UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-38211

ROKU, INC.

(Exact name of registrant as specified in its charter)

Delaware	26-2087865
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1155 Coleman Avenue

San Jose, California 95110

(Address of principal executive offices including zip code)

Registrant’s telephone number, including area code: (408) 556-9040

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class:	Trading Symbol(s):	Name of Exchange on Which Registered:
Class A Common Stock, $0.0001 par value	ROKU	The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of March 31, 2023, the registrant had 123,360,229 shares of Class A common stock, $0.0001 par value per share, and 17,424,911 shares of Class B common stock, $0.0001 par value per share, outstanding.

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION	1
Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Comprehensive Income (Loss)	3
	Condensed Consolidated Statements of Stockholders’ Equity	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.	Controls and Procedures	30
PART II.	OTHER INFORMATION	31
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	67
Item 3.	Defaults Upon Senior Securities	67
Item 4.	Mine Safety Disclosures	67
Item 5.	Other Information	67
Item 6.	Exhibits	68
Signatures		69

i

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Quarterly Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”), about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts in this Quarterly Report, including statements regarding our future results of operations and financial condition, business strategy, and plans and objectives of management for future operations, are forward-looking statements. In some cases, forward-looking statements may be identified by words such as “anticipate,” “believe,” “continue,” “could,” “design,” “estimate,” “expect,” “intend,” “may,” “plan,” “potentially,” “predict,” “project,” “should,” “will,” “would,” “target,” or the negative of these terms or other similar expressions. We caution you that the foregoing may not encompass all of the forward-looking statements made in this Quarterly Report.

Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available. These forward-looking statements are subject to a number of known and unknown risks, uncertainties, and assumptions, including risks described in the section titled “Risk Factors” and elsewhere in this Quarterly Report, regarding, among other things:

•our financial performance, including our revenue, cost of revenue, operating expenses, and profitability;

•the impact of supply chain disruptions, inflationary pressures, recessionary fears, recent bank failures, the COVID-19 pandemic, and geopolitical conflicts on our business, operations, and the markets and communities in which we and our advertisers, content providers, licensed Roku TV partners, other device licensees, manufacturers, suppliers, retailers, and users operate;

•our ability to attract and retain users and increase streaming hours;

•our ability to attract and retain advertisers;

•our ability to attract and retain TV brands, manufacturing partners, and service operators to license and deploy our technology;

•our ability to produce or acquire rights to distribute popular content on our platform on favorable terms, or at all, including the renewals of our existing agreements with content publishers;

•changes in consumer viewing habits and the growth of TV streaming;

•the growth of our relevant markets, including the growth in advertising spend on TV streaming platforms, and our ability to successfully grow our business in those markets;

•our ability to adapt to changing market conditions and technological developments;

•our ability to develop and launch new products and provide ancillary services and support;

•our ability to integrate acquired businesses, products, and technologies;

•our ability to expand our products and services into adjacent markets such as the smart home market, scale our operations in these markets, and do so profitably over time;

•our ability to compete effectively with existing competitors and new market entrants;

•our ability to successfully manage domestic and international expansion;

•our ability to attract and retain qualified employees and key personnel;

•our ability to address potential and actual security breaches and system failures involving our products, systems and operations;

•our ability to maintain, protect, and enhance our intellectual property;

•our ability to obtain financing on favorable terms, including our ability to enter into new credit agreements; and

•our ability to comply with laws and regulations that currently apply or may become applicable to our business both in the United States and internationally, including compliance with privacy and data protection regulations in various U.S. and international jurisdictions.

Other sections of this Quarterly Report may include additional factors that could harm our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ from those contained in, or implied by, any forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report or to conform these statements to actual results or to changes in our expectations. You should read this Quarterly Report, and the documents referenced in and filed as exhibits to this Quarterly Report, with the understanding that our actual future results, levels of activity, performance, and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

ii

Investors and others should note that we may announce material business and financial information to our investors using our investor relations website (roku.com/investor), U.S. Securities and Exchange Commission (“SEC”) filings, webcasts, press releases, and conference calls. We use these mediums to communicate with investors and the general public about our company, our products and services, and other issues. It is possible that the information that we make available may be deemed to be material information. We therefore encourage investors, the media, and others interested in our company to review the information that we post on our investor relations website.

