ROKU Q2 Earnings Beat Estimates, Revenues Rise Y/Y, Stock Down
Revenues increased 15% from the year-ago quarter's level to $1.11 billion and beat the consensus mark by 3.58%.
Since its earnings release, Roku's shares have plunged 15.1%. Roku's high-growth platform business' gross margin eroded by 230 basis points in the second quarter, which weighed on investor sentiments. Additionally, Trump's tariffs are expected to hit Roku's hardware sales, which does not bode well for the company.
Strength in The Roku Channel Aids the Top Line
In the second quarter, The Roku Channel continued to be the #2 app on its platform in the United States and maintained its #3 position globally by both reach and engagement. This growth is a result of Roku's integration of content discovery features throughout the Roku Experience. The features helped guide users to new recommendations and old favorites, which increased the reach and engagement of Roku's partners.
In the second quarter, Roku's streaming services distribution activities kept growing, which was driven by an increase in Premium sign-ups, last year's increase in prices and its closing of Frndly TV's acquisition.
Also, Roku partnered with Disney DIS to build a custom fan experience on its Home Screen. This helped drive both viewers and sign-ups for Disney's Disney+. Disney and Roku's partnership featured the second season of Andor.
In the second quarter, advertising activities grew faster than overall Platform revenues and the U.S. OTT and digital ad markets. In June, it announced its partnership with Amazon AMZN by integrating Amazon DSP to connect Amazon advertisers with users on the Roku platform. These efforts built on previous partnerships with The Trade Desk TTD, Yahoo, iSpot, and others. The Trade Desk, Yahoo and other partnerships helped Roku to make it possible for advertisers to achieve increasing reach and drive performance. In addition to The Trade Desk and other partnerships, Roku's innovative ad products and user base of more than half of all U.S. broadband households helped.
This Zacks Rank #1 (Strong Buy) company continues to make progress, growing ad demand through deeper third-party platform integrations, improving the Roku Experience to expand monetization, and growing Roku-billed subscriptions. The Roku Experience begins with the Home Screen (which is the interface of viewers' streaming experience), the lead-in to TV for U.S. households. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
In the second quarter of 2025, Roku maintained its leadership as the #1 selling TV operating system (OS) in the United States, Canada, and Mexico. In the United States, sales of TV units powered by the Roku TV OS were greater than those of the #2 and #3 selling TV operating systems combined.
Quarter Details of ROKU
Platform revenues (87.8% of revenues) increased 18% year over year to $975.5 million.
Devices revenues (12.2% of revenues) declined 6% from the year-ago quarter's level to $135.6 million.
ROKU Operating Details
Gross margin, as a percentage of total revenues, expanded 90 basis points from the year-ago quarter's level to 44.8%.
Operating expenses increased 5% year over year to $521 million. As a percentage of total revenues, the metric contracted to 46.89% from 51.21% reported in the year-ago quarter.
Research & development and sales & marketing expenses rose 1% and 10% on a year-over-year basis to $178 million and $243.3 million, respectively. General & administrative expenses increased 1% to $99.7 million.
In the second quarter, adjusted EBITDA was $78.2 million, up 79% year over year.
Operating loss was $23.3 million in the reported quarter compared with an operating loss of $71.2 million in the year-ago quarter.
Balance Sheet of Roku
As of June 30, 2025, cash and cash equivalents were $2.3 billion compared with $2.26 billion as of March 31, 2025. As of June 30, 2025, Roku had no long-term debt.
Roku Provides Guidance for Q3 and 2025
For the third quarter, Roku estimates total net revenues of approximately $1.2 billion, up 13% year over year. Platform revenues are expected to grow 16% year over year, with a gross margin of roughly 51%. Devices revenues are expected to decline 3% year over year with a gross margin in the negative mid-teens. Roku expects third-quarter total gross profit of $520 million and adjusted EBITDA of approximately $110 million.
For 2025, Roku expects Platform revenues of $4.075 billion and adjusted EBITDA of $375 million. Platform gross margin is expected to be 52% due to evolving dynamics in the company's advertising activities and streaming services distribution. Devices revenues and gross margin are expected to remain consistent with 2024 levels.
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