Roku Is Not A Hardware Company - It’s A Mispriced Ad Tech Platform
Image Source: Unsplash
Roku’s (ROKU) built a strong position in the connected TV space, and it’s not just about having a big user base—it’s the combination of reach, data, and direct distribution that gives it real staying power. But despite all that, the market still seems to lump Roku in with hardware makers or traditional media companies, rather than recognizing it as the high-growth, ad-tech-heavy platform it actually is. That disconnect has kept its valuation lower than it arguably should be. The thing is, Roku’s business model has evolved. With rising engagement, better margins, and multiple ways to make money—from ads and subscriptions to shoppable TV and data monetization—it’s set up not just for steady growth, but for real compounding and potential re-rating over time.
A primer
Let’s take a step back a provide proper context. Roku’s basically a way to stream TV and movies over the internet instead of going the old-school cable or satellite route. It pulls everything into one place—Netflix, Prime Video, and tons of others (including its own free channel, the Roku Channel)—so you don’t have to jump between a bunch of apps or devices.
But here’s where it gets a little confusing: Is Roku an app? A device? A TV? Well, it’s actually all three, but for investors what matters is that most of Roku’s revenue actually comes from what happens after you buy the device or get the app.
Roku makes most of its money through what’s called platform revenue, which is really the heart of their business. A big chunk comes from advertising—whether it’s on the Roku home screen or inside apps like the Roku Channel, which is free to watch but supported by ads. They also earn a cut from subscriptions. So, if you sign up for a service like Netflix or Max directly through Roku, they typically take a small percentage of that fee. On top of that, streaming platforms sometimes pay Roku extra to get better visibility or prime placement on the platform.
Roku also brings in money through hardware sales—like their streaming sticks, boxes, and Roku-branded TVs. But those are usually priced pretty affordably. The goal is to get more people using Roku, because the real profits come once users start streaming and engaging with content.
Roku’s Strategic Overview
On the engagement side, Roku continues to double down on its operating system—what it calls the “Roku Experience”—to keep people watching longer. They’re investing in features like AI-powered recommendations, curated content zones (like the Roku Sports Zone or Food Zone), and personalized discovery tools to make the home screen smarter and stickier.
The Roku home screen plays a major role in this monetization strategy. With 125 million daily viewers using it as a launch point, it’s valuable real estate for ad placements, content sponsorships, and subscription pushes. AI-powered suggestions on the home screen have helped increase premium subscriptions, and themed zones (like the NFL Zone or Super Bowl events) give advertisers new sponsorship opportunities.
Then there’s The Roku Channel (TRC), which has seen explosive growth—up 82% year-over-year in Q4 2024. It’s now the third most-used app on Roku’s platform, and its rise has come without relying on expensive original productions. Instead, it’s driven by smart UI placement, curated content, and new programming like live sports (NBA G League, X Games) and sponsored originals with big-name brands like Pepsi and Coca-Cola. All of this supports ad revenue growth on TRC, which is becoming an increasingly important piece of Roku’s overall revenue engine.
Roku is also expanding its premium subscription offerings. With services like Max, Crunchyroll, and BET+ (ad-supported tiers included) now available, Roku is using its scale, user data, and subscription marketing tools to attract and retain subscribers. Q4 2024 even saw a record high in new premium subs.
Strongest Roku Products Right Now
Roku’s biggest strength remains its TV operating system. It’s been the number one TV OS in North America for years, thanks to its simple design, affordable pricing, and strong brand loyalty. The Roku Channel is another standout—fast becoming one of the platform’s top drivers of ad revenue and user engagement, especially with its new live sports offerings and growing reach. Lastly, Roku’s ad products are thriving. Unique formats like Marquee video ads, Roku City sponsorships, Action Ads, and integrated shopping experiences are generating strong returns and have made advertising the company’s fastest-growing revenue stream.