Roku, the Roku logo, and other trade names, trademarks, or service marks of Roku appearing in this report are the property of Roku. Trade names, trademarks, and service marks of other companies appearing in this report are the property of their respective holders.

iii

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

ROKU, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value data)

(unaudited)

	As of
	March 31, 2023		December 31, 2022
Assets
Current Assets:
Cash and cash equivalents	$	1,630,052	$	1,961,956
Restricted cash	40,713		—
Accounts receivable, net of allowances of $22,436 and $40,191 as of	703,422		760,793
March 31, 2023 and December 31, 2022, respectively
Inventories	109,238		106,747
Prepaid expenses and other current assets	111,928		135,383
Total current assets	2,595,353		2,964,879
Property and equipment, net	359,543		335,031
Operating lease right-of-use assets	504,693		521,695
Content assets, net	297,849		292,766
Intangible assets, net	54,475		58,881
Goodwill	161,519		161,519
Other non-current assets	81,972		77,830
Total Assets	$	4,055,404	$	4,412,601
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable	$	86,879	$	164,800
Accrued liabilities	646,360		750,810
Current portion of long-term debt	—		79,985
Deferred revenue, current portion	98,058		87,678
Total current liabilities	831,297		1,083,273
Deferred revenue, non-current portion	24,519		28,210
Operating lease liability, non-current portion	585,648		584,651
Other long-term liabilities	63,298		69,911
Total Liabilities	1,504,762		1,766,045
Commitments and contingencies (Note 12)
Stockholders’ Equity:
Common stock, $0.0001 par value	14		14
Additional paid-in capital	3,332,223		3,234,860
Accumulated other comprehensive income (loss)	35		(292)
Accumulated deficit	(781,630)		(588,026)
Total stockholders’ equity	2,550,642		2,646,556
Total Liabilities and Stockholders’ Equity	$	4,055,404	$	4,412,601

See accompanying notes to condensed consolidated financial statements.

1

ROKU, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

	Three Months Ended
	March 31, 2023		March 31, 2022
Net Revenue:
Platform	$	634,618	$	643,707
Devices	106,372		89,992
Total net revenue	740,990		733,699
Cost of Revenue:
Platform	300,587		265,788
Devices	102,806		103,104
Total cost of revenue	403,393		368,892
Gross Profit (Loss):
Platform	334,031		377,919
Devices	3,566		(13,112)
Total gross profit	337,597		364,807
Operating Expenses:
Research and development	220,085		163,998
Sales and marketing	233,919		146,522
General and administrative	96,053		77,777
Total operating expenses	550,057		388,297
Loss from Operations	(212,460)		(23,490)
Other Income (Expense), Net:
Interest expense	(681)		(1,057)
Other income (expense), net	23,101		409
Total other income (expense), net	22,420		(648)
Loss Before Income Taxes	(190,040)		(24,138)
Income tax expense	3,564		2,168
Net Loss	$	(193,604)	$	(26,306)
Net loss per share — basic and diluted	$	(1.38)	$	(0.19)
Weighted-average common shares outstanding — basic and diluted	140,333		135,539

See accompanying notes to condensed consolidated financial statements.

2

ROKU, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)

	Three Months Ended
	March 31, 2023		March 31, 2022
Net Loss	$	(193,604)	$	(26,306)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment	327		(82)
Comprehensive Loss	$	(193,277)	$	(26,388)

See accompanying notes to condensed consolidated financial statements.

3

ROKU, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

(unaudited)

	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Three Months Ended March 31, 2023
Balance—December 31, 2022	140,027	$	14	$	3,234,860	$	(292)	$	(588,026)	$	2,646,556
Issuance of common stock pursuant to equity incentive plans	758	—		891		—		—		891
Stock-based compensation expense	—	—		96,472		—		—		96,472
Foreign currency translation adjustment	—	—		—		327		—		327
Net loss	—	—		—		—		(193,604)		(193,604)
Balance—March 31, 2023	140,785	$	14	$	3,332,223	$	35	$	(781,630)	$	2,550,642
	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Three Months Ended March 31, 2022
Balance—December 31, 2021	135,137	$	14	$	2,856,572	$	41	$	(90,021)	$	2,766,606
Issuance of common stock pursuant to equity incentive plans	834	—		3,352		—		—		3,352
Stock-based compensation expense	—	—		69,595		—		—		69,595
Foreign currency translation adjustment	—	—		—		(82)		—		(82)
Net loss	—	—		—		—		(26,306)		(26,306)
Balance—March 31, 2022	135,971	$	14	$	2,929,519	$	(41)	$	(116,327)	$	2,813,165

See accompanying notes to condensed consolidated financial statements.

