Roku (ROKU)

Streaming TV platform Roku (NASDAQ: ROKU) met Wall Streets revenue expectations in Q3 CY2025, with sales up 14% year on year to $1.21 billion. The company expects next quarter’s revenue to be around $1.35 billion, coming in 2% above analysts’ estimates. Its GAAP profit of $0.16 per share was 96.9% above analysts’ consensus estimates.

Company Overview

With a name meaning six in Japanese because it was the founder's sixth company that he started, Roku (NASDAQ: ROKU) makes hardware players that offer access to various online streaming TV services.

Consumers today expect goods and services to be hyper-personalized and on demand. Whether it be what music they listen to, what movie they watch, or even finding a date, online consumer businesses are expected to delight their customers with simple user interfaces that magically fulfill demand. Subscription models have further increased usage and stickiness of many online consumer services.

A company’s long-term sales performance is one signal of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last three years, Roku grew its sales at a decent 13.3% compounded annual growth rate. Its growth was slightly above the average consumer internet company and shows its offerings resonate with customers.

This quarter, Roku’s year-on-year revenue growth was 14%, and its $1.21 billion of revenue was in line with Wall Street’s estimates. Company management is currently guiding for a 12.4% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 11.1% over the next 12 months, a slight deceleration versus the last three years. Still, this projection is above average for the sector and implies the market is forecasting some success for its newer products and services.

User Growth

As a subscription-based app, Roku generates revenue growth by expanding both its subscriber base and the amount each subscriber spends over time.

Over the last two years, Roku’s total hours streamed, a key performance metric for the company, increased by 18.7% annually to 36.5 billion in the latest quarter. This growth rate is among the fastest of any consumer internet business and indicates its offerings have significant traction.

In Q3, Roku added 4.5 billion total hours streamed, leading to 14.1% year-on-year growth. The quarterly print was lower than its two-year result, suggesting its new initiatives aren’t accelerating user growth just yet.

Revenue Per User

Average revenue per user (ARPU) is a critical metric to track because it measures how much the average user spends. ARPU is also a key indicator of how valuable its users are (and can be over time).

Roku’s ARPU fell over the last two years, averaging 11.4% annual declines. This isn’t great, but the increase in total hours streamed is more relevant for assessing long-term business potential. We’ll monitor the situation closely; if Roku tries boosting ARPU by taking a more aggressive approach to monetization, it’s unclear whether users can continue growing at the current pace.

This quarter, Roku’s ARPU clocked in at $0.03. It declined 99.9% year on year, worse than the change in its total hours streamed.

For internet subscription businesses like Roku, gross profit tells us how much money the company gets to keep after covering the base cost of its products and services, which typically include customer service, data center and infrastructure expenses, royalties, and other content-related costs if the company’s offerings include features such as video or music.

Roku’s gross margin is below the broader consumer internet industry, giving it less room to hire engineering talent that can develop new products and services. As you can see below, it averaged a 44% gross margin over the last two years. Said differently, Roku had to pay a chunky $55.98 to its service providers for every $100 in revenue.

In Q3, Roku produced a 43.4% gross profit margin, down 1.8 percentage points year on year. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting its input costs have been stable and it isn’t under pressure to lower prices.

Unlike enterprise software that’s typically sold by dedicated sales teams, consumer internet businesses like Roku grow from a combination of product virality, paid advertisement, and incentives.

It’s relatively expensive for Roku to acquire new users as the company has spent 49.6% of its gross profit on sales and marketing expenses over the last year. This inefficiency indicates that Roku operates in a competitive market and must continue investing to maintain an acceptable growth trajectory.

Roku has managed its cost base well over the last two years. It demonstrated solid profitability for a consumer internet business, producing an average EBITDA margin of 6.6%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.

Looking at the trend in its profitability, Roku’s EBITDA margin rose by 4.1 percentage points over the last few years, as its sales growth gave it operating leverage.

In Q3, Roku generated an EBITDA margin profit margin of 9.7%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Revenue trends explain a company’s historical growth, but the change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

In Q3, Roku reported EPS of $0.16, up from negative $0.06 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street is optimistic. Analysts forecast Roku’s full-year EPS of negative $0.20 will flip to positive $0.56.

Although EBITDA is undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Roku has shown impressive cash profitability, giving it the option to reinvest or return capital to investors. The company’s free cash flow margin averaged 10.8% over the last two years, better than the broader consumer internet sector.

Taking a step back, we can see that Roku’s margin expanded by 21 percentage points over the last few years. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability.

Roku’s free cash flow clocked in at $443 million in Q3, equivalent to a 36.6% margin. This result was good as its margin was 30.2 percentage points higher than in the same quarter last year, building on its favorable historical trend.

Companies with more cash than debt have lower bankruptcy risk.

Roku is a well-capitalized company with $2.30 billion of cash and $457.4 million of debt on its balance sheet. This $1.84 billion net cash position is 12.7% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We were impressed by Roku’s optimistic EBITDA guidance for next quarter, which blew past analysts’ expectations. We were also glad its full-year EBITDA guidance trumped Wall Street’s estimates. On the other hand, its number of total hours streamed missed. Overall, this print had some key positives. The market seemed to be hoping for more, and the stock traded down 6% to $94 immediately after reporting.

Updated: December 3, 2025 at 9:30 PM EST

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

We think Roku is a solid business. First off, its revenue growth was good over the last three years, and analysts believe it can continue growing at these levels. And while its gross margins make it more difficult to reach positive operating profits compared to other consumer internet businesses, its rising cash profitability gives it more optionality. On top of that, its EPS growth over the last three years has been fantastic.

Roku’s EV/EBITDA ratio based on the next 12 months is 28.9x. This valuation tells us that a lot of optimism is priced in. Add this one to your watchlist and come back to it later.

Wall Street analysts have a consensus one-year price target of $110.67 on the company (compared to the current share price of $92.90).