Where Will Roku Stock Be in 5 Years?

Roku (NASDAQ: ROKU) may finally be on track for a comeback.

The streaming giant has not fostered a genuine recovery from the 2022 bear market. Even as it made consistent, significant gains in streaming households and hours streamed, it has struggled to attain profitability and grow its average revenue per user (ARPU).

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Admittedly, prospective Roku shareholders may want to see further improvements before buying shares. Still, the entertainment stock may finally be ready to deliver for its shareholders over the next five years. Here's why.

Roku's enduring growth

The reason for Roku's struggles is likely its focus after the pandemic's height. Its platform has successfully drawn content creators, viewers, and advertisers to build a platform that benefits all three parties and allows Roku to earn most of its revenue through advertising. Amid that focus, the company prioritized entering new markets and expanding its platform usage over other goals, and by all measures, it has succeeded in these areas.

The number of streaming households is up to 90 million as of the fourth quarter of 2024, 12% higher than one year ago. Over the same timeframe, hours streamed rose 18%, and this includes an 82% increase in viewership for the Roku Channel. These are both testaments to the platform's rising popularity and its potential to drive more revenue through advertising.

More importantly, these growth trends have continued consistently for years, including when users returned to their former offline activities as the pandemic shutdowns ended. Through its efforts, Roku has become the No. 1 TV operating system (OS) in the U.S., Canada, and Mexico, and has built partnerships across Latin America and the U.K.

The improving financial picture

Amid such moves, Roku had sacrificed financial gains to build viewership, but that strategy appears to be paying off now.

In Q4, ARPU reached $41.49, and while the 4% yearly increase may not sound impressive, it has improved from the -4% growth one year ago. This indicates that the initial focus on growing its user base may have finally begun to bear fruit for the streaming giant. Consequently, that rising ARPU could serve as the catalyst for Roku's development over the next five years.

Now, the company will not report ARPU and streaming household figures in every quarterly report going forward. Instead, management may break out this helpful metric when it hits important milestones. The new key performance metrics will be streaming hours, platform revenue, adjusted EBITDA, and free cash flow. It's not apples to apples, but the streaming hours should serve as a guide to the unreported household engagement data.

Roku's overall financials have also improved. Indeed, Roku's $4.1 billion revenue in 2024 reflects an 18% revenue growth rate that has not changed dramatically from past years. The $129 million in losses in 2024 is also an improvement from the $710 million loss in 2023, but is not the profitability many investors want.

Nonetheless, the company generated $203 million in positive free cash flow in 2024, as the $385 million in stock-based compensation is the only remaining obstacle to profitability. As a result, Roku stock sells at 52-week highs and may have possibly begun its long-awaited recovery.

Amid net losses, it has no price-to-earnings (P/E) ratio, but with its recovery, it sells at a price-to-sales (P/S) ratio of just under 4. This is a tiny fraction of its pandemic high, when share prices peaked at $490 per share in mid-2021, and it briefly sold for more than 30 times sales. Such a performance shows where the stock can go if investor confidence returns to Roku stock within the next five years.

ROKU PS Ratio data by YCharts.

Roku in five years

Given current conditions, Roku stock could see a massive surge over the next five years, and it's likely to beat the market whether or not more optimistic forecasts come to pass.

Indeed, ongoing net losses and the slow growth in ARPU have long frustrated investors. The stock also trades at a small fraction of its 2021 high, likely contributing to years of frustration for Roku's long-term shareholders.

Nonetheless, Roku has patiently built a track record of rising user numbers and increased platform usage. It already has the leading OS in North America, and its moves into other markets should bode well for the company in the coming years.

Moreover, the long-awaited rise in ARPU has finally begun, a factor that could bring its low valuation back into focus. Due to that improvement, Roku may finally have the catalyst it needs to make significant stock gains over the next five years.

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Will Healy has positions in Roku. The Motley Fool has positions in and recommends Roku. The Motley Fool has a disclosure policy.