Roku stock surged by approximately 14% in pre-market trading on Friday, bringing its year-to-date gains to over 30%. The increase follows Roku’s stronger-than-expected Q4 2024 results, with total revenue climbing 22% to $1.2 billion. Roku’s platform business revenue, which includes subscription and ad sales on Roku devices, exceeded $1 billion, reflecting a 25% year-over-year increase.
Roku’s momentum continues to build. The company recently reported that its global streaming TV household count reached 89.8 million by the end of December and surpassed 90 million in early January. This represents an increase from 85.5 million in Q3 and 80 million in Q4 2023, marking a 12.5% year-over-year rise. Roku also revealed that its smart TVs and streaming boxes now reach nearly half of all U.S. broadband households, a positive development for its high-margin platform business.
Viewer engagement is increasing as more users shift from traditional television to streaming. In Q4, total streaming hours reached 34 billion, up 18% year-over-year. With its extensive data on user behavior, ad performance, and engagement, Roku has ample room for expansion. Additionally, the company has implemented cost controls, limiting operating expense growth to just 2% year-over-year—well below revenue growth. Workforce and office space reductions in 2024 contributed to this efficiency. Operating profit rose 17% to $512.6 million, while free cash flow for 2024 stood at $203 million. As prior investments in research and product development continue to bear fruit, Roku has significant potential to improve its margins. See a scenario on how Roku stock could reach $200.
ROKU stock has experienced volatility over the past four years, with yearly returns fluctuating significantly compared to the S&P 500. The stock delivered returns of -31% in 2021, -82% in 2022, 125% in 2023, and -19% in 2024. The Trefis High Quality Portfolio, a curated selection of 30 stocks, has been considerably less volatile while outperforming the S&P 500 over the same period. Why? HQ Portfolio stocks have historically delivered better risk-adjusted returns, avoiding the extreme fluctuations seen in ROKU stock, as demonstrated in HQ Portfolio performance metrics. With ongoing macroeconomic uncertainties, including interest rate decisions and global conflicts, will ROKU struggle as it did in 2021, 2022, and 2024, or could it stage a recovery?
Currently, Roku stock trades at approximately 3x the consensus 2025 revenue estimate, significantly below the double-digit multiples seen in 2021. However, the company faces increasing competition for ad revenue from major players such as Netflix, Meta, and Alphabet. We estimate Roku’s fair value at $78 per share, which is below its current market price. We are updating our Roku model to reflect its Q4 earnings. See our analysis on Roku Valuation: Expensive or Cheap to understand the factors influencing our price estimate.
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