Financials
Let’s now see how the company’s strategy turns into financial performance. Roku delivered a strong Q4 2024, with revenue up 22% year-over-year, driven largely by its Platform segment, which saw major gains from advertising and subscription growth. Political ad spending gave the quarter an extra boost. Device sales also rose modestly, helped by Roku-branded TV expansion, despite some heavy seasonal discounting.
Source: Roku
Profitability showed meaningful improvement across the board. Operating and net margins both narrowed their losses, and gross margin remained healthy overall, even as Device margins stayed deep in the red. Operating expenses were tightly controlled, growing just slightly YoY, reflecting Roku’s discipline while still supporting product and market expansion.
Source: YCharts
EBITDA jumped 62% YoY, and free cash flow hit $203 million, showing that Roku is becoming more operationally efficient and better at monetizing its platform. On the balance sheet side, the company boosted its cash reserves, kept a low debt-to-assets ratio, and maintained a strong liquidity position.
Source: YCharts
Operationally, Roku added millions of users, streamed more hours, and raised its ARPU—all signs that users are not just joining the platform but staying and spending. Strong momentum in The Roku Channel and innovations in ad formats and subscriptions helped strengthen monetization further.
Source: Author’s Summary
Valuation
To properly benchmark Roku’s valuation, the most relevant peer group includes companies that share similar revenue models, platform dynamics, and strategic growth levers. Roku sits at the intersection of streaming, ad-supported video, connected TV infrastructure, and advertising technology. As such, an ideal comp set spans four main buckets:
1. Streaming Platforms with Ad Revenue
These companies closely mirror Roku’s hybrid revenue structure—subscription blended with advertising—and serve as the core of the valuation peer group. This includes Netflix, Disney, Paramount Global.
2. Ad-Supported Streaming & FAST Aggregators
These players operate free, ad-supported streaming services—either directly competitive with Roku or structurally similar in how they monetize CTV users. In essence, companies like Comcast and FOX corp.
3. Ad Tech & Programmatic Advertising
We will go with The Trade Desk (TTD) to reflect Roku’s growing presence in the ad tech stack, especially through OneView, Roku Ads Manager, and integration with DSPs and SSPs.
Source: YCharts
A look at the valuation tells us that Roku is currently trading at a noticeable discount compared to its peers in both ad tech and streaming. Its price-to-sales (P/S) ratio stands at just 1.99, significantly lower than The Trade Desk at 9.49 and Netflix at 9.99. Considering what we have seen in terms of the company’s execution translated into financial performance, there’s a strong argument that it deserves a valuation multiple more in line with ad tech peers—rather than being grouped with slower-moving legacy media companies.
What’s more, Roku’s core business is structurally closer to The Trade Desk than to companies like Comcast or Paramount. Roku monetizes through a mix of advertising, subscription services, and data—very much a tech-driven platform model. Yet, despite this, the market still tends to price Roku like a traditional media player. This disconnect undervalues the operating leverage and long-term monetization potential Roku brings to the table, especially as it scales its platform and deepens its ad tech ecosystem.
Investment theses for Roku
The previous paragraphs allow us to devise a couple of investment theses for Roku. Let’s break it down:
1. Roku Is the #1 TV Operating System in North America
With an installed base reaching over 90 million active households—covering around 125 million people—Roku isn’t just a player in the streaming space, it is part of the infrastructure. More than 40% of all TVs sold in the U.S. come with Roku OS baked in, and it holds the top spot in Canada and Mexico too. That kind of distribution power makes Roku the default starting point for a huge chunk of streaming consumption. And yet, this dominance at the “entry point” of the TV experience is still not fully reflected in its valuation or monetization.
2. Engagement Is Exploding—Monetization Is Still Catching Up
In Q4 2024, hours watched on The Roku Channel jumped 82% year-over-year, while revenue grew 25%. That gap says a lot: people are spending way more time on Roku, but the dollars haven’t quite caught up—yet. What’s fueling that engagement? Over 80% of Roku Channel viewing is now driven by AI-powered recommendations on the home screen, not users clicking into apps. That means Roku is increasingly shaping what people watch and what ads they see—kind of like what Google does with search. This level of control is rare—and incredibly valuable in my opinion.
