Roku Stock Plunges 10% in 3 Months: Should You Buy the Dip or Wait?
Roku ROKU shares have lost 10.3% in the trailing three months, underperforming the Zacks Consumer Discretionary sector and the Zacks Broadcast Radio and Television industry's growth of 2.6% and 14.4%, respectively.
The dip in Roku's shares can be attributed to investor concerns around potential tariff impacts on the company's Devices segment. Although Roku's TV unit sales might decline slightly as a possible outcome of tariffs, it is unlikely to hurt the company's market share.
Roku has a diversified manufacturing strategy. It manufactures in multiple countries, which provides the company with agility and flexibility to help mitigate the effects of tariffs. Additionally, the company has already implemented some minor price adjustments and it does not expect any significant change to its gross profit in the Devices segment. If TV prices rise due to tariffs and consumer demand dips, Roku's streaming players offer an easy, affordable way for users to upgrade and extend the life of their existing TVs without needing to invest in a new one.
ROKU's 3 Month Price Performance
Roku Benefits From Frndly TV Acquisition
On May 2, Roku announced that it had entered into an agreement to acquire Frndly TV. This acquisition is a strategic step to expand its subscription offerings and deepen user engagement on its platform. Frndly TV is a fast-growing 'skinny bundle' service with a loyal viewer base. It offers popular linear channels like Hallmark, Lifetime and A&E, which are genres that strongly resonate with traditional TV audiences, making the shift to streaming.
Roku sees Frndly TV not just as a content addition but as a growth asset. The acquisition is expected to be EBITDA-margin accretive in its first full year, signaling financial upside alongside strategic value. What makes the deal particularly synergistic is Roku's ability to scale Frndly TV across its ecosystem. By embedding it into its platform, Roku will enhance both its content bundle and advertising proposition.
Roku's Ad Business Grows Amid Fierce Competition
Roku operates in a highly competitive advertising industry and competes for revenues with other companies that have launched ad-supported streaming. Some of these companies include Netflix NFLX, Warner Bros. Discovery WBD and Disney DIS.
Since its launch, Netflix's ad-supported tier reached 70 million global monthly users as of late 2024, while Warner Bros. Discovery expanded its ad-supported tier on Max to more than 45 countries in the past 15 months. As of January this year, Disney had approximately 157 million global monthly active users watching ad-supported content across its streaming platforms. Shares of Netflix have returned 24.4% in the trailing three months, while Warner Bros. Discovery and Disney have lost 13.3% and 0.3%, respectively.
Despite this pressure, Roku's ad-supported streaming business continued to deliver strong momentum in the first quarter of 2025, driven by its expanding platform scale and innovative advertising strategies. Platform revenues grew 17% year over year to $881 million, supported by both video advertising and streaming services distribution. Roku's reach now exceeds half of all U.S. broadband households, with its Home Screen serving as the lead-in for TV for more than 125 million people daily.
The Roku Channel became the #2 app on the platform by engagement, with streaming hours up 84% year over year and more than 85% of viewing occurring through Roku's curated interface. Ad activities outside the Media & Entertainment vertical outperformed the U.S. OTT ad market, aided by integrations with Adobe and INCRMNTAL. With tools like Roku Ads Manager and flexible buying options, Roku continues to solidify its standing in the ad-supported streaming space.
Roku Reaffirms Guidance for 2025
For 2025, Roku reaffirmed its guidance for Platform revenues of $3.95 billion and adjusted EBITDA of $350 million. Platform gross margin is expected to be approximately 52%. Devices revenues and gross profit are expected to remain consistent with 2024 levels.
The Zacks Consensus Estimate for 2025 total revenues is pegged at $4.55 billion, suggesting year-over-year growth of 10.54%. The consensus mark for 2025 loss is pinned at 17 cents per share, which has narrowed by 39.3% over the past 30 days, indicating growth of 80.9% from the figure reported in the year-ago quarter.
Roku's earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 51.15%.
Although the company's price-to-cash flow ratio of 33.94X is slightly ahead of the Zacks Broadcast Radio and Television industry average of 32.98X, this premium valuation reflects investor confidence in the company's growth potential for the rest of 2025.
ROKU's Price/Cash Flow Ratio
Here's Why You Should Buy ROKU Stock
Despite the recent share price pressure, Roku's long-term outlook remains strong. The company continues to grow its platform revenues, expand user engagement and innovate across advertising and content. Its acquisition of Frndly TV adds strategic depth to its subscription offerings, while its diversified manufacturing strategy helps mitigate tariff risks. With a promising 2025 guidance, rising ad momentum and strong performance from The Roku Channel, Roku is well-positioned to thrive in a competitive streaming landscape. As it scales its platform and improves monetization, Roku offers solid growth potential for investors looking beyond market headwinds.
ROKU currently carries a Zacks Rank #2 (Buy) and has a Growth Score of A, a favorable combination that offers a strong investment opportunity, per the Zacks proprietary methodology. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
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