4

ROKU, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Three Months Ended
	March 31, 2023		March 31, 2022
Cash flows from operating activities:
Net Loss	$	(193,604)	$	(26,306)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation and amortization	15,636		11,486
Stock-based compensation expense	96,472		69,580
Amortization of right-of-use assets	15,301		11,143
Amortization of content assets	49,402		44,452
Foreign currency remeasurement (gains) losses	1,395		—
Change in fair value of Strategic Investment	(3,210)		—
Impairment of assets	4,338		—
Provision for doubtful accounts	1,890		1,013
Other items, net	(24)		(264)
Changes in operating assets and liabilities:
Accounts receivable	55,608		75,675
Inventories	(2,491)		(22,587)
Prepaid expenses and other current assets	4,964		(16,202)
Content assets and liabilities, net	(55,539)		(67,642)
Other non-current assets	4,008		1,634
Accounts payable	(60,055)		12,307
Accrued liabilities	(92,504)		11,182
Operating lease liabilities	(1,597)		(9,193)
Other long-term liabilities	(91)		(49)
Deferred revenue	6,689		5,569
Net cash provided by (used in) operating activities	(153,412)		101,798
Cash flows from investing activities:
Purchases of property and equipment	(54,243)		(14,764)
Purchase of Strategic Investment	(5,000)		—
Net cash used by investing activities	(59,243)		(14,764)
Cash flows from financing activities:
Repayments of borrowings	(80,000)		(1,250)
Proceeds from equity issued under incentive plans	891		3,352
Net cash provided by (used in) financing activities	(79,109)		2,102
Net increase (decrease) in cash, cash equivalents and restricted cash	(291,764)		89,136
Effect of exchange rate changes on cash, cash equivalents and restricted cash	573		(82)
Cash, cash equivalents and restricted cash —beginning of period	1,961,956		2,147,670
Cash, cash equivalents and restricted cash —end of period	$	1,670,765	$	2,236,724

5

	Three Months Ended
	March 31, 2023		March 31, 2022
Cash, cash equivalents and restricted cash at end of period:
Cash and cash equivalents	$	1,630,052	$	2,235,092
Restricted cash, current	40,713		—
Restricted cash, non-current	—		1,632
Cash, cash equivalents and restricted cash —end of period	$	1,670,765	$	2,236,724
Supplemental disclosures of cash flow information:
Cash paid for interest	$	867	$	656
Cash paid for income taxes	$	1,452	$	511
Supplemental disclosures of non-cash investing and financing activities:
Unpaid portion of property and equipment purchases	$	10,492	$	3,413

See accompanying notes to condensed consolidated financial statements.

6

ROKU, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. THE COMPANY

Organization and Description of Business

Roku, Inc. (the “Company” or “Roku”), was formed in October 2002 as Roku LLC under the laws of the State of Delaware. On February 1, 2008, Roku LLC was converted into Roku, Inc., a Delaware corporation. The Company operates in two reportable segments and generates platform revenue from the sale of digital advertising (including media and entertainment promotional spending, the demand-side platform, and related services) and content distribution services (including subscription and transaction revenue shares, the sale of Premium Subscriptions, and the sale of branded channel buttons on remote controls). The Company generates devices revenue from the sale of streaming players, Roku-branded TVs, smart home products, audio products, and related accessories as well as revenue from licensing arrangements with service operators and licensed Roku TV partners.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 16, 2023 (the “Annual Report”).

The condensed consolidated balance sheet as of December 31, 2022 has been derived from the audited consolidated financial statements as of that date but does not include all of the information and footnotes included in the Company’s Annual Report. The interim financial information is unaudited, but reflects all normal recurring adjustments that are, in the opinion of management, necessary to fairly present the information set forth herein. The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the operating results to be expected for the full year or any future periods.

Certain prior period amounts reported in our condensed consolidated financial statements and accompanying notes have been reclassified to conform to the current period presentation.

Use of Estimates

The preparation of the Company’s condensed consolidated financial statements in accordance with U.S. GAAP requires management to make certain estimates, judgments, and assumptions that affect the reported amounts of assets, liabilities, net revenue, and expenses. Significant items subject to such estimates and assumptions include:

•revenue recognition: determining the nature and timing of satisfaction of performance obligations, variable consideration, determining the stand-alone selling prices of performance obligations, gross versus net revenue recognition, and evaluation of customer versus vendor relationships;

•the impairment of intangible assets;

•amortization of content assets;

•valuation of assets acquired and liabilities assumed in connection with business combinations;

•valuation of Strategic Investments;

•useful lives of tangible and intangible assets;

•allowances for sales returns and sales incentives; and

•the valuation of deferred income tax assets.

The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances. Actual results may differ from the Company’s estimates and assumptions.

7

Principles of Consolidation

The condensed consolidated financial statements, which include the accounts of Roku, Inc. and its wholly-owned subsidiaries, have been prepared in conformity with U.S. GAAP. All intercompany accounts and transactions have been eliminated in consolidation.

Cash and Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments purchased with an original or remaining maturity of three months or less at the date of purchase to be cash equivalents. The Company’s restricted cash balance is used to secure the outstanding letters of credit after the Credit Facility (defined in Note 10) matured and was repaid in February 2023.

The Company maintains its cash, cash equivalent and restricted cash balances with financial institutions which often exceed regulated insured limits. The table below reflects the percentage of cash, cash equivalent and restricted cash balances at financial institutions that individually held greater than 10% of the Company’s total cash, cash equivalent and restricted cash balance at each period reported.

