Why Roku Stock Is Up 12% So Far This Year

Roku (NASDAQ:ROKU) stock surged by about 6% in Wednesday’s trading and remains up by about 12% since the beginning of January. This compares with streaming titan Netflix (NASDAQ:NFLX), which has seen its stock decline 2%  year-to-date in 2025.  The recent gains come as the company gave investors a peek into its Q4 results, indicating that it had reached 89.8 million streaming TV households worldwide as of the end of December while surpassing the 90 million mark as of the first week of January. This was up from 85.5 million households in Q3 and about 80 million households in Q4 2023, a growth of about 12.5% year-over-year. Roku also said that its streaming boxes and smart TVs are now in about half of all U.S. broadband households. The strong momentum in the user numbers bodes well for Roku’s high-margin platform business.

Over Q3 2024, Roku’s revenue from its platform business, which includes subscription and advertising revenues, brought in over $908 million with gross profit for the segment rising to nearly $492 million. Engagement on Roku’s platforms has also been trending higher, as people pivot from linear TVs toward  streaming. During Q3, streaming hours were 32.0 billion, up 5.3 billion hours compared to the year-ago period. Roku has the scope to scale up, given the company’s rich data sets relating to user behavior, ad performance, engagement, and demographic trends. Roku has been continuously loss-making in recent years, and the company is looking to cut costs aggressively. Over the first nine months of 2024, operating costs fell by about 17% driven by workforce and office space reductions carried out in 2023. Roku is also generating more cash. Free cash flow stood at over $157 million for the trailing 12 months. As the company’s past investments in R&D and product development start paying off, and as Roku’s business gains scale, it could boost margins meaningfully. See a scenario on how Roku stock can hit $200

Roku stock’s performance over the last 4-year period has been far from consistent, with annual returns being considerably more volatile than the S&P 500. While Roku stock has seen mixed growth over recent years, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has provided better returns with less risk versus the benchmark S&P 500 index over the last four year period; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment around rate cuts and multiple wars, could ROKU face a similar situation as it did in 2021 and 2022 and underperform the S&P over the next 12 months – or will it see a recovery?

Roku stock trades at just about 3x estimated 2024 revenue, which is well below the double-digit multiples the stock traded at in 2021. That said, Roku faces challenges, too. Roku’s streaming service distribution business, which facilitates the subscription process for streaming services and earns commissions for the same, is seeing some headwinds as more streaming services, including Netflix, focus on selling more affordable, ad-supported plans as customers look for better value in a mixed economic environment.  Moreover, Roku has to increasingly compete for advertising-related revenue with big technology players including Netflix, Meta, and Alphabet in the video market. We value Roku stock at about $78, which is marginally below the current market price. We will be revisiting our price estimate for the stock post-Q4 earnings. See our analysis on Roku Valuation: Expensive or Cheap for more details on what’s driving our price estimate for the stock.

[1] Returns as of 1/8/2025
[2] Cumulative total returns since the end of 2016

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