What’s Driving Roku Stock’s 14% Surge?

Roku (NASDAQ:ROKU) stock was up by about 14% in pre-market trading on Friday. This takes Roku stock’s year-to-date gains to over 30%. The gains come after the company posted a better than expected set of Q4 2024 results, with total revenue rising 22% to $1.2 billion. Roku’s revenue from its platform business, which sells subscriptions and advertisements on Roku devices, crossed $1 billion, rising 25% year-over-year.

Roku’s business is clearly gaining momentum. Last month, the company reported 89.8 million streaming TV households worldwide at the end of December, surpassing 90 million in early January. This marked an increase from 85.5 million in Q3 and 80 million in Q4 2023, reflecting 12.5% year-over-year growth. Roku also stated that its streaming boxes and smart TVs now reach nearly half of all U.S. broadband households. This should be a strong tailwind for its high-margin platform business.

Engagement is also rising as viewers shift from linear television to streaming. In Q4, streaming hours touched 34 billion, up 18% year-over-year. Roku has significant room to scale-up, considering its rich data sets relating to user behavior, ad performance, engagement, and demographics. The company has also tightened cost controls, with operating expenses rising just 2% year-over-year, far below revenue growth. This was partly due to workforce and office space reductions in 2024. Operating profit rose 17% to $512.6 million, while free cash flow for 2024 stood at $203 million. As past investments in research and development and product development pay off and Roku continues to build scale, margins could considerably scale up. See a scenario on how Roku stock can hit $200

The decrease in ROKU stock over the last 4-year period has been far from consistent, with annual returns being considerably more volatile than the S&P 500. Returns for the stock were -31% in 2021, -82% in 2022, 125% in 2023, and -19% in 2024. The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is considerably less volatile. And it has comfortably outperformed the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; 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, 2022, and 2024 and underperform the S&P over the next 12 months – or will it see a recovery?

Roku stock trades at just about 3x consensus 2025 revenue, which is well below the double-digit multiples the stock traded at in 2021. That said, Roku faces challenges, too. Roku has to increasingly compete for advertising-related revenue with big technology players including Netflix, Meta, and Alphabet in the video market. We have a $78 price estimate for Roku, which is below the current market price. We  are currently updating our Roku model to account for 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 2/14/2025
[2] Cumulative total returns since the end of 2016

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