	As of
Institutions	March 31, 2023	December 31, 2022
Institution A (1)	19%	26%
Institution B (1)	18%	—%
Institution C (1)	11%	*
Institution D	*	21%

(1) Institutions designated as global systemically important banks (G-SIBs) by the Financial Stability Board, in consultation with the Basel Committee on Banking Supervision (BCBS) and national authorities.

* Less than 10%

Accounts Receivable, net

Accounts receivable are typically unsecured and are derived from revenue earned from customers. They are stated at invoice value less estimated allowances for sales returns, sales incentives, doubtful accounts, and other miscellaneous allowances. The Company performs ongoing credit evaluations of its customers to determine allowances for potential credit losses and doubtful accounts. The Company considers historical experience, ongoing promotional activities, historical claim rates, and other factors to determine the allowances for sales returns and sales incentives.

Allowance for Sales Returns: Allowance for sales returns consists of the following activities (in thousands):

	Three Months Ended
	March 31, 2023		March 31, 2022
Beginning balance	$	7,417	$	6,015
Add: Charged to revenue	2,889		3,521
Less: Utilization of sales return reserve	(4,461)		(5,437)
Ending balance	$	5,845	$	4,099

Allowance for Sales Incentives: Allowance for sales incentives consists of the following activities (in thousands):

	Three Months Ended
	March 31, 2023		March 31, 2022
Beginning balance	$	28,903	$	48,411
Add: Charged to revenue	10,556		17,611
Less: Utilization of sales incentive reserve	(27,787)		(38,134)
Ending balance	$	11,672	$	27,888

8

Allowance for Doubtful Accounts: Allowance for doubtful accounts consists of the following activities (in thousands):

	Three Months Ended
	March 31, 2023		March 31, 2022
Beginning balance	$	3,498	$	2,158
Provision for doubtful accounts	1,890		1,013
Adjustments for write-off	(882)		—
Ending balance	$	4,506	$	3,171

The Company did not have any customer that accounted for more than 10% of its accounts receivable, net balance as of March 31, 2023 and December 31, 2022.

3. REVENUE

The Company’s disaggregated revenue is represented by the two reportable segments discussed in Note 15.

The contract balances include the following (in thousands):

	As of
	March 31, 2023		December 31, 2022
Accounts receivable, net	$	703,422	$	760,793
Contract assets (included in Prepaid expenses and other current assets)	39,206		42,617
Deferred revenue, current portion	$	98,058	$	87,678
Deferred revenue, non-current portion	24,519		28,210
Total deferred revenue	$	122,577	$	115,888

Accounts receivable are recorded at the amount invoiced, net of allowances for sales returns, sales incentives, and doubtful accounts. Payment terms can vary by customer and contract.

The timing of revenue recognition may differ from the timing of invoicing to customers. Contract assets are created when invoicing occurs subsequent to revenue recognition. Contract assets are transferred to accounts receivable when the right to invoice becomes unconditional. The Company’s contract assets are current in nature and are included in Prepaid expenses and other current assets. Contract assets decreased by $3.4 million during the three months ended March 31, 2023 due to the timing of billing to customers as well as an overall decrease in the transaction prices in content arrangements.

Deferred revenue reflects consideration invoiced prior to the satisfaction of performance obligations and revenue recognition. Deferred revenue increased $6.7 million during the three months ended March 31, 2023 primarily due to the timing of certain fulfillment of performance obligations related to contracts with licensing arrangements with service operators as well as subscription arrangements.

Revenue recognized during the three months ended March 31, 2023, from amounts included in total deferred revenue as of December 31, 2022, was $55.5 million. Revenue recognized during the three months ended March 31, 2022, from amounts included in total deferred revenue as of December 31, 2021, was $22.4 million.

Revenue allocated to remaining performance obligations represents estimated contracted revenue that has not yet been recognized which includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods. Estimated contracted revenue for these remaining performance obligations was $871.4 million as of March 31, 2023 of which the Company expects to recognize approximately 64% over the next 12 months and the remainder thereafter.

The Company recognized revenue of $19.5 million and $11.2 million during the three months ended March 31, 2023, and March 31, 2022, respectively, from performance obligations that were satisfied in previous periods due to changes in the estimated transaction price of its revenue contracts.

9

Customer I accounted for 12% of the Company’s total net revenue during the three months ended March 31, 2023. The Company did not have any customer that accounted for more than 10% of its total net revenue during the three months ended March 31, 2022.

4. GOODWILL AND INTANGIBLE ASSETS

Goodwill

Goodwill represents the excess of purchase consideration in a business combination over the fair value of tangible and intangible assets acquired net of the liabilities assumed. All goodwill relates to the Company’s platform segment.

