A year (NASDAQ: ROKU) Stock fell 18% in 2024 according to data provided by S&P Global Market Intelligence. The market was wary of competition and is losing patience with its losses.
Roku is the top US streaming platform. More people buy and use its streaming devices than any competitor, including Amazon. It is also the best platform in Canada and Mexico, and is starting to make more play for international business.
The device business comes with low margins. While that's what Roku is known for commercially, Roku actually makes a lot more money from its advertising segment. The two work together, though, in an important dance. When users buy a Roku device, they get a Roku account to access all the streaming networks available on the platform, including Roku's free channels. More users means more viewers and more space for Roku to place ads and make more higher profit sales. The advertising business accounted for 85% of the total in the third quarter of 2024 and produced a gross margin of 54.2%.
However, Roku is still not profitable. It reported a net loss of $94 million for the first nine months of 2024, although that was better than last year's $631 million. Management is guiding for a loss of $65 million in the fourth quarter. Wall Street expects a loss of $0.85 per share in 2025.
Part of the market's concern is also that it has not been able to increase average revenue per user. Management claims that is due to its international expansion, which is essential for sustaining its growth, but the advertising business is yet to follow.
Finally, the market took hard when Walmart announced it would acquire Roku competitor Vizio back in February. That was completed in December.
The market was not very forgiving of Roku's shortcomings last year, but there were many positives throughout the year. The third quarter was the fifth consecutive quarter of positive adjustments earnings before interest, taxes, depreciation and amortisation (EBITDA) and free cash flow, and net loss improving while sales continue to increase. It finds new ways to generate growth, from international expansion to innovative ad launches and partnerships. It recently started showing ads on its home page, so even viewers who go to a premium streaming channel see ads.
The market is starting to sense this opportunity, and Roku stock is up 32% over the last six months.
Before you buy stock in Roku, consider this: