Is Roku (ROKU) a Strategic Buy Amid Strong Revenue Growth and Mixed Profitability?

In the rapidly evolving world of connected TV (CTV) advertising, Roku (NASDAQ: ROKU) stands as a pivotal player, leveraging its dominance in streaming hardware and software to capture a growing share of the $48 billion CTV ad market in 2025. With a recent 15.8% year-over-year revenue surge to $1.021 billion in Q2 2025 and a stock price up 45.58% over the past 52 weeks, investors are scrutinizing whether Roku's rally is justified by its fundamentals. This article dissects the balance between near-term earnings momentum, long-term growth potential, and valuation metrics to determine if Roku remains a strategic buy.

Near-Term Earnings Momentum: Revenue Growth Outpaces Profitability

Roku's Q2 2025 results underscore its ability to scale revenue amid a competitive landscape. The 15.8% year-over-year increase to $1.021 billion was driven by robust ad sales, bolstered by a landmark partnership with Amazon's Demand-Side Platform (DSP). This collaboration enabled advertisers to target 80 million U.S. households with precision, improving ad efficiency by 30% and driving higher engagement.

However, profitability remains elusive. Despite a narrower GAAP loss of -$0.19 per share (better than the -$0.26 consensus), Roku's operating margin of -5.7% and negative net income of -$105.96 million over the trailing twelve months highlight ongoing challenges. Adjusted EBITDA of $56.02 million in Q2, while positive, fell short of analyst estimates by 7.3%. The company's full-year EBITDA guidance of $350 million at the midpoint suggests a path to margin improvement but underscores that profitability is still a work in progress.

Valuation Metrics: Expensive for an Unprofitable Giant

Roku's valuation reflects the tension between its market leadership and unprofitability. The stock trades at a P/E ratio of -124.521 (based on a TTM loss of -$0.73 per share) and a P/S ratio of 3.10, which is 66% higher than the 1.5x industry average for U.S. entertainment companies. While this premium is justified by Roku's 38% share of the U.S. CTV device market and its role as a key player in the $85.4 billion CTV hardware market (projected to grow to $186.4 billion by 2034), it raises questions about whether the stock is overvalued relative to its earnings potential.

Roku's beta of 2.12 indicates it is significantly more volatile than the S&P 500, amplifying both upside and downside risks. Yet, the company's balance sheet offers some reassurance: $2.26 billion in cash, a current ratio of 2.86, and a net cash position of $1.68 billion ($11.45 per share) provide flexibility for R&D and strategic acquisitions. Analysts remain cautiously optimistic, with a consensus “Buy” rating and an average price target of $92.63—just 1.9% above the current $90.90.

Competitive Positioning: A Fortress in a Fragmented Market

Roku's dominance in the CTV ecosystem is its most compelling long-term advantage. With 60 million active accounts and a 38% share of U.S. CTV devices—outpacing Amazon Fire TV (18%) and Apple (13%)—the company controls a critical juncture between advertisers and consumers. The Amazon DSP partnership, which now enables deterministic audience targeting across 80 million U.S. households, has further solidified Roku's role as the go-to platform for performance-driven CTV ads.

In contrast, competitors like Hulu and Disney face ecosystem constraints, while Amazon's Fire TV lacks Roku's market penetration. Roku's innovations, such as Creative Canvas (interactive ad experiences) and its open-platform model, position it to capture a disproportionate share of the $33.5 billion CTV ad spend in 2025. The company's ability to deliver 40% more unique viewers for the same ad budget, as demonstrated in early Amazon DSP tests, underscores its value proposition for advertisers.

Long-Term Growth Potential: A $48 Billion Market at Its Feet

The CTV advertising market is expected to grow at a 33% CAGR through 2027, driven by cord-cutting and the shift toward data-driven ad models. Roku is uniquely positioned to benefit from this trend, with its 52.7% stabilized gross margin and expanding ad tech stack. The company's full-year 2025 revenue guidance of $3.95 billion implies a 17% year-over-year increase, with ad sales accounting for 75% of total revenue.

Analysts project Roku to achieve breakeven GAAP EPS by 2026, supported by its $2.16 billion cash reserves as of December 2024. However, the path to profitability hinges on sustaining ad revenue growth and managing costs. The company's focus on performance-based advertising and interoperable solutions aligns with industry demand for accountability and transparency, but rising competition from tech giants like Apple and Google could pressure margins.

Is Roku a Strategic Buy? Weighing the Risks and Rewards

Roku's stock rally is justified by its leadership in a high-growth sector, strategic partnerships, and scalable ad monetization. Yet, the company's unprofitability and elevated valuation multiples (P/S of 3.10 vs. industry average of 1.5x) present risks. Investors must weigh the potential for continued ad revenue growth against the likelihood of prolonged losses and competitive pressures.

For risk-tolerant investors, Roku offers an intriguing opportunity to capitalize on the CTV advertising revolution. The stock's current price of $90.90 trades at a 47.8% discount to its DCF-derived intrinsic value of $173.98, suggesting potential for re-rating if the company meets or exceeds EBITDA guidance and narrows its operating loss. However, a “strategic buy” should be accompanied by a disciplined exit strategy, given the stock's volatility and the absence of a clear path to profitability in the near term.

Final Verdict: Roku is a speculative buy for investors who believe in the long-term secular growth of CTV advertising and are willing to tolerate near-term unprofitability. For conservative investors, the stock remains a “watch and wait” until Roku demonstrates consistent profitability and a more sustainable P/S ratio.