Roku (ROKU) Risk Analysis

Building and maintaining a strong brand is important to attract and retain users, as potential users have a number of TV streaming choices. Successfully building a brand is a time-consuming and comprehensive endeavor, and our brand may be negatively impacted by factors, some which are beyond our control, such as the quality and reliability of the Roku TV models made by our licensed Roku TV partners and the quality of the content provided by our content partners. Our competitors may be able to achieve and maintain brand awareness and consumer demand for their products more quickly and effectively than we can. Many of our competitors are larger companies and may have greater resources to devote to the promotion of their brands through traditional advertising, digital advertising, or website product placement. See also "-If we fail to differentiate our streaming platform and compete successfully with our competitors, it will be difficult for us to attract and retain users and our business will be adversely impacted." If we are unable to execute on building a strong brand, it may be difficult to differentiate our business and streaming platform from our competitors in the marketplace, which may adversely affect our ability to attract and retain users and harm our business. Our streaming platform allows our users to choose from a wide variety of apps, representing a variety of content from a wide range of content partners. While we have policies that prohibit the publication of content that is unlawful, incites illegal activities, or violates third-party rights, among other things, we may distribute apps that include controversial content. Controversies related to the content included on certain apps that we distribute have resulted in, and could in the future result in, negative publicity, cause harm to our reputation and brand, or subject us to claims and may harm our business.

We must continually innovate and improve our products and services and develop new products and services to meet changing consumer demands. The introduction of a new product or service is a complex process, involving significant expenditures in research and development, promotion, and sales channel development, and can expose our business to new risks. The introduction of new products and services or changes to our existing products and services may result in new or enhanced governmental or regulatory scrutiny, new litigation or claims, or other complications that could adversely affect our business, reputation, or financial results. In addition, our entrance into entirely new lines of business beyond our historical core business of TV streaming and advertising, such as our Roku-branded smart home products, may change our risk profile and subject us to risks that differ from the risks we face as a result of our historical TV streaming business. Whether users will broadly adopt our new products or services is not certain. Our future success will depend on our ability to develop new and competitively priced products and services and add new desirable content and features to our streaming platform. Moreover, we must introduce new products and services in a timely and cost-effective manner, and we must secure production orders for new products from our contract manufacturers. See also "-If popular or new content publishers do not publish content on our streaming platform, we may fail to retain existing users and attract new users." The successful development and introduction of new products and services depends on a number of factors, including: - the accuracy of our forecasts for market requirements beyond near-term visibility;- our ability to anticipate and react to new technologies and evolving consumer trends;- our development, licensing, or acquisition of new technologies;- our timely completion of new designs and development;- our ability to timely and adequately redesign or resolve design or manufacturing or security issues;- our ability to identify and contract with appropriate manufacturers;- the ability of our contract manufacturers to cost-effectively manufacture our products, produce quality products, and minimize defects, manufacturing mishaps, shipping costs, and delays;- the availability of materials and key components used in manufacturing;- tariffs, trade, sanctions, and export restrictions by the U.S. or foreign governments;- our ability to comply with regulatory requirements; and - our ability to attract and retain high quality research and development personnel. If any of these or other factors materializes, we may not be able to develop and introduce new products or services in a timely or cost-effective manner, and our business may be harmed. We do not expect that all of our new products and services will be successful.

