Roku Shares Climb. Is It Too Late to Buy the Stock?
Key Points
Roku turned in strong results, helped by premium subscription growth.
However, the company has a stock-based compensation problem.
Roku (NASDAQ: ROKU) shares soared after the streaming company reported strong Q4 results and issued upbeat guidance.
Let's take a closer look at its results and prospects to see whether it's too late to buy the stock.
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A strong quarter and upped guidance
While Roku is best known for its streaming devices, the company's primary business is advertising and streamlining distribution (its platform segment), while its device segment is more of a loss leader.
Image source: Getty Images.
For Q4, Roku's revenue jumped 16% year over year to $1.39 billion, while its earnings per share (EPS) came in at $0.53, compared to a loss of $0.24 a year ago. That topped analyst expectations for a profit of $0.28 per share on $1.35 billion in revenue.
Platform revenue climbed 18% to $1.22 billion. The growth was led by video advertising and premium subscriptions. Roku said it was its best quarter ever for premium subscriptions, helped by the addition of HBO Max. The company plans to start offering premium subscription bundles later this year to help maintain momentum.
Device revenue edged up by 3% to $170.9 million, while device gross profits were a loss of $33.9 million.
Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) more than doubled year over year to $169.4 million, above its $145 million guidance. Notably, Roku's adjusted EBITDA excludes stock-based compensation (SBC), which totaled $85 million in the quarter. Stock compensation is often excluded from adjusted EBITDA because it is a non-cash expense. However, it is a real expense that dilutes shareholders and is used to compensate employees instead of cash.
Below is a recap of the company's Q4 results.
Revenue |
Revenue Growth (YOY) |
Gross Profit |
Gross Margin |
|
|---|---|---|---|---|
Platform |
$1.22 billion |
18% |
$646.7 million |
52.8% |
Device |
$170.9 million |
3% |
($39.9 million) |
(23.3%) |
Total |
$1.39 billion |
16% |
$606.8 million |
43.5% |
Data source: Roku Quarterly Report. YOY = Year over year.
Looking ahead, Roku projected 2026 revenue to be around $5.5 billion, with platform revenue increasing by 18% to $4.89 billion. It expects adjusted EBITDA of roughly $635 million and net income of $325 million.
For Q1, it has guided for revenue of $1.2 billion, a 18% year-over-year increase. It is looking for adjusted EBITDA of $130 million and net income of $50 million. It projects that platform revenue will climb by 21%.
The company was bullish on artificial intelligence (AI) moving forward, saying it will lower content creation costs and increase engagement. Meanwhile, it is embracing AI to help personalize content, automate workflows, and improve ad targeting.
Is it too late to buy the stock?
From a valuation perspective, Roku trades at an enterprise value (EV)-to-EBITDA multiple of about 18 times 2026 analyst estimates. That would be reasonable if stock-based compensation weren't eating away more than half its adjusted EBITDA. However, stock-based comp has come more into focus during the software-as-a-service (SaaS) sell-off, and Roku has an SBC problem. As such, I wouldn't chase this rally.
Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Roku. The Motley Fool has a disclosure policy.