Think You Know Roku? Here's 1 Little-Known Fact You Can't Overlook.

Key Points

• Roku generated $977 million in free cash flow over the last four quarters, achieving a 23% cash flow margin that rivals profit-masters like Apple and Microsoft.

• With $2.26 billion in cash and no long-term debt, Roku has the financial flexibility to pursue many growth strategies at the same time.

• 10 stocks we like better than Roku ›

Media-streaming technology veteran Roku (NASDAQ: ROKU) has many surprising qualities.

You might not know that the company sells its hardware at a loss to boost its user growth. You probably know that Roku is the best-selling provider of TV software in North America, but it could be news that it only recently launched streaming sticks and TVs in places like Western Europe and Latin America. And did you hear that Roku's ad sales were growing faster than the platform itself before Amazon (NASDAQ: AMZN) made Roku its preferred advertising platform?

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But I'm not here to dive into any of those details. My mission today is much simpler. Many investors worry about Roku's skimpy net profits, but did you know that it's actually a fantastic cash machine?

Roku is quietly printing money like a tech giant

Cash is king, and Roku is swimming in it.

The company generated $977 million of free cash flow over the last four quarters. That's based on $4.25 billion in top-line revenues, which works out to a free cash flow margin of 23%.

Not too shabby, in my opinion.

Mighty Apple (NASDAQ: AAPL) shows 24.6% for the same metric and Microsoft (NASDAQ: MSFT) stands at 25.7%. These are some of the world's most profitable businesses, and Roku is breathing down their gilded necks in terms of cash-based profit margins.

Roku's clever accounting

There are some tricks involved in Roku's ultraefficient cash profits, of course.

It runs an extremely asset-light operation with very few capital expenses. As a result, a staggering 96.2% of Roku's cash from operations dropped down to the free cash flow line in Q1 2025.

Roku is a big fan of stock-based compensation. Stock awards accounted for 18.7% of Roku's operating expenses over the last year. Again, this is comparable to 18% for Microsoft and 20.6% in Apple's case. But those tech giants are soaring near all-time highs with trillion-dollar market caps, while Roku's stock price has dropped 81% since the fall of 2021. Low share prices make stock-based payments less effective, and Roku still ranks among the elite here.

In the end, Roku uses every trick in the book to collect cash profits while also reporting minuscule taxable earnings. That's why you see its earnings figures hovering around the breakeven line while cash profits are piling up. At the end of Q1 2025, Roku had $2.26 billion of cash equivalents and no long-term debt. Why borrow money when you're making a ton of cash profits anyway?

Image source: Getty Images.

Roku can afford a long-term focus

These juicy cash flows give Roku the freedom to explore a plethora of different growth strategies -- all at the same time.

Current efforts include bulking up the advertising platform, expanding Roku's market reach on a global scale, and increasing the amount of original content. The portfolio of Roku-branded TV sets is going from strength to strength, posting robust sales along with leading-edge technology developments. The recent acquisition of live TV streamer Frndly TV adds plenty of premium content to the Roku platform, all at the modest purchase price of $185 million.

Roku's impressive cash flows are often overlooked, and I think that's a mistake. The company is investing its surplus cash in many growth-boosting projects, and the Roku-branded hardware is still a loss-leader marketing tool. This willingness to absorb financial pain instead of passing it on to consumers should pay off amid the twin threats of costly tariffs and renewed inflation.

A company with lower or negative free cash flows would not have that freedom, relying on expensive debt papers or shareholder-hurting stock offerings to keep their growth initiatives going. Or, you know, shut down the expensive growth projects because there's no cash left to spend.

Roku's stock isn't as cheap as it once was, having gained 47% in the last 52 weeks. At the same time, it looks like market makers are underestimating the power of Roku's massive cash profits.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Anders Bylund has positions in Amazon and Roku. The Motley Fool has positions in and recommends Amazon, Apple, Microsoft, and Roku. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.