Is Roku Profitable?

Roku, Inc. (NASDAQ:ROKU) has been on a tear recently with the share price up 23% in the last month alone. For the year, the performance has been a lot less stellar, and in fact it still remains under water year-to-date.

For a streaming platform that provides so much value to viewers and advertisers alike, this underwhelming return seems surprising.

So, what caused investors to be disappointed earlier in the year and why the spark of enthusiasm now? Is the move to original content a growth driver?

How Roku Makes Money

Roku operates through two segments: Platform and Devices. The former generates revenue from digital ads and streaming services while the latter derives its income from selling licenses, streaming players, audio gadgets, and smart home tools.

Over 83 million household stream with Roku and it’s used almost everywhere on the North American continent, including Mexico and Canada. Plus it’s made breakthroughs by selling Roku-branded TVs to new retailers like Target Corporation (NYSE:TGT).

So how is growing doing on the business side besides partnerships?

How Is Roku Growing?

Recently, Roku introduced the new Roku Sports Channel, a free platform with ads that makes it easy to access high-quality sports shows and events and is designed to cement Roku’s status as a leader in TV streaming services.

This content is credited with pulling in a larger group of viewers, ultimately with a view to boosting loyalty, viewershipa and hence customer lifetime value. Management also made a deal with Fandango, the movie ticket buying platform to allow advertisers analyze and monitor performance better.

The partnership capitalizes on Fandango360 to help connect advertisers to movie fans and so improves data insights. It’s a win-win that helps advertisers to make better plans and sell more tickets, making Roku even more important in the advertising world.

Finally, the leadership team partnered with iSpot.tv to improve its measurement abilities. The new partnership makes measurement more accurate and is aimed at increasing advertisers’ value. It shows that Roku is serious about being a top player in the streaming TV industry.

How Are Roku’s Financials?

By Q2, sales had climbed 14.3% to $968.18 million YoY but management reported a loss from operations of $71.24 million. Last quarter, year-over-year revenues were up by 16.5% to $1 billion for the first time and earnings before interest and taxes very nearly went positive for the first time since 2021, though remained in the red by $17.2 million.

Interestingly, management had forecast total net revenue of $1.01 billion and a gross profit of $440 million, giving it a 44% gross margin so the $1.06 billion delivered and $480 million gross profit blew away expectations.

Management had expected a tough market for Media & Entertainment but believed advertising growth would speed up during this third quarter, and they were right. So too Platform margin was expected to come ini around 53%.

Regarding devices, the top brass expected a 24% rise in third-quarter revenue and suggested margins would stay the same as in the second quarter but they underestimated the improvement to 45.1% gross margin. The takeaway is that Roku is still growing and investing in its Branded TV program.

Is Roku Profitable?

Roku is closing in on profitability but earnings before interest and taxes are still negative to the tune of $17.2 million last quarter while net income was -$9.0 million.

Roku’s trailing-12-month levered FCF margin is at 18.08%, which is higher by 125.1% than the industry average of 8.03%. Additionally, Roku shows a trailing-12-month asset turnover ratio at 0.91x, exceeding the sector’s mean of 0.51x by a difference of around 79.4%.

But, Roku’s trailing-12-month gross profit margin is 45.1%, 10.9% less than the industry average of 50.61%. Also, the company’s trailing-12-month EBITDA margin for the same period is just 0.50%, lowering it by a big difference of 97.3% compared to the sector’s average of 18.4%.

What Is Roku’s Investment Outlook?

Over the last three years, Roku’s revenue has increased at a CAGR of 17.3%. Total assets increased at an annualized rate of 4.1%, and levered free cash flow soared by 43.4%. It wasn’t all good news, though, with EBITDA and tangible book value tumbling at a CAGR of around 60.3% and 3.9% during this time.

In the future, Roku’s revenue is predicted to grow by 13.9% year-over-year, reaching $3.97 billion for the fiscal year ending in December 2024. Yet, the company is expected to announce a loss per share of $1.28.

Moreover, during the fiscal year ending in December 2025, analysts predict the company’s revenue will increase by 12.1% compared to last year, reaching $4.45 billion, however the leadership team is expected to report a loss per share of $0.96 for the period.

In terms of valuation, the share price has already run past analysts forecasts of $77 per share, so it seems the downside risk is eclipsing the upside reward, at least as far as the 25 analysts covering the stock are concerned. The outlook doesn’t look much better when a discounted cash flow analysis is performed with $79 per share being the intrinsic value.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.