Intangible Assets

The following table is the summary of the Company’s intangible assets (in thousands, except years):

	As of March 31, 2023
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted-Average Useful Lives (in years)
Developed technology	$	73,367	$	(40,230)	$	33,137	5.9
Customer relationships	14,100		(11,802)		2,298		4.0
Tradename	20,400		(4,466)		15,934		9.8
Patents	4,076		(970)		3,106		14.0
Total intangible assets	$	111,943	$	(57,468)	$	54,475	6.7

	As of December 31, 2022
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted-Average Useful Lives (in years)
Developed technology	$	73,367	$	(37,278)	$	36,089	5.9
Customer relationships	14,100		(10,920)		3,180		4.0
Tradename	20,400		(3,966)		16,434		9.8
Patents	4,076		(898)		3,178		14.0
Total intangible assets	$	111,943	$	(53,062)	$	58,881	6.7

The Company recorded $4.4 million and $4.5 million for amortization of intangible assets during the three months ended March 31, 2023 and 2022, respectively. During the three months ended March 31, 2023 and 2022, the Company recorded amortization of developed technology in Cost of revenue, platform and Research and development expenses. The Company recorded amortization of customer relationships and tradename in Sales and marketing expenses, and recorded amortization of patents in General and administrative expenses in the condensed consolidated statements of operations.

As of March 31, 2023, the estimated future amortization expense for intangible assets for the next five years and thereafter is as follows (in thousands):

Year Ending December 31,
2023 (remaining 9 months)	$	12,660
2024	14,275
2025	12,571
2026	4,074
2027	2,737
Thereafter	8,158
Total	$	54,475

10

5. BALANCE SHEET COMPONENTS

Accounts Receivable, net: Accounts receivable, net consisted of the following (in thousands):

	As of
	March 31, 2023		December 31, 2022
Accounts receivable, gross	$	725,858	$	800,984
Less: Allowances
Allowance for sales returns	5,845		7,417
Allowance for sales incentives	11,672		28,903
Allowance for doubtful accounts	4,506		3,498
Other allowances	413		373
Total allowances	22,436		40,191
Accounts receivable, net	$	703,422	$	760,793

Property and Equipment, net: Property and equipment, net consisted of the following (in thousands):

	As of
	March 31, 2023		December 31, 2022
Computers and equipment	$	50,935	$	45,989
Leasehold improvements	368,483		353,245
Internal-use software	7,274		7,274
Office equipment and furniture	44,162		28,614
Property and equipment, gross	470,854		435,122
Less: Accumulated depreciation and amortization	(111,311)		(100,091)
Property and equipment, net	$	359,543	$	335,031

Depreciation and amortization expense, for property and equipment assets, for the three months ended March 31, 2023 and 2022 was $11.2 million and $7.0 million, respectively.

Accrued Liabilities: Accrued liabilities consisted of the following (in thousands):

	As of
	March 31, 2023		December 31, 2022
Payments due to content publishers	$	227,381	$	201,054
Accrued cost of revenue	92,314		105,347
Marketing, retail, and merchandising costs	50,474		163,367
Operating lease liability, current	55,907		54,689
Content liability, current	75,413		88,717
Accrued payroll and related expenses	68,074		46,529
Other accrued expenses	76,797		91,107
Total accrued liabilities	$	646,360	$	750,810

11

Deferred Revenue: Deferred revenue consisted of the following (in thousands):

	As of
	March 31, 2023		December 31, 2022
Platform, current	$	63,377	$	59,276
Devices, current	34,681		28,402
Total deferred revenue, current	98,058		87,678
Platform, non-current	930		969
Devices, non-current	23,589		27,241
Total deferred revenue, non-current	24,519		28,210
Total deferred revenue	$	122,577	$	115,888

Other Long-term Liabilities: Other Long-term liabilities consisted of the following (in thousands):

	As of
	March 31, 2023		December 31, 2022
Content liability, non-current	$	33,750	$	39,587
Other long-term liabilities	29,548		30,324
Total other long-term liabilities	$	63,298	$	69,911

6. CONTENT ASSETS

Content assets, net consisted of the following (in thousands):

	As of
	March 31, 2023		December 31, 2022
Licensed content, net and advances	$	213,946	$	243,226
Produced content:
Released, less amortization	47,535		42,605
Completed, not released	1,696		3,537
In production	56,091		42,904
Total produced content, net	105,322		89,046
Total content assets, net and advances	$	319,268	$	332,272
Current portion (included in Prepaid expenses and other current assets)	$	21,419	$	39,506
Non-current portion	$	297,849	$	292,766

Amortization of content assets is included in Cost of revenue, platform in the condensed consolidated statements of operations and is reflected in the table below (in thousands):

	Three Months Ended
	March 31, 2023		March 31, 2022
Licensed content	$	42,588	$	41,625
Produced content	6,814		2,827
Total amortization costs	$	49,402	$	44,452

12

7. STRATEGIC INVESTMENT

In June 2022, the Company agreed to provide financing of up to $60.0 million in the aggregate to a counterparty with whom the Company has a commercial relationship. The Company advanced $40.0 million in June 2022, in the form of convertible promissory notes (the “Strategic Investment”) and recognized it as Other non-current assets on the condensed consolidated balance sheets. The Company advanced another $5.0 million in March 2023, in the form of convertible promissory notes. The Strategic Investment accrues interest at 5% per annum. The convertible promissory notes of $40.0 million have a maturity date of June 15, 2025, and $5.0 million have a maturity date of March 23, 2026, or are due upon a redemption event or in the event of a default.

