Is Roku (ROKU) a Buy Despite Missed Revenue Guidance?

In the fast-evolving streaming wars, Roku (ROKU) has long been a critical player, acting as a bridge between content providers and cord-cutting consumers. However, recent earnings reports have sparked debate: despite missing revenue guidance, the company's EBITDA performance and user engagement metrics suggest a resilient core. For investors, the question lingers: should Roku's short-term underperformance overshadow its long-term potential?

Strong EBITDA Performance and Profitability Improvements

Roku's Q2 2025 results highlight a key strength: its ability to generate robust EBITDA despite revenue volatility. The company reported adjusted EBITDA of $78.19 million, exceeding estimates by 10.3% and prompting a revised full-year 2025 guidance of $375 million—up from $350 million. This marks a 10.3% beat on Wall Street's expectations and underscores Roku's improving operating margin, which narrowed to -2.1% (from -7.4% in Q2 2024).

The shift in focus from revenue to EBITDA is telling. While Roku's platform revenue guidance was lowered to $4.075 billion (below analysts' $4.56 billion estimate), its $498 million gross profit from the platform segment—a 15% year-over-year increase—demonstrates scale. This profitability, driven by ad sales, content distribution, and subscription-sharing deals, suggests Roku is monetizing its ecosystem more effectively.

Historical data reveals that Roku's earnings beats have historically translated into positive stock performance. Over the past three years, the stock has delivered a 71.43% win rate in the 3-day, 10-day, and 30-day periods following an earnings beat. On average, investors gained 8.42% within three days of a beat, with some outperformance lasting up to 26 days (maximum return of 16.05%). This pattern reinforces the idea that Roku's ability to exceed expectations—even in a narrow revenue context—can drive short- to medium-term gains.

User Engagement: The Unsung Metric

Roku's user engagement metrics tell a story of sustained demand. In Q2 2025, the platform recorded 35.4 billion streaming hours, a 17.2% year-over-year increase. The Roku Channel, now the second-most popular app in the U.S. by engagement, accounted for 5.4% of all TV streaming time. This growth, while not directly translating to higher ARPU, indicates a loyal user base that Roku can monetize through advertising and partnerships.

The company's strategic acquisition of Frndly TV, a low-cost “skinny bundle” service, is a case in point. Frndly TV's 18% growth in live streaming hours and its appeal to traditional TV audiences transitioning to streaming align with Roku's goal of expanding its reach. By integrating Frndly's 100+ channels into its platform, Roku is positioning itself as a one-stop shop for both ad-supported and subscription-based content.

ARPU Decline and Monetization Challenges

Critics argue that Roku's 99.9% drop in ARPU to $0.03 (year-over-year) raises red flags. However, the company has shifted away from ARPU as a key metric, opting instead to highlight streaming hours and platform revenue. This strategic pivot reflects a broader industry trend: prioritizing scale and engagement over per-user monetization.

The decline in ARPU is partly a result of Roku's push for subscription growth, including free trials and low-cost bundles. While these initiatives dilute immediate revenue per user, they aim to lock in customers for the long term. The company's $141 million in deferred revenue from premium subscriptions (a 7.8% sequential increase) suggests this approach is working, even if ARPU metrics lag.

Valuation Concerns and Peer Comparisons

Despite these positives, Roku's valuation remains a hurdle. The stock trades at a P/FCF ratio of 33.73 (as of March 2025), significantly higher than Netflix's 20.4 and Disney's 15.7. A discounted cash flow (DCF) analysis places Roku's intrinsic value at $49.94, far below its current price of $94.30, indicating a 47% overvaluation. Analysts have also cut their price targets, with an average of $92.46 (a 4% downside) and a wide range from $60.60 to $136.50.

Roku's peers offer a sobering comparison. Netflix, for instance, maintains a 29.5% operating margin and a 24.6% net margin, while Roku's operating margin remains negative. However, Roku's platform-agnostic model and growing international presence (e.g., 35% YoY platform revenue growth in Mexico and Brazil) offer unique advantages.

Investment Recommendation: A Long-Term Play with Caution

Roku's Q2 2025 results confirm its core strengths: a sticky user base, expanding ad revenue, and strategic acquisitions. However, the company's overvaluation and ARPU challenges cannot be ignored. For investors, the key is to balance optimism about its long-term growth with caution regarding its current price.

• Buy for long-term growth: Roku's EBITDA expansion, user engagement, and Frndly acquisition position it well to capitalize on the streaming shift. Investors with a 3–5 year horizon may find value in its ecosystem-driven strategy.
• Wait for a pullback: The stock's 47% premium to intrinsic value suggests a potential correction. A drop to $60–$70 would make Roku more attractive, especially if EBITDA growth accelerates.
• Monitor ARPU trends: The company's shift to streaming hours as a metric is a double-edged sword. If ARPU stabilizes or improves without sacrificing engagement, Roku could surprise to the upside.

Conclusion

Roku's Q2 2025 performance underscores its resilience in a competitive market. While missed revenue guidance and a declining ARPU warrant caution, the company's EBITDA momentum and user-centric strategy offer a compelling long-term case. For now, a “Hold” recommendation seems prudent, with a focus on valuation corrections and ARPU stabilization. Investors who can stomach the volatility and see beyond the short-term noise may find Roku's stock a rewarding bet in the streaming era.