1 Must-Know Risk for Roku Investors

Roku (NASDAQ: ROKU) blew away Wall Street expectations when it revealed its financial results for the fourth quarter of 2024 (ended Dec. 31). Revenue increased 22% year over year to $1.2 billion. And the net loss per share of $0.24 was a huge improvement from the fourth quarter of 2023.

Roku stock is up 25% in 2025 (as of Feb. 20) on positive momentum. But shares are still trading 81% below their peak from July 2021, and they're at a historically cheap price-to-sales ratio of 3.3.

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Consequently, investors might be eyeing this streaming stock as a potential buying opportunity, especially considering how it's positioned to benefit from the ongoing cord-cutting trend.

But before making a move, here's one must-know risk Roku investors need to pay attention to.

Formidable rivals

Most people might know Roku as the purveyor of TVs and media players that allow people to aggregate all of their favorite content subscriptions in one place. This hardware segment drove less than 14% of revenue in 2024.

The other aspect of the business is called the platform segment, where Roku makes money from advertising and subscription agreements. This is where the company's software comes into play.

Roku currently has 89.8 million active accounts that streamed 34.1 billion hours of content in Q4. That reach and engagement is impressive. Management says the business has top market share in the U.S., Canada, and Mexico when it comes to smart-TV operating systems. This highlights Roku's powerful industry positioning.

But Roku is not alone. Competition is fierce. This is the leading risk investors should be mindful of.

While Roku has top market share in North America, it faces intense competition from some corporate heavyweights. Alphabet, Amazon, and Apple all offer their own streaming services (YouTube and YouTube TV, Prime Video, and Apple TV+) and streaming platforms (Google TV, Fire TV, and Apple TV).

Combined, these three tech giants have a market cap of $8.3 trillion (compared to Roku's $13.5 billion). And they have virtually unlimited financial resources, tech talent, and digital ad capabilities to give Roku a run for its money for a long time.

It helps Roku that streaming entertainment isn't the bread-and-butter moneymaker for Alphabet, Amazon, and Apple. This particular market is probably too small to invest more aggressively in, although they have all poured money into acquiring sports rights for their various streaming services. Nonetheless, other strategic objectives have a higher priority.

Whether it's a search engine, e-commerce platform, or consumer hardware, these tech giants see streaming as one piece of the puzzle for their operations. The goal is to create more consumer touch-points that ultimately end up driving greater engagement and revenue across the businesses.

On the other hand, for Roku, streaming is the main purpose. That singular focus can be an advantage. But more success for those tech giants could negatively impact Roku's growth trajectory.

Will Roku stay on top of its game?

The competitive industry setup means consumers have multiple choices when picking a smart-TV operating system. Price, innovative features, partnerships with content companies, and a seamless user experience are likely the most important factors people consider when making a buying decision. To its credit, Roku has clearly excelled in these areas so far.

But it might be more challenging to further penetrate and find success in foreign markets, where competitors have a stronger foothold. The takeaway is that Roku must continue providing significant value for consumers, advertisers, and content companies to maintain its growth. Benefiting all stakeholders is key to long-term relevance.

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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.