Roku Looks Beyond Borders as International Growth Gains Momentum

You know Roku (NASDAQ: ROKU) as a leading provider of media-streaming software and devices in North America. It has held the top spot for smart TV operating systems in the U.S. for the last five years and also dominates the market in Canada and Mexico.

Roku’s strong domestic presence is so significant that the company has not reported any international business results yet. However, this is about to change.

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Roku’s expansion into foreign markets is noticeably impacting its overall financial performance. If you’re considering investing in Roku or already own shares, it’s crucial to monitor its international growth plans closely.

Image source: Getty Images.

Taking a Thoughtful Approach to Global Expansion

Roku is strategically expanding into international markets.

Interestingly, its strategy resembles the early efforts of Netflix (NASDAQ: NFLX) in bringing streaming services to various countries. Initially, Roku’s former parent company focused on the U.S. and Canadian markets before moving into South America and key regions in Western Europe. Notably, Netflix made its global debut in January 2016, four and a half years after it split from its DVD rental service.

In contrast, Roku is progressing more gradually. Since 2015, the company has introduced Roku-branded media players and smart TVs in countries like France and Australia, gradually adding new markets. By 2025, Roku plans to offer its streaming platforms, including the ad-supported Roku Channel, across all of the Americas, Australia, and four European nations.

Although Roku does not disclose financial results for these international markets yet, they are beginning to impact key business metrics.

Examining the Financial Impact of Roku’s Global Growth

Looking at the third-quarter 2024 numbers, Roku is scheduled to release its fourth-quarter and full-year results soon, likely reflecting the trends of its recent reports.

In the third quarter, Roku reported 85.5 million streaming households, growing by 13% from the previous year. The total streaming hours on Roku devices increased by 20%, indicating that users are more engaged than ever.

However, platform revenues rose by only 15% because the average revenue per user (ARPU) remained steady at $41.10 per month. This is attributed to Roku’s faster growth in international users compared to domestic users, coupled with significant pricing discounts in these new markets.

During the third-quarter earnings call, CEO and founder Anthony Wood shared insights on the international expansion: “It’s basically all of the Americas plus the U.K., and we’re making good progress in all those countries on active account or streaming household growth. Those countries are in different stages of monetization, but they’re all fairly early in monetization,” he said.

Roku is leveraging various pricing strategies to accelerate user growth in key international markets. While this may pressure the company’s profits temporarily, it could lead to larger, more sustainable revenue streams in the future.

Learning from Netflix’s Growth Strategy

Netflix’s journey to becoming a media powerhouse was not without its challenges. The company faced several years of negative cash flow but ultimately delivered impressive results. Investors in Netflix have enjoyed a remarkable 570% return over the last ten years, nearly tripling the growth of the S&P 500 index.

Roku is following a similar path, albeit at a different pace. While there are significant differences in their timelines, Roku’s approach mirrors that of a successful model. Expectations are that its international growth will persist, eventually necessitating the reporting of overseas financial results on a quarterly basis.

The international segment is already influencing Roku’s financial metrics, becoming increasingly vital to its overall success.

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Anders Bylund has positions in Netflix and Roku. The Motley Fool has positions in and recommends Netflix and Roku. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.