We depend on information technology systems and infrastructure to operate our business. In the ordinary course of our business, we collect, store, process, and transmit large amounts of sensitive corporate, personal, and other information, including intellectual property, proprietary business information, user payment card information, user video and audio recordings, other user information, employee information, and other confidential information. It is critical that we do so in a secure manner to maintain the confidentiality, integrity, and availability of such information. Our obligations under applicable laws, regulations, contracts, industry standards, self-certifications, and other documentation may include maintaining the confidentiality, integrity, and availability of personal information in our possession or control, maintaining reasonable and appropriate security safeguards as part of an information security program, and complying with requirements regarding the use or cross-border transfer of such personal information. These obligations create potential legal liability to regulators, our business partners, our users, and other stakeholders and impact the attractiveness of our services to existing and potential users. Data protection laws around the world often require "reasonable," "appropriate," or "adequate" technical and organizational security measures, and the interpretation and application of those laws are often uncertain and evolving, and there can be no assurance that our security measures will be deemed adequate, appropriate, or reasonable by a regulator or court. Moreover, even security measures that are deemed appropriate, reasonable, or in accordance with applicable legal requirements may not be able to protect the information we maintain. In addition, each U.S. state and most U.S. territories, each EU member state, and the United Kingdom, as well as many other foreign nations, have passed laws requiring notification to regulatory authorities, affected users, or others within a specific timeframe when there has been a security breach involving, or other unauthorized access to or acquisition or disclosure of, certain personal information and impose additional obligations on companies. In addition to potential fines, we could be subject to mandatory corrective action due to a data security incident, and any failure to maintain performance, reliability, security, and availability of our network infrastructure to the satisfaction of our users, business partners, regulators, or other relevant stakeholders may harm our reputation and our ability to retain existing users and attract new users, as well as adversely affect our business operations and result in substantial costs. These obligations create potential legal liability to regulators, our business partners, our users, and other stakeholders and impact the attractiveness of our services to existing and potential users. We have outsourced or may outsource certain elements of our operations (including elements of our information technology infrastructure) to third parties, or may have incorporated technology into our platform, that collects, processes, transmits, and stores our users' or others' personal information (such as payment card information and user video and audio recordings), and as a result, we manage a number of third-party vendors and other partners who may or could have access to our information technology systems (including our computer networks) or to our confidential information. In addition, many of those third parties in turn subcontract or outsource some of their responsibilities to third parties. As a result, our information technology systems, including the functions of third parties that are involved in or have access to those systems, are very large and complex. Technology system disruptions, whether from attacks on our technology environment or from computer viruses, natural disasters, terrorism, war, foreign invasions, and telecommunications and electrical failures, could result in a material disruption of our product development and our business operations. Significant disruptions of our third-party vendors' or commercial partners' information technology systems or other similar data security incidents could also adversely affect our business operations or result in the loss, misappropriation, or unauthorized access, use or disclosure of, or the prevention of access to, sensitive or personal information, which could harm our business. The size, complexity, accessibility, and distributed nature of our information technology systems, and the large amounts of sensitive or personal information stored on those systems, make such systems vulnerable to unintentional or malicious, internal, and external threats. Because of our prominence in the TV streaming industry, we believe we may be a particularly attractive target for threat actors. The risk of harm to our business caused by security incidents may also increase as we expand our product and service offerings and as we enter new markets. Vulnerabilities can be, and have been, exploited from inadvertent or intentional actions of our employees, third-party vendors, business partners, or by malicious third parties. Open-source software, which may be incorporated into our systems or products, inherently presents a large attack surface and may contain vulnerabilities of which we are not aware and which we cannot control or fully mitigate. Moreover, AI technologies may be used to implement certain cybersecurity attacks or to increase their intensity, which may further increase risk. While we have processes in place to mitigate the risks related to these vulnerabilities, these measures may not be adequately designed or implemented to ensure that our operations are not disrupted, our reputation is not harmed, or that we will not be impacted by ransomware, cybersecurity attacks, or other vulnerabilities in the future. For example, despite our efforts to secure our information technology systems and the data contained in those systems, we and our third-party vendors and business partners have experienced, and remain vulnerable to, data security incidents, including ransomware, phishing attacks, bot attacks, credential stuffing attacks, improper employee access of confidential data, and inadvertent employee disclosure of confidential data. There is no way of