging M&E marketplace. Now, all that’s said about M&E, it remains a really important category for Roku and we are a unique and effective platform for driving engagement for our partners and building our partners’ businesses and driving engagement will always be core to Roku’s success. So when that grows, we’ll grow well. However, by all accounts, the M&E category went through a period of spending at unsustainably high levels and we’re working with our partners now even more to help them figure out their shift to a greater ad-supported focus and success.
Again, the engagement is something Roku is best suited to help them with. So that’s a good transition. Now, overall in the market, to your question about categories, we’re executing well and I do expect the year-on-year growth rate of video advertising in first quarter to be similar to what we saw in fourth quarter. There are ups and downs by verticals since you asked to name a few specific categories. CPG, health and wellness, and telecom are growing nicely. Categories like financial services and insurance are not recovering as quickly. So, Shweta, overall, I feel really good heading into the new fronts, the upfront, and 2025 will continue to build upon our market-leading scale and platform advantages and will continue to elevate Roku’s powerful ad products and tech offerings, all with a focus on diversifying demand and continuing to scale our ad-supported businesses.
I think your second question was about political. Political is growing for us. It’s our tools and our tech make Roku a strategic platform for political advertising, both for those, by the way, targeting scale and also those looking for specificity. I will point out that in 2024, we expect political to grow, but it’ll likely remain a relatively small contributor as a percentage of our whole really diverse ad business. We know political obviously is a big opportunity and a big market. And as this category, like others, shifts from linear to CTV will be well-positioned. We have some product updates that’ll help us tap into these budgets more and more in the future. We’re making those updates to our platform as well as other refinements that we’ll make moving forward.
So, overall, Shweta we expect political to grow over time. For now, it’ll grow, but it’ll remain a relatively modest part of the overall ad mix at Roku.
Shweta Khajuria: That’s very helpful. Thank you.
Anthony Wood: Thanks. This is Anthony. I’ll just add a comment on M&E. Although, we’ve talked a lot about M&E being pressured, I will say that one of the things, it’s still a big opportunity for us. We’re very good at it. It’s something that I expect to bounce back over time and be a growth area over time. This year, it’ll probably, it will continue to be pressured, be projected. But the other thing we’re doing is we’re taking a lot of inventory and creating new inventory that we used to sell exclusively for M&E and we’re using it now for brand advertisers. We’re hoping, we’re increasing the number of advertisers we will give access to that inventory. A good example of that, I think, is Roku’s City, which used to be entirely promotions for content.
But, we started selling buildings to McDonald’s and companies like that and that’s gone extremely well for us. Viewers love it. It’s tapped into new revenue sources. So, we’re going to continue to diversify the advertising in our home screen that we used to use exclusively just for M&E. We’re going to start using that for brand advertisers as well.
Shweta Khajuria: Okay. Thanks, Anthony. Appreciate it. Thanks, Charlie.
Operator: Thanks. One moment for our next question, please. It comes from the line of Laura Martin with Needham. Please proceed.
Laura Martin: Hi there. Great numbers, you guys. Congratulations. My first question is on the Roku-branded TVs. I know that we’ve been really worried about channel conflicts. So, you were in Best Buy exclusively. Now, you’re announcing you’re going into Costco and Amazon. Can you tell us what your 30 OEMs are saying about you expanding and what’s the ultimate strategy? Are you going to have these Roku-branded TVs in every channel outlet? Can you help us look forward on the future of this product?
Anthony Wood: Hey, Laura. It’s nice to hear from you. This is Anthony. I’ll let Mustafa talk about it. Mustafa will talk about Roku-branded TVs.
Mustafa Ozgen: Hi, Laura. Thanks for the question. Look, as we announced the product and we explained then, Roku-branded TVs are basically a complementary program to our existing Roku TV program. We use the Roku TVs as a way to innovate in a hardware-software combination. Historically, we focused on software only in the Roku TV context. Now, we are able to do more innovation using the hardware as well as the software and build much better products that can then be given to consumers. And also we are sharing that with our 30 plus licensing partners. And we are very open about that. And then some of the improvements and innovations that we have already developed as part of the initial launch of the program is already being fed into our Roku TV ecosystem.
