Roku reported its first quarterly operating profit since 2021.
Management expects double-digit platform revenue growth and improving operating margins to continue through 2026.
Based on Netflix’s recent results, there’s still plenty of room for growth for Roku.
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roku (NASDAQ:ROKU) The stock has struggled since the pandemic, as the brief surge in streaming demand turned out to be more of a curse than a blessing for the leading streaming distribution platform.
The company increased spending and hiring before the pandemic ended and has since been trying to downsize and streamline the business. That process took a big step forward Thursday after the company reported an operating profit ahead of schedule and for the first time since 2021.
Under generally accepted accounting principles (GAAP), the company posted an operating profit of $9.5 million, compared to a loss of $35.8 million in the prior-year quarter.
Overall growth was also strong, with platform revenue up 17% to $1.07 billion and up 14% to $1.21 billion, which was in line with estimates. Usage also continued to grow steadily, with streaming hours increasing 14% year over year to 36.5 billion.
Gross margin declined in the quarter, a sign that direct costs are growing faster than revenue. However, the company was able to become profitable by keeping operating expenses such as research and development and sales and marketing stable.
On balance, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were $116.9 million, up 19% from the prior-year quarter, and GAAP earnings per share were $0.16, compared to a loss per share of $0.06.
Image source: Roku.
Roku’s efforts to expand integrations with demand-side platforms like Amazon and The commercial table They are bearing fruit as the demand for advertising is increasing and giving it greater capacity to serve advertisers. Its own ad manager, which serves small and medium-sized businesses, is also seeing strong growth.
It’s also improving the advertising product with better measurement tools and other features that help advertisers improve their campaigns and understand what’s working.
Mastering the advertising product will be key to Roku’s continued growth, as advertising is the source of a substantial portion, if not most, of its revenue.
It is also making key product improvements, such as the launch of its popular Sports Experience, which makes it easier for viewers to find sports content in Mexico. It also added AI capabilities to Roku Voice so it can serve as an intelligent entertainment guide, rather than just receiving commands. Roku now also offers users AI-generated “Why Watch” summaries to help viewers find content.
The post-pandemic success of netflix It’s a reminder that the streaming market is huge and growing. Roku is not a global company like Netflix is, but it is the main streaming operating system in the United States, Canada and Mexico, and is expanding to other places, such as Latin America.
Additionally, while the business has struggled in recent years, usage growth has been strong. Roku stopped reporting quarterly user numbers, but it does disclose streaming hours, and that’s still growing rapidly — a good sign that it’s adding new users and that existing users are engaging more with the platform.
The long road back to profitability has been frustrating for investors, but it’s a good sign that Roku made it ahead of schedule, having previously targeted 2026 for a profit.
Management said it was confident it would deliver double-digit growth in platform revenue and improve operating margins in 2026 and beyond. For the fourth quarter, the company forecasts platform revenue growth of 15% and total revenue growth of 12%. It also raised its full-year guidance to $4.11 billion in revenue and $395 million in adjusted EBITDA.
Roku is a difficult company to value. In terms of price-to-sales ratio, the stock is valued at a multiple of less than 4, which seems reasonable, especially for a company that remains the leading streaming distribution platform and has the ability to quickly build operating leverage if it can continue to keep operating expenses stable.
Roku is a risky stock, but it still has the potential to double or improve from here. For growth investors, it makes sense to have some exposure to Roku.
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Jeremy Bowman has positions at Amazon, Netflix, Roku, and The Trade Desk. The Motley Fool ranks and recommends Amazon, Netflix, Roku, and The Trade Desk. The Motley Fool has a disclosure policy.
Roku just reached a big milestone. Are streaming stocks finally a buy? was originally published by The Motley Fool
