Roku Faces Share Decline, Invests in Future Growth
Roku (ROKU) shares have decreased by 10.3% over the last three months, which is lower than the Zacks Consumer Discretionary sector’s growth of 2.6%, and the Zacks Broadcast Radio and Television industry’s increase of 14.4%.
Share Decline Driven by Tariff Concerns
Investor worries about potential tariff impacts on Roku’s Devices segment have contributed to the recent share decline. While TV unit sales may slightly drop, this is not expected to impact the company’s market share significantly.
Roku employs a diverse manufacturing strategy across multiple countries, providing the flexibility to minimize tariff impact. The company has already made minor price adjustments but does not anticipate a notable change in gross profit for its Devices segment. Should TV prices rise, Roku’s streaming players offer an economical option for consumers to upgrade existing setups without purchasing new televisions.
Roku’s 3-Month Price Performance
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Acquisition of Frndly TV Enhances Strategy
On May 2, Roku announced it will acquire Frndly TV, aiming to broaden its subscription offerings and boost user engagement. Frndly TV is known for its “skinny bundle” service and popular linear channels like Hallmark and A&E, appealing to traditional TV audiences transitioning to streaming.
This acquisition is expected to be EBITDA-margin accretive in the first year, suggesting both financial and strategic benefits. Roku plans to integrate Frndly TV into its ecosystem, enhancing its content and advertising capabilities.
Advertising Business Grows Amid Competition
Roku functions in a competitive advertising landscape, facing challenges from ad-supported streaming rivals such as Netflix (NFLX), Warner Bros. Discovery (WBD), and Disney (DIS).
Netflix’s ad-supported tier reportedly reached 70 million global users in late 2024, while Warner Bros. Discovery expanded its ad tier to over 45 countries in 15 months. Disney had approximately 157 million global users accessing ad-supported content as of January.
Despite industry pressures, Roku’s ad-supported streaming business showed strong growth in the first quarter of 2025, with platform revenues up 17% year-over-year to $881 million, driven by video advertising and distribution. Roku now reaches over half of U.S. broadband households, with its Home Screen serving over 125 million users daily.
The Roku Channel became the second most engaged app, with streaming hours rising 84% year-over-year. Roku surpassed the U.S. OTT ad market, benefitting from partnerships with Adobe and INCRMNTAL, while tools like Roku Ads Manager reinforced its position in ads.
2025 Guidance Remains Positive
For 2025, Roku reaffirmed its guidance of $3.95 billion in Platform revenues and $350 million in adjusted EBITDA, with a target gross margin of about 52%. Device revenues and gross profits are expected to stabilize at 2024 levels.
The Zacks Consensus Estimate projects total revenues for 2025 at $4.55 billion, indicating year-over-year growth of 10.54%. The consensus for the 2025 loss stands at 17 cents per share, narrowing by 39.3% in 30 days, representing growth of 80.9% from the previous year.
Roku has exceeded the Zacks Consensus Estimate in its last four quarters, averaging a surprise of 51.15%.
Roku, Inc. Price and Consensus
Roku, Inc. price-consensus-chart | Roku, Inc. Quote
Roku’s price-to-cash flow ratio stands at 33.94X, slightly above the industry average of 32.98X, indicating investor confidence in its growth prospects for 2025.
ROKU’s Price/Cash Flow Ratio
Image Source: Zacks Investment Research
Overall Outlook for Roku
Despite recent pressures on share prices, Roku’s long-term prospects are promising. The company continues to expand platform revenues and user engagement while innovating in advertising and content. The acquisition of Frndly TV strengthens its subscription strategy, and its diverse manufacturing helps mitigate tariff risks. With strong 2025 guidance and growth in ad revenues, Roku appears well-positioned in the competitive streaming market.
