We came across a bullish thesis on Roku, Inc. (ROKU) on Substack by LongYield. In this article, we will summarize the bulls’ thesis on ROKU. Roku, Inc. (ROKU)’s share was trading at $60.42 as of May 5th.
A modern streaming device on an HD TV, showcasing the company’s VOD services.
Roku’s Q1 2025 results reinforce its transformation into a leading streaming platform, with continued strength in its high-margin Platform business driving the company’s performance. Total revenue reached $1.021 billion, up 16% year-over-year, led by a 17% jump in Platform revenue to $881 million. Devices revenue also rose 11% to $140 million, although hardware continued to operate at a gross loss due to aggressive promotions. Platform gross profit increased 18% year-over-year to $464 million, with healthy 52.7% margins, while total gross profit was $445 million. Roku posted a GAAP net loss of $25 million, showing narrowing losses, and delivered $70 million in Adjusted EBITDA. Management reaffirmed full-year 2025 guidance of $3.95 billion in Platform revenue and $350 million in Adjusted EBITDA, signaling confidence in its trajectory. Advertising momentum was particularly notable, with Roku’s ad revenue growing faster than the overall OTT market, aided by ongoing investments in programmatic advertising and demand-side platform integrations. Programmatic now represents a strategic advantage, especially amid tighter advertising budgets, as Roku’s authenticated CTV inventory and flexible buying options resonate with performance-focused advertisers. Importantly, this shift has not cannibalized existing ad sales but rather expanded Roku’s advertiser base, particularly among smaller brands using its self-serve Ads Manager.
The Roku Channel (TRC) has emerged as a critical driver of engagement and advertising growth, now ranking as the second-most engaged app in the U.S. and third globally. Streaming hours on TRC surged 84% YoY, propelled by personalized content recommendations on Roku’s home screen, which accounted for 85% of viewing hours. Roku continues to leverage TRC’s reach through branded sponsorships, partnerships with companies like Apple, and original content. Subscriptions are becoming an increasingly important revenue stream, with “tens of millions” of Roku-billed subscribers and ongoing bundling efforts. The acquisition of Frndly TV, a live TV skinny-bundle service, for $185 million is expected to be EBITDA-accretive in its first year and will integrate Roku’s merchandising and ad tools to accelerate growth. On the hardware side, device sales outperformed expectations, and new product innovations—including updated Roku-branded TVs and streaming players—will expand globally. Roku remains the top smart TV OS in the U.S., Canada, and Mexico, commanding a nearly 40% share of U.S. smart TV sales, providing it with a broad installed base critical for long-term platform monetization.
Roku’s recent update reinforces its path toward long-term profitability, even amid macroeconomic challenges. The company reaffirmed its 2025 outlook, maintaining full-year revenue guidance of approximately $4.55 billion, with $3.95 billion from its high-margin Platform segment. Adjusted EBITDA is projected at $350 million, driven by secular streaming tailwinds and strategic revenue initiatives like new ad products and subscription services, including Frndly. Management remains confident in Roku’s ability to navigate economic headwinds through a diversified revenue mix and evolving monetization strategies. Tariff pressures on devices present a near-term concern, but Roku’s multi-country manufacturing footprint provides flexibility. Modest price hikes on players help offset cost increases, while Roku’s streaming sticks offer cost-conscious consumers an attractive entry point. Even if tariffs slightly dent TV sales, Roku expects to maintain market share. In advertising, while a shift toward non-guaranteed buys is evident, Roku believes its programmatic ad solutions and platform efficiency will support continued revenue growth. The company is actively investing in platform capabilities, with ~$180–190 million allocated in Q1 to R&D and marketing. Despite this, Roku remains focused on cost discipline and aims to achieve positive GAAP operating income by 2026. The board’s approval of recent share repurchases reflects confidence in Roku’s valuation and cash flow prospects. With over half of U.S. broadband households using Roku, expanding ad products, and a growing subscription ecosystem, the company is well-positioned to scale. Roku’s strong Q1 performance, combined with mitigation strategies and innovation in user experience and monetization, positions it for a sustained growth trajectory and a compelling investment case.
Roku, Inc. (ROKU) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 37 hedge fund portfolios held ROKU at the end of the fourth quarter which was 40 in the previous quarter. While we acknowledge the risk and potential of ROKU as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ROKU but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