Our partners are already benefiting from those improvements. Some of them are cost improvements, being able to further lower the cost of the hardware. Some of them are performance improvements. So both of these types of improvements have been shared with our partners and we’ll continue to do so. And in terms of distribution, definitely to make this program successful and then for us to operate as a program, we need to scale it a little bit more. And therefore we are expanding our distribution because customers love the product. We are receiving great reviews every day. And we want to be able to offer these products to the customers and get their feedback. And that will be again used as a way for us to further improve and add new capabilities then we’ll share with our Roku TV ecosystem partners.
Laura Martin: Super helpful. And then my second and last question is when we think about the user interface, I think one of the things I know you really love this whole city thing, but I think it’s really ironic that you have a CTV business and there’s no video on the homepage. And it feels like if you had some kind of carousel, you could not only put in cross promoting your stuff instead of a still image, but also you could sort of get more money from video postage stamps on page one. I know Anthony, you said you’re focusing on the homepage more. That’s one of your tactical focuses in 2024. Can you talk about other than just adding more brands to city, are we going to see anything more? I’m going to use the word engaging for consumers from the Roku homepage in 2024.
Anthony Wood: Hey Laura, this is Anthony. Absolutely. I mean, it’s a big area of focus for us. We mentioned our food zone, all things food. I mean, that’s something that’s been, it’s gotten a great reception for our viewers. It’s an example of building out an experience. This access from our home screen that integrates promotion, both static display promotion as well as it promotes video as well. And, it’s just a small example of the kinds of things that we’re going to be doing. So it’s not, Roku City is one example, but there’s lots of ways across the platform that we can drive. We can create experiences that will engage viewers, that will provide monetization opportunities, and that will drive more engagement across our platform.
So, in terms of putting video directly on the home screen, it’s not something that we’ve thought about and it’s something that we’re thinking about testing, but it’s not an area that we’ve made any decisions on. And I’ll just say, I guess the big picture is there’s a long list of ideas of how we can create viewer experiences that engage and entertain on our platform around the home screen. A lot of those do include video, but video is something on the home screen that you have to approach carefully. There’s always this concern that it might alienate some viewers, but some viewers love it. So, it’s just something that we will keep looking at and testing. But overall, there’s a long list of great things we can do to add to our home screen to drive engagement.
Laura Martin: Thank you.
Operator: Thank you. One moment for our next question. And it comes from the line of Vasily Karasyov with Cannonball Research. Please proceed.
Vasily Karasyov: Thank you. Good afternoon. Charlie, I have a question for you and wanted to ask you to talk about how you price your scatter inventory. Maybe help us triangulate your logic here in terms of how you do it relative to the upfront pricing relative to your competition. I mean, we understand how it’s done on linear TV. Is it the same? Because with the new entrance into the AVOD space, there is a lot of discussion what will happen to your pricing. There are industry press reports about where your CPMs are relative to your competitors. So can you tell us how you price your scatter inventory and what kind of thinking goes into that and what factors will make you raise your prices, drop your prices and so on. Just help us understand directionally how to think about that. Thank you.
Charlie Collier: Hey, Vasily thank you so much for the question. Actually, I was looking at something yesterday, and the first thing you look at, as you said, in linear television, also holds true in CTV, which is you want to see your upfront advertisers who come in early and make large commitments early. You want to see that pricing actually be less than what is occurring in scatter, and sure enough, that’s happening. Our scatter rates have been very solid and continue to be so, and I know there’s been a lot of talk today about my beloved Roku City and all things food and some of those integrations. What’s remarkable about these integrations, besides the fact that they’re so immersive and engaging in their broad reach, is that they’re also scarce.
