Roku (NASDAQ: ROKU) shares are down 18% in 2024, according to data he provided S&P Global Market Intelligence. The market has been wary of the competition and is losing patience with its losses.
Roku is America’s best streaming platform. More people buy and use its streaming devices than any competitor, including Amazon. It is also the top platform in Canada and Mexico, and is starting to play an increasing role for international business.
The appliance business comes with low margins. Although this is what Roku is commercially known for, Roku actually makes a lot more money from its ad segment. The two, however, work together in an important dance. When users purchase a Roku device, they receive a Roku account to access all streaming networks available on the platform, including Roku’s free channels. More users means more viewers and more room for Roku to place ads and make more sales with more profit. The ads business accounted for 85% of the total in Q3 2024 and achieved a gross margin of 54.2%.
However, Roku is still not profitable. It posted a net loss of $94 million for the first nine months of 2024, although that was better than $631 million last year. Management predicts a loss of $65 million in the fourth quarter. Wall Street expects a loss of $0.85 per share in 2025.
Part of the market’s concern is that it has not been able to increase average revenue per user. Management claims this is due to international expansion, which is key to sustaining growth, but the ad business is yet to follow.
Finally, the market took it hard when Walmart announced that it would buy Roku competitor Vizio back in February. It was completed in December.
The market wasn’t very forgiving of Roku’s downsides last year, but there were plenty of positives throughout the year. The third quarter was the fifth consecutive positive adjusted quarter earnings before interest, taxes, depreciation and amortization (EBITDA) and free cash flow, and the net loss is improving as sales continue to grow. It finds new ways to generate growth, from international expansion to innovative ad launches and partnerships. It recently started showing ads on its homepage, so even viewers who go to the premium streaming channel see ads.
The market is starting to sense an opportunity here, with Roku shares up 32% over the past six months.
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