Roku's Rebound Sparks Investor Interest Again

Roku's stock is gaining traction as the company shows strong signs of recovery. With its resilient business model and international expansion plans, investors may see potential for profit in the coming quarters.

Date: 01-03-2025

AI Rating: 7

Investment Opportunity in Roku - The recent analysis indicates that Roku is on a rebound, mainly due to its steady double-digit growth in its core businesses despite past struggles. The company's strategy to expand into international markets positions it favorably for future growth.

Roku's ad business continues to perform well, and the user growth—specifically a 12% increase in members year-over-year to nearly 90 million—is notable. The company also reported an 18% increase in viewing hours, a critical metric signifying viewer engagement and potential ad revenues. However, management has indicated that they will stop reporting these viewer metrics starting Q1 2025, which may affect future assessments of their growth.

Profitability Signs - Importantly, Roku's adjusted EBITDA has been positive for over a year, showing a significant increase of 62% year-over-year in the fourth quarter. Likewise, free cash flow has seen a commendable increase of 16% year-over-year. While the device business has faced profits struggles, the ad business has been growing, accounting for a more substantial revenue stream as its device sales represent only 16% of total revenue. This aligns with their long-term strategy and investor anticipation of profitability moving forward.

Earnings Forecast - Management's expectation of positive operating income and Wall Street's forecasting of positive EPS next year demonstrates the operational improvements happening within the company. This anticipated growth in profitability, alongside the rebound in ad spending and new household acquisitions, indicates a positive outlook for Roku's stock price.

Stocks: ROKU