The Company adopted accounting guidance in Accounting Standards Codification, Revenue from Contracts with Customers (Topic 606) (“ASC 606”), effective January 1, 2018, using the modified retrospective method. Accordingly, the financial results for the year ended December 31, 2017 have not been restated.

Revenue is recognized upon transfer of control of promised goods or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those goods or services. The Company’s contracts include various product or services or a combination of both, which are generally capable of being distinct and are accounted for as separate performance obligations. The Company’s contracts often contain multiple distinct performance obligations.

The Company estimates the transaction price of a contract based on the expected value for which a significant reversal of revenue is not expected to occur. The estimate of the variable consideration is based on the assessment of historical, current, and forecasted performance noted and expected from the performance obligation.

In a multiple element arrangement, the estimated transaction price of each contract is allocated to each distinct performance obligation based on a relative stand-alone selling price (“SSP”). For performance obligations routinely sold separately, the SSP is determined by evaluating such stand-alone sales. For those performance obligations that are not routinely sold separately, the Company determines SSP based on market conditions and other observable inputs.

When the Company sells third-party goods and services, it evaluates whether the Company is the principal, and reports revenues on a gross basis, or an agent, and reports revenues on a net basis. In this assessment, the Company considers if it obtains control of the specified goods or services before they are transferred to the customer, as well as other indicators such as the party primarily responsible for fulfillment, inventory risk, and discretion in establishing price.

Revenue is recorded net of taxes collected from customers which are subsequently remitted to the relevant government authority. The Company does not have any capitalized costs associated with contract acquisition because most direct contract acquisition costs relate to contracts that are recognized over a period of one year or less. Sales commissions are included in “Sales and marketing” expenses in the consolidated statements of operations.

The Company generates platform revenue from the sale of digital advertising and related services, content distribution services, subscription and transaction revenue shares, Premium Subscriptions, billing services, sale of branded channel buttons on remote controls and licensing arrangements with service operators and TV brands.

The Company sells digital advertising directly to marketers or through advertising agencies. Revenue from advertising is mostly generated through video and display advertising delivered through advertising impressions. Advertising is typically sold on a cost-per-thousand (“CPM”) basis and is evidenced by an Insertion Order, (“IO”). Revenue is recognized as the number of impressions are delivered. IOs may include multiple performance obligations as they contain distinct advertising products or services. For such arrangements, the Company allocates revenue to each distinct performance obligation based on their relative SSP. The Company also generates revenue from customers using its platform. For that it charges a platform fee, which is a percentage of a customer’s advertising inventory spend during the month, along with data and any add-on features purchased through the platform. Advertising arrangements comprised of multiple performance obligations are recognized either at a point in time or over time depending on the nature of the distinct performance obligation.

The Company’s content distribution revenue sharing arrangements include cash or non-cash consideration. The revenue sharing arrangements generally apply to new subscriptions for accounts that sign up for new services and at the time of a movie rental or purchase. Revenue is recognized on a net basis as the Company is deemed to be the agent between content publishers and end users. Revenue is recognized on a time elapsed basis, by day, as the services are delivered over the contractual distribution term. Non-cash consideration is usually in the form of advertising inventory, the SSP of which is determined based on relevant internal and third-party data.

The Company sells monthly subscriptions for premium content on The Roku Channel for varying fees for different content. Revenue from such premium subscription fees is recognized on a gross basis over the service period as the Company is deemed to be the principal in the relationship with the end user. The Company obtains control of the content before transferring to the end user and has latitude in establishing pricing. The Company pays fixed fees to the providers of premium content on The Roku Channel based on the contractual arrangement and recognizes that as direct cost.

The Company sells branded channel buttons on remote controls of streaming devices that provide one-touch access to a publishers’ content. The Company typically receives a fixed fee per button for each unit sold over a defined distribution period. Revenue is recognized on a time elapsed basis, by day, over the distribution term.

The Company licenses the Roku OS, including updates and upgrades, to TV brands and service operators. The licensing revenue is recognized at a point in time, when the Company makes the intellectual property available and the control transfers to the customer. The revenue allocated to unspecified upgrades is recognized on a time elapsed basis, by day, over the service period. Professional services revenue is recognized as services are provided or accepted. Hosting fees are recognized on a time elapsed basis, by day, over the service period. Arrangements may also include marketing development funds paid to TV brands, which are reflected as a reduction to the estimated transaction price.

The Company sells the majority of its players and audio products through retail distribution channels in the U.S., including brick and mortar and online retailers, as well as through the Company’s website. Player revenue primarily consists of hardware, embedded software and unspecified upgrades on a when and if-available basis. The hardware and embedded software are considered as one performance obligation and revenue is recognized at a point in time when the control transfers to the customer. Unspecified upgrades or enhancements are available to customers on a when-and-if available basis. The Company records the allocated value of the unspecified upgrades as deferred revenue and recognizes it as player revenue ratably on a time elapsed basis over the estimated economic life of the associated players.

The Company’s player revenue includes allowances for returns and sales incentives in the estimated transaction price. These estimates are based on historical experience and anticipated performance. Shipping charges billed to customers are included in revenue and the related shipping costs are included in cost of revenue.

The Company’s disaggregated revenues are represented by the two reportable segments discussed in Note 17. The disaggregation is based on the evaluations that are regularly performed by the chief operating decision maker (“CODM”) for purposes of allocating resources and evaluating financial performance. The Company’s CODM is its Chief Executive Officer.

	As of December 31,
	2019		2018
Accounts receivable, net	$	332,673	$	183,078
Contract assets (included in Prepaid expenses and other current assets)		3,588		753

Deferred revenue, current portion		39,861		45,442
Deferred revenue, non-current portion		15,370		19,594
Total deferred revenue	$	55,231	$	65,036

Accounts receivable are recorded at the amount invoiced, net of an allowance for doubtful accounts, sales returns, and sales incentives. 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 generally current in nature and are included in “Prepaid expenses and other current assets.” Contract assets increased by approximately $2.8 million during the year ended December 31, 2019 primarily due to an increase in the growth of platform revenue combined with the timing of billing which falls into a subsequent period. Contract assets decreased by

approximately $3.4 million during the year ended December 31, 2018 as the Company received the right to bill customers subsequent to revenue recognition.

Contract liabilities are included in deferred revenue and reflect consideration invoiced prior to the completion of performance obligations and revenue recognition. Deferred revenue decreased by approximately $9.8 million during the year ended December 31, 2019 primarily due to revenue recognized of $5.0 million pursuant to customer acceptance of a milestone, and the remaining revenue recognized primarily relates to the timing of fulfillment of performance obligations. Deferred revenue increased by approximately $10.1 million during the year ended December 31, 2018 primarily due to the overall growth of the business.

Revenue recognized during the year ended December 31, 2019 from amounts included in deferred revenue as of December 31, 2018 was $52.5 million. Revenue recognized during the year ended December 31, 2018 from amounts included in deferred revenue as of January 1, 2018 was $38.5 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 was $161.1 million as of December 31, 2019 of which the Company expects to recognize approximately 54% over the next 12 months and the remainder thereafter.