Could Buying Roku Stock Today Set You Up for Life?

Roku (NASDAQ: ROKU) recently reported financial results for the three-month period that ended Dec. 31, 2024. Revenue increased 22% year over year to $1.2 billion. The business posted a net loss per share of $0.24, a notable improvement from Q4 2023. These headline figures came in ahead of Wall Street expectations.

After an immediate pop, as of this writing, Roku shares still trade 80% below their peak from July 2021. The company is trying to win back investors. But could buying this streaming stock today set you up for life?

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Ending 2024 on a high note

Roku is benefiting from some solid momentum. It reported healthy gains in all three of its key performance metrics. The company added 4.3 million net new accounts in Q4, bringing the total to 89.8 million, up from 80 million at the end of 2023.

These households streamed a jaw-dropping 34.1 billion hours of content in the last three months. That figure increased 18% year over year. Engagement clearly remains strong, with the average account watching more than four hours of TV per day (data from Q3 2024).

Having so many eyeballs on the platform for so long provides Roku with the ability to monetize all this attention. Average revenue per user increased 4% year over year.

Streaming made up 42.6% of total daily TV viewing time in the U.S. in the month of January. That share continues to grow over time, thanks to the cord-cutting trend.

And there is still sizable potential for advertising dollars to catch up. Roku's operating system, which has top market share in North America, should be a top beneficiary for brands trying to target a large audience.

Path to profitability

Because management has been so focused on growing rapidly in an effort to gain subscribers quickly, it historically spent a lot of money on sales and marketing and research and development. This is still true today.

However, getting to profitability now seems to be the leadership team's focus. Roku reported an operating loss of $39.1 million in the fourth quarter, a substantial improvement from Q4 2023. The positive trend will continue.

The latest shareholder letter says, "We expect to be operating income positive for full year 2026." This is precisely what shareholders should want to see, as it indicates a scalable business model that can become financial sustainable.

According to Wall Street consensus analyst estimates, Roku's earnings per share will total $1.71 in 2027. That would be a massive upgrade from the $0.89 loss posted last year.

High potential

Roku benefits from both the streaming secular trend and the growth of digital advertising. Consequently, the business definitely has lots of potential to keep expanding for a long time.

Investors should take a closer look at the stock, which currently trades at a price-to-sales (P/S) ratio of 3.4. This represents a 63% discount to the historical average of 9.1. At the peak, the P/S multiple was ridiculously high at 33.5. I don't believe the stock is getting anywhere near that level anytime soon.

You might be wondering why the valuation isn't higher. I think there is one main reason supporting the market's concern. Roku faces stiff competition. It goes head-to-head with gargantuan tech juggernauts Apple, Amazon, and Alphabet. All three companies not only have streaming platforms, but offer their own streaming services. And they are the best when it comes to digital ad capabilities.

Provided that Roku can successfully navigate this worry, as it has done to make it to this point, and post strong revenue and earnings growth over the long term, buying shares today could set you up for life. It also helps to invest a larger sum up front and maintain a time horizon measured in decades.

Should you invest $1,000 in Roku right now?

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, and Roku. The Motley Fool has a disclosure policy.