The Strategic Investment contains certain redemption features that meet the definition of embedded derivatives and require bifurcation. The Company elected to apply the fair value option and account for the hybrid instrument containing the host contract and the embedded derivatives at fair value as a single instrument, with any subsequent changes in fair value included in Other income (expense), net in the condensed consolidated statements of operations. See Note 8 for additional details on the fair value of the Strategic Investment.

8. FAIR VALUE DISCLOSURE

The Company’s financial assets measured at fair value on a recurring basis are as follows (in thousands):

	As of March 31, 2023						As of December 31, 2022
	Fair Value		Level 1		Level 3		Fair Value		Level 1		Level 3
Assets:
Cash and cash equivalents:
Cash	$	762,021	$	762,021	$	—	$	1,353,547	$	1,353,547	$	—
Money market funds	868,031		868,031		—		608,409		608,409		—
Restricted cash, current	40,713		40,713		—		—		—		—
Other non-current assets:
Strategic Investment	47,678		—		47,678		39,468		—		39,468
Total assets measured and recorded at fair value	$	1,718,443	$	1,670,765	$	47,678	$	2,001,424	$	1,961,956	$	39,468

The following table reflects the changes in the fair value of the Company’s Level 3 financial assets (in thousands):

	Three Months Ended
	March 31, 2023
Beginning balance	$	39,468
Purchase of Strategic Investment	5,000
Change in estimated fair value of Strategic Investment	3,210
Ending balance	$	47,678

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal market (or most advantageous market, in the absence of a principal market) for the asset or liability in an orderly transaction between market participants at the measurement date. Further, the Company maximizes the use of observable inputs and minimizes the use of unobservable inputs in measuring fair value, and utilizes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. The three levels of inputs used to measure fair value are as follows:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Financial assets and liabilities measured using Level 1 inputs include cash, cash equivalents, restricted cash, accounts receivable, prepaid expenses, accounts payable and accrued liabilities.

The Company considers all highly liquid investments purchased with an original or remaining maturity of three months or less at the date of purchase to be cash equivalents. The Company measured money market funds of $868.0 million and $608.4 million as cash equivalents as of March 31, 2023 and December 31, 2022, respectively, using Level 1 inputs.

13

Level 2—Observable inputs other than quoted prices included within Level 1, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and inputs other than quoted prices that are observable or are derived principally from, or corroborated by, observable market data by correlation or other means.

The Company did not have Level 2 instruments as of March 31, 2023 and December 31, 2022.

Level 3—Unobservable inputs that are supported by little or no market activity, are significant to the fair value of the assets or liabilities and reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

As of March 31, 2023, the Company measured the Strategic Investment using Level 3 inputs. The fair value of the Strategic Investment on the date of purchase was determined to be equal to its principal amount. The Company recorded an unrealized gain of $3.2 million in Other income (expense), net related to the adjustment to fair value of the Strategic Investment for the three months ended March 31, 2023.

The Company classified the Strategic Investment as Level 3 due to the lack of relevant observable market data over fair value inputs. The fair value of the Strategic Investment was estimated using a scenario-based probability weighted discounted cash flow model. Significant assumptions include the discount rate, and the timing and probability weighting of the various redemption scenarios that impact the settlement of the Strategic Investment.

Assets and liabilities that are measured at fair value on a non-recurring basis

Non-financial assets such as goodwill, intangible assets, property and equipment, operating lease right-of-use assets, and content assets are evaluated for impairment and adjusted to fair value using Level 3 inputs, only when impairment is recognized. The Company recognized an impairment of $4.3 million primarily related to operating lease right-of-use assets as part of its restructuring charges during the three months ended March 31, 2023.

9. LEASES

The Company's operating leases are primarily for office facilities. The leases have remaining terms ranging from one to eleven years and may include options to extend or terminate the lease. The depreciable life of right-of-use assets is limited by the expected lease term.

