What They Do
Roku operates the leading streaming TV platform in the U.S., connecting viewers to streaming content while monetizing through advertising and revenue-sharing with content partners. They make money primarily through their platform business—selling ads on their home screen and within streaming channels, taking cuts from subscription services, and licensing their OS to TV manufacturers. Think of them as the "front door" to streaming TV for nearly 100 million households.
Investment Thesis
**Dominant market position driving pricing power**: As the largest connected TV (CTV) platform, Roku can "price up and down the demand curve" in the booming CTV advertising market, with platform revenue growing 18% in 2025**Explosive profitability inflection**: Adjusted EBITDA jumping 50%+ to $635M in 2026 while targeting $1B+ in free cash flow by 2028, driven by operating leverage as revenue scales faster than costs**Untapped monetization runway**: Expanding beyond traditional TV advertising into the $600B SMB advertising market through AI-powered ad tools, plus accelerating international monetization in Mexico and CanadaKey Risks
**Revenue growth deceleration**: Forward estimates show 2026 revenue declining vs. trailing twelve months ($5.5B vs. $5.6B), suggesting potential headwinds in core advertising market**Increasing competition**: Tech giants like Amazon, Google, and Samsung are aggressively investing in their own streaming platforms and smart TV ecosystems, potentially eroding Roku's market shareGrowth Story
Platform revenue is growing 18% annually as Roku approaches the 100 million streaming household milestone in 2026, with management guiding to 21%+ growth in Q1 2026. Growth is driven by expanding ad inventory through new home screen formats, penetrating the massive SMB advertising market via AI-powered tools, and international expansion where monetization is accelerating in key markets like Mexico and Canada.
Profitability Profile
Roku has reached a profitability inflection point with platform gross margins at 52% and expanding, while operating expenses grew only 3% in 2025 due to disciplined cost management and declining stock-based compensation. The company expects adjusted EBITDA margins to expand 267 basis points to 11.6% in 2026, with free cash flow expected to exceed EBITDA and reach over $1 billion by 2028.
Competitive Position
Roku maintains the largest CTV footprint in the U.S. streaming market, giving it unique scale advantages in advertising inventory and pricing power that smaller competitors can't match. While facing intensifying competition from Amazon Fire TV, Google TV, and Samsung's Tizen platform, Roku's early mover advantage and deep content partnerships create switching costs for both viewers and advertisers.
Recent Momentum
Q4 2025 delivered record results with a 17% revenue beat and platform revenue growth of 18%, driving shares higher as investors gained confidence in the sustainability of growth and profitability targets. The quarter featured the biggest-ever premium subscription additions and strong momentum in international markets, validating management's diversification strategy beyond core U.S. advertising.
What Wall Street Thinks
Analysts are increasingly bullish on Roku's path to $1 billion in free cash flow by 2028, though there's ongoing debate about the sustainability of platform revenue growth rates given mixed recent earnings beats. The Street is particularly focused on management's ability to maintain 18%+ platform growth while expanding margins, with AI integration and SMB advertising expansion seen as key growth catalysts.
The Bottom Line
Roku is transitioning from a growth story to a profitable cash-generating machine, leveraging its dominant streaming platform position to capitalize on the massive shift of advertising dollars from traditional TV to connected TV.