knowing with certainty whether we have experienced any data security incidents that have not been discovered. While we have no reason to believe that we have experienced a data security incident that we have not discovered, we note that attackers continue to advance the ways they conceal their unauthorized access to systems. Malicious attacks are increasing in their frequency, levels of persistence, sophistication, and intensity, and are being conducted by sophisticated and organized groups and individuals with a wide range of motives (including, but not limited to, industrial espionage) and expertise, including organized criminal groups, "hacktivists," nation states, and others. The geopolitical conflicts stemming from the Russian invasion of Ukraine and the current unrest in the Middle East have increased the risk of malicious attacks on information technology operations globally, including for companies headquartered in the United States, that could materially disrupt our systems and operations, supply chain, and ability to produce, sell, and distribute our devices and services. Any attempts by threat actors to disrupt our streaming platform, streaming devices, smart home products, website, computer systems, or mobile apps, if successful, could harm our business, subject us to liability, be expensive to remedy, cause harm to our systems and operations, damage our reputation, and could result in contractual damages, litigation, governmental inquiries and investigations, enforcement actions, and regulatory notification requirements, fines, and penalties that could harm our business. For example, in the wake of a data breach involving payment card data, we may be subject to substantial penalties for failure to adhere to the technical or operational security requirements of the Payment Card Industry ("PCI") Data Security Standards ("DSS") imposed by the PCI Council to protect cardholder data. Penalties arising from PCI DSS enforcement are inherently uncertain as penalties may be imposed by various entities within the payment card processing chain without regard to any statutory or universally mandated framework. Such enforcement could threaten our relationship with our banks, card brands we do business with, and our third-party payment processors. Most of our employees have a hybrid work schedule (consisting of both in-person work and working from home). Although we have implemented work from home protocols, the actions of our employees while working from home may have a greater effect on the security of our systems and the data we process, including by increasing the risk of compromise to our systems, intellectual property, or data arising from employees' combined use of personal and private devices, accessing our systems or data using wireless networks that we do not control, or the ability to transmit or store company-controlled data outside of our secured network. The limitations of liability in our contracts related to our information technology systems may not be enforceable or adequate or otherwise protect us from liabilities or damages. While we maintain insurance policies to cover certain losses relating to our information technology systems, there may be exceptions. Security incidents or certain aspects of security incidents may not be fully covered by our insurance policies or covered at all. Additionally, insurance policies will not protect against the reputational harms caused by a major security incident. The successful assertion of one or more large claims against us that exceeds our available insurance coverage, or results in changes to our insurance policies (including premium increases or the imposition of large deductible or co-insurance requirements), could have an adverse effect on our business. Further, we cannot be sure that our existing insurance coverage and coverage for errors and omissions will continue to be available on acceptable terms or that our insurers will not deny coverage as to any future claim.

Our success depends in large part on our ability to attract and retain key personnel on our senior management team and in our engineering, research and development, sales and marketing, operations, and other organizations. In particular, our founder, Chairman and Chief Executive Officer, Anthony Wood, is critical to our overall management, as well as the continued development of our products and streaming platform, our culture, and our strategic direction. We do not have long-term employment or non-competition agreements with any of our key personnel. The loss of one or more of our executive officers or the inability to promptly identify a suitable successor to a key role could have an adverse effect on our business. Our ability to compete and grow depends in large part on the efforts and talents of our employees. Labor is subject to external factors that are beyond our control, including our industry's highly competitive market for skilled workers and leaders, cost inflation, workforce participation rates, and unstable political conditions. Our employees, particularly engineers and other product developers, are in demand, and we devote significant resources to identifying, hiring, training, successfully integrating, and retaining these employees. To attract top talent, we generally offer competitive compensation packages before we can validate the productivity of those employees. In addition, some companies offer a remote or hybrid work environment, which may increase the competition for employees from employers outside of our traditional office locations. To retain employees, we have in the past and may in the future need to increase our employee compensation levels or other benefits in response to competition and other business and macroeconomic factors. The loss of employees or the inability to hire additional skilled employees necessary to support our growth could result in significant disruptions to our business, and the integration of replacement personnel could be time-consuming and expensive and cause disruptions. We believe a critical component to our success and our ability to retain our best people is our culture. As we continue to grow, we may find it difficult to maintain our entrepreneurial, execution-focused culture. In addition, past or any additional workforce reductions could harm employee morale and negatively impact employee recruiting and retention.