The components of lease expense are as follows (in thousands):

	Three Months Ended
	March 31, 2023		March 31, 2022
Operating lease cost	$	21,475	$	15,357
Variable lease cost	6,292		4,225
Total operating lease cost	$	27,767	$	19,582

Supplemental cash flow information related to leases is as follows (in thousands):

	Three Months Ended
	March 31, 2023		March 31, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows from operating leases	$	16,993	$	13,658
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	2,057	$	66,690

14

Supplemental balance sheet information related to leases is as follows (in thousands, except lease term and discount rate):

	As of
	March 31, 2023			December 31, 2022
Operating lease right-of-use assets	$	504,693		$	521,695
Operating lease liability, current (included in Accrued liabilities)	$	55,907		$	54,689
Operating lease liability, non-current	585,648			584,651
Total operating lease liability	$	641,555		$	639,340
Weighted-average remaining term for operating leases (in years)	8.41			8.62
Weighted-average discount rate for operating leases	3.80		%	3.80		%

Future lease payments under operating leases as of March 31, 2023 are as follows (in thousands):

Year Ending December 31,	Operating Leases
2023 (remaining 9 months)	$	55,913
2024	86,653
2025	95,504
2026	95,944
2027	93,593
Thereafter	343,266
Total future lease payments	770,873
Less: imputed interest	(114,024)
Less: expected tenant improvement allowance	(15,294)
Total	$	641,555

As of March 31, 2023, the Company’s commitment relating to operating leases that have not yet commenced was $30.3 million. These operating leases will commence in fiscal year 2023 with lease terms of approximately 10 years.

10. DEBT

The Company does not have any outstanding debt as of March 31, 2023. In February 2023, the Company repaid the debt balance in full and satisfied all outstanding debt obligations under the Credit Facility (as defined below) when it matured.

The Company’s outstanding debt as of December 31, 2022 was as follows (in thousands, except interest rate):

	As of
	December 31, 2022
	Amount		Effective Interest Rate
Term Loan A Facility	$	80,000	4.4%
Less: Debt issuance costs	(15)
Net carrying amount of debt	$	79,985

The carrying amount of debt as of December 31, 2022 approximated its fair value due to variable interest rates. The interest expense for the three months ended March 31, 2023 and 2022 was $0.6 million and $0.8 million, respectively.

Senior Secured Term Loan A and Revolving Credit Facilities

On February 19, 2019, the Company entered into a Credit Agreement with Morgan Stanley Senior Funding, Inc. (as amended on May 3, 2019, the “Credit Agreement”), which provided for (i) a four-year revolving credit facility in the aggregate principal amount of up to $100.0 million (the “Revolving Credit Facility”), (ii) a four-year delayed draw term

15

loan A facility in the aggregate principal amount of up to $100.0 million (the “Term Loan A Facility”) and (iii) an uncommitted incremental facility subject to certain conditions (together with the Revolving Credit Facility and the Term Loan A Facility, collectively, the “Credit Facility”). See Note 11 to the consolidated financial statements in our Annual Report for additional details regarding the Credit Facility.

On November 18, 2019, the Company borrowed an aggregate principal amount of $100.0 million from the Term Loan A Facility. The Company elected an interest rate equal to the adjusted one-month LIBOR rate plus an applicable margin of 1.75% based on the Company’s secured leverage ratio.

The Credit Facility matured on February 19, 2023 and the outstanding Term Loan A Facility was repaid in full.

As of December 31, 2022, the Company had outstanding letters of credit against the Revolving Credit Facility of $37.7 million. Upon maturity of the Credit Facility on February 19, 2023, the outstanding letters of credit were secured by the Company’s existing cash balance, a portion of which is restricted for that purpose. As of March 31, 2023, the Company had outstanding letters of credit of $37.4 million, which are secured by restricted cash of $40.7 million.

11. STOCKHOLDERS’ EQUITY

Preferred Stock

The Company has 10 million shares of undesignated preferred stock authorized but not issued with rights and preferences determined by the Company’s Board of Directors at the time of issuance of such shares. As of March 31, 2023 and December 31, 2022, there were no shares of preferred stock issued and outstanding.

Common Stock

The Company has two classes of authorized common stock, Class A common stock and Class B common stock. Holders of Class A common stock are entitled to one vote for each share of Class A common stock held on all matters submitted to a vote of stockholders and holders of Class B common stock are entitled to ten votes for each share of Class B common stock held on all matters submitted to a vote of stockholders. Except with respect to voting, the rights of the holders of Class A and Class B common stock are identical. Shares of Class B common stock are voluntarily convertible into shares of Class A common stock at the option of the holder and are generally automatically converted into shares of the Company's Class A common stock upon sale or transfer. Shares issued in connection with exercises of stock options, vesting of restricted stock units, or shares purchased under the employee stock purchase plan are generally automatically converted into shares of the Company’s Class A common stock.

Common Stock Reserved for Future Issuance

As of March 31, 2023, the Company’s common stock reserved for issuance in the future is as follows (in thousands):

	As of March 31, 2023
Common stock awards granted under equity incentive plans	13,671
Common stock awards available for issuance under the 2017 Employee Stock Purchase Plan (1)	5,089
Common stock awards available for issuance under the 2017 Equity Incentive Plan	30,910
Total reserved shares of common stock	49,670

(1) The Company has not issued any common stock pursuant to the 2017 Employee Stock Purchase Plan.

