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Roku Inc. ROKU has captured investor attention following a substantial six-month rally, with shares climbing 19.8% as the streaming platform operator navigates an evolving entertainment landscape. The stock has outperformed the broader Zacks Consumer Discretionary sector and the Zacks Broadcast Radio and Television industry.
As investors evaluate whether The Roku Channel can sustain momentum, recent performance metrics warrant examination.
Roku's platform business demonstrated robust health in the second quarter, with platform revenues reaching $975 million, representing 18% year-over-year growth and surpassing management’s outlook. This segment, encompassing advertising sales and streaming service distribution, accounts for about 88% of total revenues, underscoring the company's successful transition from hardware-focused to platform-centric strategy. Video advertising growth on Roku's platform outpaced both overall platform revenue growth and broader U.S. over-the-top and digital advertising markets.
The advertising momentum reflects Roku's expanded demand-side platform integrations and product innovations. Recent partnerships include integration with Amazon's demand-side platform, connecting Amazon advertisers with Roku's user base across major streaming applications, and enhanced programmatic capabilities through deeper Wurl DSP integration. These developments position Roku to capture advertising dollars from traditional television and digital-first performance advertisers through its Roku Ads Manager platform.
However, Roku operates in a highly competitive advertising industry and competes for revenues with other companies that have launched ad-supported streaming. Some of these companies include Netflix NFLX, Warner Bros. Discovery WBD and Disney DIS.
Since its launch, Netflix’s ad-supported tier reached 70 million global monthly users as of late 2024, while Warner Bros. Discovery expanded its ad-supported tier on Max to more than 45 countries in the past 15 months. Combined Disney+ and Hulu subscriptions reached 183 million in the fiscal third quarter, positioning Disney to capture greater market share through enhanced subscriber monetization strategies and bundled service offerings. If Roku is unable to improve its own platform’s capabilities to face the increasing competition, both the business and growth prospects of the company may be harmed.
The Roku Channel experienced 80% growth in streaming hours for the second quarter and maintained its position as the #2 app on the platform by engagement. This performance represents a critical competitive advantage, as higher engagement translates directly into advertising inventory and revenue opportunities. The Roku Channel also ranked as the #3 app globally by reach and maintained its high position on Nielsen's The Gauge ranking, representing 5.4% of all U.S. television streaming time.
The channel's content strategy demonstrates strength in surfacing contemporary hits and long-tail favorites. Shows like Married… With Children, Las Vegas and Army Wives became top-performing series by views in recent months, illustrating the platform's ability to guide audiences to diverse content. This content discovery capability provides significant value to content partners while driving user engagement.
Recent content expansion includes sports programming partnerships and original content development. The Roku Channel serves as the exclusive home for MLB Sunday Leadoff, with average reach increasing more than 40% across the first seven games. Roku Originals continue earning industry recognition, including the company's first Sports Emmy win.
Roku's August 2025 launch of Howdy, a $2.99 monthly ad-free streaming service featuring 10,000 hours of content from Lionsgate, Warner Bros. Discovery, and FilmRise, represents strategic revenue diversification. This subscription offering runs alongside the free Roku Channel, providing consumer choice while potentially capturing additional revenues from users preferring ad-free experiences.
The Roku Channel's August expansion with 18 new free live channels, bringing the total to over 560, demonstrates continued content investment serving 145 million users across four countries. This strategy supports user acquisition and retention while providing advertisers with diverse programming environments.
Roku's balance sheet remains robust with $2.3 billion in cash and cash equivalents, supporting the board's authorization of a $400 million stock repurchase program. Management raised full-year 2025 platform revenue guidance to $4.075 billion and adjusted EBITDA guidance to $375 million, reflecting continued platform momentum.
The Zacks Consensus Estimate for 2025 revenues is pegged at $4.66 billion, suggesting year-over-year growth of 13.24%. The consensus mark for 2025 earnings is pinned at 12 cents per share, which has been revised upward from a loss of 17 cents per share over the past 30 days.
Roku, Inc. price-consensus-chart | Roku, Inc. Quote
However, investors should consider valuation metrics following the recent rally. From a valuation perspective, Roku currently trades at a price-to-cash flow ratio of 36.31X, which is at a significant premium compared to the Zacks Broadcast Radio and Television industry average of 34.49X. This valuation gap suggests that investors have high growth expectations for this stock. As of June 30, 2025, free cash flow was $392 million on a trailing 12-month basis. ROKU has a Value Score of D.
While Roku's platform monetization strategy shows promise and The Roku Channel demonstrates strong engagement, recent performance may limit near-term upside potential.
Given Roku's solid operational execution, expanding platform capabilities, and strong balance sheet, the company presents a compelling investment thesis centered on streaming platform monetization. However, following the rally, prudent investors may consider holding positions while waiting for attractive entry points in 2025, particularly if market volatility creates opportunities to acquire shares at favorable valuations. Roku stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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This article originally published on Zacks Investment Research (zacks.com).
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