Company Reports

Roku has agreed to be acquired by Fox and expects the deal to close in early 2027.

Roku's second-quarter revenue rose 22% year over year, with advertising sales up 25% and subscription sales up 26%. Device sales, which carry negative margins, were flat, but a tariff refund led to a devices gross profit. Even excluding the refund benefit, adjusted EBITDA rose 180%, to $254 million.

Roku has agreed to be acquired by Fox and expects the deal to close in early 2027.

Fox and Roku agreed to merge in a cash (60%) and stock (40%) deal that they said values Roku at $160 per share, but amounted to less than $150 after Fox shares sold off on the announcement.

Roku provides the most-used streaming operating system in the US through the streaming devices and televisions that it manufactures or licenses its name and software to. Roku’s strategy is to remain a leading provider of streaming devices by maintaining low prices and accepting losses in its devices segment. It intends to then drive profits from Roku user accounts. We had been skeptical that this strategy would be successful, but user monetization on its platform is easily making up for losses on devices, and we believe Roku has the potential to retain many users even if they switch to a different connected TV device.

Roku blew past its first-quarter guidance and was strong in all the most important parts of its business. Device sales and margins were weak, but lower sales in that loss-making unit enhance profits. Roku raised its full-year outlook by materially less than its first-quarter overperformance.

Roku provides the most-used streaming operating system in the US through the streaming devices and televisions that it manufactures or licenses its name and software to. Roku’s strategy is to remain a leading provider of streaming devices by maintaining low prices and accepting losses in its devices segment. It intends to then drive profits from Roku user accounts. We had been skeptical that this strategy would be successful, but user monetization on its platform is easily making up for losses on devices, and we believe Roku has the potential to retain many users even if they switch to a different connected TV device.

Roku's fourth-quarter sales rose 16% year over year, the fastest rate of the year. Roku anticipates 16% sales growth in 2026, up from 15% in 2025. The fourth-quarter EBITDA margin nearly doubled versus the prior year, to 12%. In 2025, adjusted EBITDA was up 60%, and free cash flow was up 70%.

Roku had an excellent third quarter across every notable metric and raised its full-year outlook, but the stock was down midsingle digits in after-hours trading. We see no reason for disappointment with these results, but any reason for market rationalization makes sense to us.

Roku provides the most-used streaming operating system in the US through the streaming devices and televisions that it manufactures or licenses its name and software to. Roku’s strategy is to remain a leading provider of streaming devices by maintaining low prices and accepting losses in its devices segment. It intends to then drive profits from Roku user accounts. We have been skeptical that this is a viable strategy, because we don’t see competitive advantages to drive users to Roku, leaving the firm to sell devices at steep losses to attract customers. However, the firm has now built up a sizable user base and is moving toward GAAP profitability.

Roku generated typically strong platform sales growth during the second quarter—up 16% year over year. Strong profits and management's outlook for further margin gains, even with tariffs weighing on device margins, were more impressive.

Roku provides the most-used streaming operating system in the US through the streaming devices and televisions that it manufactures or licenses its name and software to. Roku’s strategy is to remain a leading provider of streaming devices by maintaining low prices and accepting losses in its devices segment. It intends to then drive profits from Roku user accounts. We have been skeptical that this is a viable strategy, because we don’t see competitive advantages to drive users to Roku, leaving the firm to sell devices at steep losses to attract customers. However, the firm has now built up a sizable user base and is moving toward GAAP profitability.

Roku provides the most-used streaming operating system in the US through the streaming devices and televisions that it manufactures or licenses its name and software to. Roku’s strategy is to remain a leading provider of streaming devices by maintaining low prices and accepting losses in its devices segment. It intends to then drive profits from Roku user accounts. We have been skeptical that this is a viable strategy, because we don’t see competitive advantages to drive users to Roku, leaving the firm to sell devices at steep losses to attract customers. However, the firm has now built up a sizable user base and is moving toward GAAP profitability.

Roku had a good first quarter but took down its full-year sales guidance slightly, considering the macroeconomic uncertainty. Total revenue grew 16%, but more importantly, the firm continues to expand operating margins and free cash flow.

Most US media and entertainment stocks sold off with the rest of the market. Notable companies that dropped as much or more than the broad market were Disney, Live Nation, Warner Bros. Discovery, and Roku.

Roku provides the most-used streaming operating system in the US through the streaming devices and televisions that it manufactures or licenses its name and software to. Roku’s strategy is to remain a leading provider of streaming devices by maintaining low prices and accepting losses in its devices segment. It intends to then drive profits from Roku user accounts. We have been skeptical that this is a viable strategy, because we don’t see competitive advantages to drive users to Roku, leaving the firm to sell devices at steep losses to attract customers. However, the firm has now built up a sizable user base and is moving toward GAAP profitability.

Roku's platform revenue growth accelerated in the fourth quarter, to 25% year over year, on growth in households, streaming hours per household, and sales per streaming hour. Roku also held expenses steady, resulting in 62% growth in EBITDA, to $77 million. Guidance indicates strength will persist.

Roku provides the most-used streaming operating system in the US through the streaming devices and televisions that it manufactures or licenses its name and software to. Roku’s strategy is to remain a leading provider of streaming devices by maintaining low prices and accepting losses in its devices segment. It intends to then drive profits from Roku user accounts. We are skeptical that this is a viable strategy, because we don’t see competitive advantages that are likely to turn the firm toward sufficient profit after a history of generating losses.

Roku reported a much stronger third quarter than we expected, with platform revenue coming in well ahead of the company’s guidance and profitability continuing to take hold. We suspect the double-digit stock decline in after-hours trading was due to underwhelming fourth-quarter guidance and a realization that some of the tailwinds that drove the third-quarter outperformance will be fleeting. Overall, Roku is executing very well, and its business remains strong. However, we think it will be difficult to keep up these levels of growth, as we don’t believe the firm has a moat to give it a long-term edge over other connected TV platforms or free streaming channels. Even with our view that the firm can continue growing at a strong clip, we think the stock is overvalued, as we maintain our $50 fair value estimate.

Roku’s second quarter was about as encouraging as it could be, in our view. Usership and engagement continued to increase impressively, and the company has now maintained positive free cash flow and adjusted EBITDA since both metrics turned positive in the middle of 2023 for the first time since the pandemic-related boom. However, we think continued performance like this is imperative for Roku to warrant its current market value, and we still expect top-line growth to decelerate long term as the firm continues expanding profitability. We are maintaining our $50 fair value estimate, making the stock slightly overvalued following these excellent results.