We and our service providers and partners collect, process, disclose, and store personal information of individuals. We collect such information from individuals located both in the United States and abroad and may store or process such information outside the country in which it was collected. Various federal, state, and foreign laws and regulations as well as industry standards and contractual obligations govern the collection, processing, retention, protection, disclosure, cross-border transfer, localization, and storage of such personal information. These regulatory requirements are evolving, and data privacy compliance is an area of increasing scrutiny for privacy and consumer rights groups and government bodies. For example, in addition to the EU General Data Protection Regulation ("GDPR"), the UK General Data Protection Regulation, and Brazil's Lei Geral de Proteção de Dados, various U.S. states have enacted broad-based privacy and data protection legislation, including California, Colorado, Connecticut, Delaware, Florida, Iowa, Montana, Nebraska, New Hampshire, New Jersey, Oregon, Texas, Utah, and Virginia, and more states are expected to follow suit. We have incurred, and will continue to incur, expenses to comply with privacy and security standards and protocols imposed by law, regulation, industry standards, and contractual obligations. We continue to monitor the implementation, enforcement, interpretation, and evolution of these laws and regulations, but they are still rapidly evolving and, as a result, their application, interpretation, and enforcement are uncertain, and they may be interpreted and applied inconsistently with our current policies and practices. In such event, we may be subject to significant fines and penalties (such as restrictions on personal information processing) or claims for damages from private litigants, or we may be required to make changes to our policies and operations, including the manner in which we provide our services or use our user data, and our business, financial condition, and results of operations may be harmed. We continue to assess the available regulatory guidance, determinations, and enforcement actions on international data transfer compliance for companies. As part of our data protection compliance program, we have implemented data transfer mechanisms to provide for the transfer of personal information from the European Economic Area or the United Kingdom to the United States. We have joined the EU, Swiss, and UK Data Privacy Framework programs to facilitate transfers of non-HR personal data to the United States from these jurisdictions. Our ability to continue to transfer personal information outside of the EU may become significantly more costly and may subject us to increased scrutiny and liability under the GDPR or other legal frameworks, and we may experience operating disruptions if we are unable to conduct these transfers in the future. In addition, some countries are considering or have enacted "data localization" laws requiring that user data regarding users in their respective countries be maintained, stored, or processed in their respective countries. Maintaining local data centers in individual countries could increase our operating costs significantly. We, our service providers and partners use tracking technologies to collect information about users' interactions with our platform, devices, websites, apps, and partners' digital properties, and deliver advertising and personalized content for ourselves and on behalf of our partners. To personalize content and advertisements effectively, we must leverage this data, as well as data provided by third parties. The U.S. federal government, U.S. states, and foreign governments have enacted (or are considering) laws and regulations that could significantly restrict us and other advertising industry participants' ability to collect, use, retain, and disclose personal information. For example, some of these laws and regulations may require more explicit consumer notice and consent for using tracking technology or collecting sensitive personal information, restrict disclosure of personal information between companies, or grant consumers the right to delete or limit the collection and use of their personal information. Our ability to collect, use and retain such data could also be further restricted by our agreements with advertisers and content partners. Any restrictions on our ability to collect, use, or retain data is likely to increase the number of users to whom we cannot serve targeted advertising, which could make our platform less attractive to advertisers and partners, and harm our ability to grow our revenue, particularly our platform revenue which depends on effective delivery of advertising campaigns. We are continuing to assess the impact of new and proposed privacy and data protection laws on our business.

We currently generate the vast majority of our revenue in the United States and have limited experience marketing, selling, licensing, and supporting our products and running or monetizing our streaming platform outside the United States. In addition, we have limited experience managing the administrative aspects of a global organization. While we intend to continue to explore opportunities to expand our business in international markets in which we see compelling opportunities, we may not be able to create or maintain international market demand for our products and streaming platform services. Moreover, we face intense competition in international markets, especially because some of our competitors have already successfully introduced their products into new markets we are entering, have greater experience managing a global organization, and have greater resources. In the course of expanding our international operations, we are subject to a variety of risks that could adversely affect our business, including: - differing and evolving legal and regulatory requirements in foreign jurisdictions, including laws and regulations pertaining to data privacy and security, consumer protection, tax, telecommunications, trade (including tariffs, quotas, and sanctions), labor, environmental protection, censorship and other content restrictions, AI technologies, intellectual property, and local content and advertising requirements, among others;- exposure to increased corruption risk and compliance with laws such as the U.S. Foreign Corrupt