Equity Incentive Plans

The Company has two equity incentive plans, the 2008 Equity Incentive Plan (the “2008 Plan”) and the 2017 Equity Incentive Plan (the “2017 Plan”). The 2017 Plan became effective in September 2017 in connection with the Company’s initial public offering (“IPO”). No additional equity grants have been made pursuant to the 2008 Plan subsequent to the IPO. The 2017 Plan provides for the grant of incentive stock options to the Company’s employees and for the grant of non-statutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance stock awards, performance cash awards, and other forms of equity compensation to the Company’s employees, directors and consultants.

Restricted stock units granted under the 2017 Plan are subject to continuous service. Stock options granted under the 2017 Plan generally are granted at a price per share equivalent to the fair market value on the date of grant. Recipients of option grants who possess more than 10% of the combined voting power of the Company are subject to certain limitations, and incentive stock options granted to such recipients are at a price per share no less than 110% of the fair market value on the date of grant.

16

Restricted Stock Units

Restricted stock unit activity for the three months ended March 31, 2023 is as follows (in thousands, except per share data):

	Number of Shares	Weighted-Average Grant Date Fair Value per Share
Balance as of December 31, 2022	8,577	$	120.82
Awarded	264	61.66
Released	(614)	120.21
Forfeited	(247)	132.63
Balance as of March 31, 2023	7,980	$	118.54

As of March 31, 2023, the Company had $798.5 million of unrecognized stock-based compensation expense related to unvested restricted stock units that is expected to be recognized over a weighted-average period of approximately 2.7 years.

Stock Options

The following table summarizes the Company’s stock option activities under the 2008 Plan and 2017 Plan for the three months ended March 31, 2023 (in thousands, except years and per share data):

	Number of Shares	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value
Balance as of December 31, 2022	5,807	$	72.79	7.1
Granted	50	52.96		—
Exercised	(144)	6.18		—
Forfeited and expired	(22)	74.15		—
Balance as of March 31, 2023	5,691	$	74.30	7.0	$	107,320
Options exercisable as of March 31, 2023	3,022	$	45.32	5.3	$	92,654

As of March 31, 2023, the Company had $95.1 million of unrecognized stock-based compensation expense related to unvested stock options that is expected to be recognized over a weighted-average period of approximately 2.5 years.

Stock-Based Compensation

The Company measures the cost of employee services received in exchange for an equity award based on the grant date fair value of the award. Stock options granted to employees generally vest over one to four years and have a term of ten years. Restricted stock units generally vest over one to four years. No stock-based compensation was capitalized for the three months ended March 31, 2023. For the three months ended March 31, 2022, the amount of stock-based compensation capitalized as part of internal-use software was not material.

17

The following table shows the total stock-based compensation expense for the three months ended March 31, 2023 and 2022 (in thousands):

	Three Months Ended
	March 31, 2023		March 31, 2022
Cost of revenue, platform	$	339	$	236
Cost of revenue, devices	804		569
Research and development	38,663		28,390
Sales and marketing	34,139		23,911
General and administrative	22,527		16,474
Total stock-based compensation	$	96,472	$	69,580

12. COMMITMENTS AND CONTINGENCIES

Manufacturing Purchase Commitments

The Company has various manufacturing contracts with vendors in the conduct of the normal course of its business. In order to manage future demand for its products, the Company enters into agreements with manufacturers and suppliers to procure inventory based upon certain criteria and timing. Some of these commitments are non-cancelable. As of March 31, 2023, the Company had $122.4 million of non-cancelable purchase commitments for inventory.

Content Commitments

The Company enters into contracts with content publishers to license and produce content for streaming. When a title becomes available, the Company records a content asset and liability on the condensed consolidated balance sheets. Certain licensing agreements, such as film output deals, include the obligation to license rights for unknown future titles for which the ultimate quantity and/or fees are not determinable as of the reporting date. The Company does not include any estimated obligation for these future titles beyond the known minimum amount. The unknown obligations could be material. The Company also licenses content under arrangements where the payments are variable and based on the revenue earned by the Company. Since those amounts cannot be determined, they are not included in the obligations below.

As of March 31, 2023, the Company's total obligation for content was $350.4 million, of which the Company recorded $79.8 million in Current liabilities and $33.8 million in Other long-term liabilities in the condensed consolidated balance sheets. The remaining $236.8 million is not yet recognized on the condensed consolidated balance sheets as the content does not meet the criteria for asset recognition.

The expected timing of payments for these content obligations are as follows (in thousands):

Year Ending December 31,
2023 (remaining 9 months)	$	166,677
2024	115,779
2025	54,552
2026	8,589
2027	1,867
Thereafter