To The Moon

Right, let’s dive into Roku, a company that’s practically synonymous with streaming. The burning question (other than whether we’ll ever stop losing the remote) is: Is $Roku Inc(ROKU)$ the stock to watch in 2025? Grab your popcorn, because we’re about to dissect this digital powerhouse and see if it deserves a starring role in your portfolio.

Streaming beyond the screen—Roku’s digital empire in motion

A Flick Through the Financials: More Than Just a Pretty Interface

The numbers paint an intriguing picture. Double-digit revenue growth? Check. Expanding streaming households? Check. A significant increase in trailing 12-month free cash flow, hitting $157 million by Q3 2024? That’s a big green flag. While Roku is still posting operating losses, this cash flow momentum suggests that profitability isn’t just a distant dream—it’s a realistic destination. For investors, that’s a crucial detail reinforcing the bullish case.

Q4 and Beyond: Will the Show Go On?

With all this in mind, Q4 results take on added significance. The advertising market's recovery will be under the microscope, but more importantly, so will Roku’s march towards profitability. Management's cost-cutting efforts have already led to narrowing operating losses. If that trend continues into 2025, we could be looking at a turning point. I’ll also be keeping an eye on any hints about international expansion and monetisation strategies—two levers that could unlock the next stage of growth.

The Streaming Wars: Can Roku Keep Its Crown?

Roku's dominance in the US, Canada, and Mexico is no small feat. With its operating system leading the pack, it remains a cornerstone of the streaming ecosystem. The platform segment, delivering strong gross profit growth, is the real money-maker here. Meanwhile, the device segment, despite its losses, plays a crucial role in funnelling users into this profitable ecosystem. Add international expansion to the mix, and Roku has multiple growth avenues in play.

Beyond the Box: More Than Just a Streaming Stick

Roku isn’t just a hardware company; it’s a data powerhouse. As targeted advertising becomes more sophisticated, Roku’s treasure trove of viewing habits could be a goldmine. The company’s push into new revenue streams, such as monetising its home page, suggests a proactive approach to maximising earnings. In a world where attention is currency, $Roku Inc(ROKU)$ is sitting on a valuable asset.

What the Market Might Be Missing: A Bargain in Plain Sight?

Roku vs. S&P 500—Is the market catching up

At a price-to-sales ratio of around 3—roughly in line with the S&P 500 average—Roku seems modestly valued given its growth potential. The recent stock rebound suggests that investors are starting to catch on. And let’s not forget $Netflix(NFLX)$ strong performance, which has lifted sentiment across the streaming sector. If the market is underestimating Roku’s trajectory, there may be a window of opportunity for savvy investors.

Scaling new heights—Can Roku redefine the streaming landscape?

My Recommendation: A Stronger Conviction

Taking all this into account, my confidence in Roku’s potential has only grown. Strong revenue growth, improving profitability, a dominant platform position, and a valuation that doesn’t yet reflect its upside—all these factors make a compelling investment case. I maintain my ‘buy’ rating and would now consider a larger initial position. That said, Q4 results remain a key checkpoint. Risks from competition and the advertising market persist, but right now, Roku's strengths seem to outweigh them.

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