Roku Inc (NASDAQ: ROKU) reported a stellar second-quarter performance on Thursday after the market close, with earnings significantly surpassing Wall Street expectations. The company's net profit soared more than 15 times year-over-year to a record $164.2 million, driven by a 22% revenue increase to $1.35 billion—beating the average analyst estimate of $1.3 billion.
Both advertising and subscription revenues grew by over 25% in the quarter, reaching $673 million and $548 million respectively. This growth was fueled by major live events like the World Cup, highlighting Roku's evolution from a simple streaming device provider into a high-margin platform that controls TV search, discovery, payments, and ad budget allocation.
The company reported dilutive earnings per share of $1.08, which was double the analyst consensus. This marks the fifth consecutive quarter of profit for Roku after years of losses, and its free cash flow over the past twelve months hit a record $704 million.
This quarterly report is the first since Fox Corporation announced a $22 billion acquisition of Roku in mid-June, a deal expected to close in the first half of 2027. Citing the pending transaction, Roku did not hold an earnings call or provide forward-looking financial guidance.
Why Roku's Platform Evolution Matters
Roku's core business is not about selling streaming hardware but operating a TV operating system, exclusive content distribution, and a programmatic advertising marketplace. The company's low-margin or loss-leading hardware, like players and TVs, expands the Roku OS user base.
Once over 100 million households are on the platform, Roku monetizes through home screen recommendations, video ads, The Roku Channel, subscription distribution, and transaction fees. The new home screen update, launched in late May as the largest in over a decade, focuses on enhancing content discovery and user retention, while first-party viewing data improves ad targeting and effectiveness.
This creates a powerful two-sided network effect: more devices and viewing time lead to more ad inventory and subscription transactions, which generate higher platform revenue to subsidize further hardware expansion.
Fox Acquisition and Financial Outlook
In their shareholder letter, Roku's founder, chairman, and CEO Anthony Wood, along with CFO and COO Dan Jedda, stated: "We believe Roku's scale, platform strategy, and financial strength position us to continue leading the TV streaming evolution while achieving sustainable long-term growth. Fox's proposed acquisition is a remarkable opportunity to accelerate our vision."
Fox CEO Lachlan Murdoch reiterated the rationale for the deal on Fox's earnings call, saying: "Roku brings scaled streaming capabilities through its open, partner-friendly platform, making it a leading TV streaming platform in the U.S. The combined Fox-Roku will unite premium live content, deep market relationships, and leading platform capabilities to meet evolving consumer and advertiser needs."
Under the transaction terms, Fox will pay approximately $14.2 billion in cash at $96.00 per share, plus 0.9693 Fox Class A shares for each outstanding Roku share. Based on Fox's latest stock price of about $61.79, the implied consideration is roughly $155.89 per share, compared to Roku's closing price of about $150.07, leaving a spread of approximately 3.9%.
Fox CFO Steve Tomšič noted that the combined company's expected net leverage is about 2.8 times, providing significant capital allocation flexibility. He expects Fox's stock buyback program to continue "uninterrupted" during the deal's pendency and after completion.
Profit Quality and Operating Leverage
The second quarter showcased not just revenue beat but a simultaneous improvement in profit quality and operating leverage. Revenue of $1.35 billion was about 3.8% above the LSEG consensus of $1.3 billion and 4.2% above Roku's own guidance of $1.295 billion.
Net profit jumped from $10.5 million a year ago to $164.2 million, with diluted EPS rising from $0.07 to $1.08—77% above the FactSet estimate of $0.61. Platform revenue grew 25% to $1.22 billion with a 53% gross margin, while total streaming hours of 37.9 billion only grew 7%, indicating that revenue growth is significantly outpacing usage growth due to improved monetization per unit, ad prices, and subscription conversion rates.
Roku originally expected Q2 net profit of about $90 million, but actual results were 82% higher. The record free cash flow of $704 million confirms that the profit inflection point has upgraded from short-term cost compression to sustainable cash generation.
Given the pending Fox acquisition, Roku has not updated its fiscal 2026 outlook, which remains at total revenue of approximately $5.535 billion, platform revenue of $5 billion, adjusted EBITDA of $675 million, and net profit of $360 million, with a target of $1 billion in free cash flow by 2028 at the latest.
While the strong earnings report enhances the fundamental safety net before the deal closes, Roku's near-term stock price is now primarily driven by Fox's stock price, regulatory approvals, and the probability of the transaction's completion, rather than traditional earnings upgrades and valuation expansion. The long-term operational synergies and valuation upside will increasingly shift toward the combined Fox-Roku platform.
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