Roku (NASDAQ: ROKU) stock dropped 18% in 2024 based on data provided by S&P Global Market Intelligence. The market was wary of competition and is losing patience with its losses.
Roku is the highest U.S. streaming platform. More people buy and use its streaming devices than any competitor, including Amazon. It is also the highest platform in Canada and Mexico, and it’s beginning to make a much bigger play for international business.
The device business comes with low margins. Although it’s what Roku’s known for commercially, Roku actually makes way more money from its ad segment. The 2 work together, though, in a very important dance. When users buy a Roku device, they get a Roku account to access the entire streaming networks available on the platform, including Roku’s free channels. More users means more viewers and more room for Roku to position ads and make more, higher-profit sales. The ad business accounted for 85% of the whole within the 2024 third quarter and produced a 54.2% gross margin.
Nonetheless, Roku still is not profitable. It reported a $94 million net loss for the primary nine months of 2024, although that was higher than $631 million last 12 months. Management is guiding for a $65 million loss within the fourth quarter. Wall Street is expecting an $0.85 loss per share in 2025.
A part of the market’s concern can also be that it hasn’t been capable of increase average revenue per user. Management is claiming that is on account of its international expansion, which is crucial for maintaining its growth, however the ad business is not following yet.
Finally, the market took it hard when Walmart announced that it could acquire Roku competitor Vizio back in February. That was accomplished in December.
The market wasn’t very forgiving of Roku’s deficits last 12 months, but there have been many positives all year long. The third quarter was the fifth consecutive quarter of positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) and free money flow, and net loss is improving while sales proceed to extend. It’s finding latest ways to generate growth, from the international expansion to progressive ad launches and partnerships. It recently began showing ads on its home page, so even viewers who will go to a premium streaming channel see ads.
The market is beginning to sense the chance here, and Roku stock is up 32% over the past six months.
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