Practices Act, UK Bribery Act, and other anti-corruption laws, U.S. or foreign export controls and sanctions, and local laws requiring the maintenance of accurate books and records and a system of sufficient internal controls;- slower consumer adoption and acceptance of streaming devices and services in other countries;- different or unique competitive pressures, including as a result of competition with other devices that consumers may use to stream TV or existing local traditional TV services and products, including those provided by incumbent TV service providers and local consumer electronics companies;- greater difficulty supporting and localizing Roku streaming devices and our streaming platform, including delivering support and training documentation in languages other than English;- our ability to deliver or provide access to popular streaming apps or content to users in certain international markets;- availability of reliable broadband connectivity in areas targeted for expansion;- challenges and costs associated with staffing and managing foreign operations;- differing legal and court systems, including limited or unfavorable intellectual property protection;- unstable political and economic conditions, social unrest, or economic instability, including due to pandemics, natural disasters, wars, terrorist activity, foreign invasions (such as the Russian invasion of Ukraine), tariffs, trade disputes, local or global recessions, diplomatic or economic tensions (such as the tension between China and Taiwan and the tension in the Middle East), long-term environmental risks, or climate change;- adverse tax consequences, such as those related to changes in tax laws (including increased tax rates, the imposition of digital services taxes, and the adoption of global corporate minimum taxes and anti-base-erosion rules), changes in the interpretation of existing tax laws, and the heightened scrutiny by tax administrators of companies that have cross-border business activities;- the imposition of customs duties on cross-border data flows for streaming services, such as in the event that the World Trade Organization (WTO) fails to extend the current moratorium on such duties or the moratorium is applied only among WTO member states that support a new e-commerce agreement;- pandemics or epidemics, which could result in decreased economic activity in certain markets, changes in the use of our products or platform, or decreased ability to import, export, ship, or sell our products to supply such services to existing or new customers in international markets;- inflationary pressures, which may increase costs for materials, supplies, and services;- fluctuations in currency exchange rates, which could impact the revenue and expenses of our international operations and expose us to foreign currency exchange rate risk (see the section titled "Foreign Currency Exchange Rate Risk" in Part II, Item 7A of this Annual Report);- restrictions on the repatriation of earnings from certain jurisdictions; and - working capital constraints. In addition, we may face challenges in successfully deploying our three-phased business model-grow scale, grow engagement, and grow monetization-in international markets. Even if we are able to increase our user base in international markets, we may be unable to effectively grow our Streaming Hours or monetize user activity in those markets. If we invest substantial time and resources to expand our international operations and are unable to do so successfully and in a timely manner, our business and financial condition may be harmed.

Occurrence of any catastrophic event, including an earthquake, flood, tsunami, or other weather event, power loss, internet failure, software or hardware malfunctions, cybersecurity attack, war or foreign invasion (such as the Russian invasion of Ukraine and the conflicts in the Middle East), terrorist attack and other geopolitical conflicts (such as Yemen's Houthi attacks in the Red Sea, or potential retaliatory actions from foreign governments in response to the current U.S. Administration's actions), medical epidemic or pandemic (such as the COVID-19 pandemic), government shutdown orders, other man-made disasters, or other catastrophic events could disrupt our, our business partners' and customers' business operations or result in disruptions in the broader global economic environment. Any of these business disruptions could require substantial expenditures and recovery time in order to fully resume operations. In particular, our principal offices are located in California, and our contract manufacturers and some of our suppliers are located in Asia, both of which are regions known for seismic activity, making our operations in these areas vulnerable to natural disasters or other business disruptions in these areas. Our insurance coverage may not compensate us for losses that may occur in the event of an earthquake or other significant natural disaster. For example, a recent earthquake damaged equipment in our Taiwan office, and the losses, while relatively minor, were not covered by our insurance. In addition, our offices and facilities, and those of our contract manufacturers, suppliers, and licensed Roku TV partners, could be vulnerable to the effects of climate change (such as sea level rise, drought, flooding, wildfires, and increased storm severity) that could disrupt our business operations. For example, in California, increasing intensity of drought and annual periods of wildfire danger increase the probability of planned power outages. Further, acts of terrorism could cause disruptions to the internet or the economy as a whole. If our streaming platform was to fail or be negatively impacted as a result of a natural disaster or other event, our ability to deliver streaming content, including advertising, to our users would be impaired. Disruptions in the operations of our contract manufacturers, suppliers, or licensed Roku TV partners as a result of a disaster or other catastrophic event could delay the manufacture and shipment of our products or the products of our licensed Roku TV partners, which could impact our business. If we are unable to develop adequate plans to ensure that our business functions continue to operate during and after a natural disaster or other catastrophic event and to execute successfully on those plans in the event of a disaster or catastrophic event, our business would be harmed.