After Wall Street Beat, Here's What I'm Waiting for With Roku
The streaming firm posted top- and bottom-line results that beat expectations and if the shares do this next, I'd initiate a position.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
On Thursday evening, Roku ROKU released the firm's fourth quarter financial results. For the period ended December 31, 2024, ROKU posted a GAAP EPS of $-0.24 on revenue of $1.201 billion.
These top- and bottom-line results both beat Wall Street's expectations while that sale sprint reflected year-over-year growth of 21.9%. That pace of growth was the hottest posted by the firm since Q1 2022. Streaming households were up 9.8 million (+12.3%) to $89.8 million. Streaming hours were up 21.1 billion (+19.9%) to $127.1 billion. Finally, average revenue per user (ARPU) was up 4% (trailing 12 months) to $41.49.
As a reminder, in the press release, starting with the current quarter, ROKU will no longer provide quarterly updates on streaming households and, by extension, ARPU and will instead focus on the overall financial information.
Roku Operations
Within that 21.9% sales growth to $1.201 billion, Platform drove revenue of $1.035 billion (+24.8%) and Devices generated revenue of $164.7 million (+6.5%). Total cost of revenue grew 25.9% to $688.5 million, leaving a gross profit of $512.579 million (+17%). That put the firm's gross margin at 42.7%, down from 44.5%. Interestingly, Platform drove a gross margin of 54.1%, while Devices posted a gross loss.
Operating expenses landed at $551.704M (+1.7%), as GAAP operating income/loss improved from $-104.168 million to $-39.125 million. After accounting for interest, other income and expenses, and taxes, GAAP net income/loss printed at $-35.548 million, up from $-78.291 million. This put the firm's EPS at $-0.24 versus the year-ago comp of $-0.55.
It should be pointed out that Roku, like a big kid, recorded $101.538 million in stock-based compensation and $15.085 million in depreciation and amortization as ordinary operating expenses. Many firms, even more mature firms, do not do that. Adjusted for these items, EBITDA was decisively positive at $77.498 million.
Roku Stock Fundamentals
For the full year, ROKU generated operating cash flow of $218.045 million. Out of that number came capex spending of just $5.061 million and a negative FX headwind of $9.746 million, leaving free cash flow of $203.238 million. The firm does not return capital to shareholders.
Looking at the balance sheet, Roku ended the period with a cash position of $2.16B billion and inventories of $158.3 million. This puts current assets at $3.234 billion. Current liabilities add up to $1.233 billion. This includes no short-term debt, and deferred revenue (which is not a true financial obligation) of $105.7 million.
At the headline level, the firm closed out the period with current and quick ratios of 2.62 and 2.49, respectively. That's a very strong position to be in. Once adjusted for deferred revenue, these ratios improve to 2.87 and 2.73 in that order.
Total assets amount to $4.304 billion including goodwill and other intangibles of just $189 million. Total liabilities less equity comes to $1.811 billion. There's no long-term debt on the books either. The firm can boast a very healthy current situation and has no debt of any kind on its books.
Roku Stock Guidance
For the current quarter, ROKU sees revenue of $1.005 billion, which would be good for growth of 14%. This is very close to in-line with what Wall Street was looking for. The firm sees Platform sales growing 16% and Devices sales largely as flat. Gross profit is projected at $450 million and adjusted EBITDA at $55 million.
For the full year, the firm estimates total revenue generation of $4.61 billion, total gross profit of $3.95 billion and adjusted EBITDA of $350 million. That full-year sales number would be good for growth of roughly 12% but would fall just a hair short of consensus view.
Perhaps most importantly, in the press release materials, CEO Anthony Wood and CFO Dan Jedda co-wrote, "In addition, we expect to be operating income positive for (the) full year 2026."
That may be a year away, but that was the engine behind the firm's overnight pop.
Wall Street on Roku
Since these earnings were released on Thursday night, I have come across 15 high-rated (four-plus stars at TipRanks) sell-side analysts that have opined on ROKU. Among the 15, there are 11 "buy" or buy-equivalent ratings, three "hold" or hold-equivalent ratings and one outright "sell" rating. After allowing for changes, the average target price across the 15 is $109.33 with a high of $130 (Daniel Kurnos of Benchmark) and a low of $58 (Michael Nathanson of MoffettNathanson).
Once omitting those two as possible outliers, the average target price across the remaining 13 analysts rises to $111.69. The average target among the "buys" stands at $120.18, while the average target among the non-buys is $79.50.
My Thoughts on Roku Stock
There's a good bit to like here. The firm is moving towards profitability and would already be there on an adjusted basis, which is how many other firms in their position present their numbers. Cash flows are positive, and the balance sheet is as solid as a rock. No debt. No chinks in the armor. This is a good business that's getting better.
Readers will see a very large cup pattern that is yet to or may never develop a handle. The gap created last February was recently filled. Now, there's a new one. Both the 50-day and 200-day SMAs are in the rear-view mirror, which is positive. Relative strength is spiking and the daily MACD just experienced a bullish move by the 12-day EMA above the 26-day EMA.
The current pivot is the apex of the left side of the cup which is $108. That would allow for a target price as high as $124 even with today's 12% pop. Would I add or initiate this morning? No. ROKU is certainly investible.
My idea would be to wait for some pull back after Friday's move that could create what would look like the addition of a handle to the cup. That would move the pivot to the right side of the cup and create for the investor, a less expensive point of entry. I would look for the stock to at least try to fill a portion of Friday morning's gap.
At the time of publication, Guilfoyle had no positions in any securities mentioned.