3. Roku Has Multiple Ways to Win
Roku’s monetization strategy isn’t just about ads. It’s built across several revenue streams, all with strong tailwinds. One of them is advertising: From video ads to splashy placements like Roku City sponsorships and deeper DSP integrations, the platform is building a modern ad stack. Its new self-serve Ads Manager also opens the door for small businesses to buy directly. The second one is subscriptions. Roku is turning into a powerful funnel for premium services. With a cleaner UX and better discovery tools, subscription conversions are climbing. Finally, we have data monetization with Roku Data Cloud and attribution tools, the company could eventually become the backbone for targeted CTV advertising.
4. Roku’s Valuation Still Doesn’t Add Up
Right now, Roku trades at just 1.99x sales. Compare that to The Trade Desk at 9.5x or Netflix at 10x. That’s a huge disconnect, especially when Roku offers high-margin platform economics, deep viewer data, and real ad-targeting capabilities. The business is generating free cash flow and expects to hit positive operating income by 2026. As more investors start viewing Roku as a tech platform—not a hardware company—it’s set up for meaningful multiple re-rating.
Risks to watch for Roku
1. Ad Spend Is Still Tied to the Economy
If the economy slows down or dips into a recession, advertisers usually pull back—especially on brand-focused campaigns. Since over 85% of Roku’s revenue still comes from ads, it’s exposed to that cycle. Slower ad budgets could drag down revenue growth and push back EBITDA targets. That said, Roku has a fairly diversified ad base and newer formats like shoppable TV and self-serve tools are helping it lean into performance-based budgets.
2. Monetization Still Has to Catch Up to Engagement
Roku’s user engagement is growing fast—but the revenue per user isn’t rising at the same pace. If they can’t close that gap, it could limit how high the stock can go, even with strong usage numbers. The market wants to see real conversion from hours watched to dollars earned. That’s the core of the re-rating thesis.
3. Big Tech Is Breathing Down Roku’s Neck
Amazon (Fire TV) and Google (Android TV) aren’t standing still—and they’ve got deep pockets. If they push aggressively on pricing, partnerships, or build out better ad tech, Roku could feel pressure. That could mean losing device partners, facing lower ad rates, or even losing install base share. But Roku still has a custom OS built specifically for TVs (not repurposed mobile software), a strong UX advantage, and it holds over 40% of the U.S. smart TV market. That’s not easy to knock down.
4. The Valuation Still Doesn’t Reflect the Platform Story
Even though Roku now makes most of its money from platform revenue, it still trades like a low-margin hardware business. That misclassification is holding back the multiple. If investors keep seeing it as a device company, the stock could stay undervalued—despite improving fundamentals.
5. Content Isn’t Fully in Their Control
Roku doesn’t rely on big-budget originals, but it still depends on licensed content from studios for The Roku Channel. If major content partners pull back or take key shows off the platform, it could hit engagement and ad inventory. That said, most of TRC’s success isn’t about buzzy shows—it’s about where the content sits on the screen. Roku’s focused on low-cost, long-tail content that works well within its UI, rather than trying to compete in the premium originals arms race.
Wrapping up
The best way to wrap up this piece is to define bull and bear scenarios and observe the risk/reward proposition.
Source: SA
Source: YCharts
Looking at the sales estimates until December 2027 and using The Trade Desk’s sales multiple for the bull scenario and Comcast’s sales multiple for the bear scenario, we get the following:
Source Author’s Computations
The results are very promising, especially if Roku is capable of getting closer to the multiple enjoyed by The Trade Desk. All-in-all, the risk/reward proposition is very attractive, and at this juncture, I am rating this a buy.
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Disclaimer: This text expresses the views of the author as of the date indicated and such views are subject to change without notice. The author has no duty or obligation to update the ...
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