Title: Unveiling the Factors Behind Roku's Stock Surge
Roku's shares soared around 6% during Wednesday's trade, up approximately 12% since the new year started. Contrastingly, streaming giant Netflix has seen a decline of 2% since the beginning of 2025. The surge in Roku's shares comes after the company revealed its Q4 results, revealing an impressive increase in streaming households worldwide to 89.8 million by December 31st, exceeding the 90 million mark in early January. This marks a substantial growth of about 12.5% compared to the same period the previous year.
Roku's platform business, comprising subscription and advertising revenues, exceeded $908 million in Q3 2024, with gross profits amounting to nearly $492 million. Streaming platform engagement on Roku is also on the rise, with 32.0 billion hours during Q3, a 5.3 billion-hour increase compared to the previous year.
Roku houses an abundance of valuable user behavior, ad performance, and engagement data, which they can leverage to scale up their business. The company reported a significant reduction in operating costs by 17% during the first nine months of 2024, mainly due to workforce and office space reductions in 2023. This contributed to a high free cash flow of over $157 million for the trailing 12 months.
Roku's stock performance over the past four years has been less stable than the S&P 500, with more volatile annual returns. Yet, Trefis’ High Quality Portfolio, comprising 30 stocks, has delivered better returns with less risk compared to the S&P 500 index. Given the current uncertain macroeconomic climate, it remains unclear if Roku will underperform the S&P 500 over the next 12 months or experience a recovery.

Roku's stock currently trades at only 3x estimated 2024 revenue, which is lower than the double-digit multiples it held in 2021. While Roku faces challenges such as competition for advertising-related revenue with tech giants like Netflix, Meta, and Alphabet, some analysts consider it undervalued, with a fair value of around $151 per share.
In conclusion, while Roku faces hurdles in terms of valuation and profitability, its promising revenue growth potential, strategic partnerships, and improving ad demand bode well for its long-term success. However, achieving profitability and coping with competitive pressures are critical to Roku's sustained growth.
Roku's current valuation, with its shares trading at just 3x estimated 2024 revenue, is lower than the multiples it held in 2021, indicating potential undervaluation. Despite this, Roku's Q3 2024 platform revenue exceeded $908 million, contributing to a high free cash flow of over $157 million for the trailing 12 months.