Key Points
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Entering 2025, Roku’s valuation was reasonable relative to its growth and profitability.
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The company’s pricing in advertising needs to improve for the stock to perform better over the long term.
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Shares of connected-TV (CTV) platform company Roku (NASDAQ: ROKU) dropped a discouraging 19% in 2024, drastically underperforming the 23% gain for the S&P 500. But I was hopeful about the company’s prospects for 2025. On Dec. 22, 2024, I wrote an article saying that Roku stock could bounce back.
Bounce back it did. Roku stock raced to a 46% gain in 2025, easily outpacing the market’s gains. Granted, it’s still down 78% from its all-time high all the way back in 2021. But it was a solid one-year performance to be sure.
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Image source: Roku.
However, I’m a little less optimistic about Roku heading into 2026, and I believe it could underperform the S&P 500. So here’s what went right in 2025 and what to watch in the coming year.
Why Roku stock bounced back
I thought Roku stock could bounce back because it had a favorable setup going into 2025: Growth was picking up, cash flow was gaining steam, and the valuation was reasonable.
Roku delivered strong growth in 2025 as hoped. The company has two revenue streams: platform and device. Device revenue has a negative gross margin, making platform revenue the more attractive stream of the two. Platform revenue was up 17%, 18%, and 17% in the first, second, and third quarters, respectively. Fourth-quarter results still haven’t been reported.
Roku’s cash flow steadily improved as well. To management’s credit, operating expenses held steady in 2025, enabling higher profits as revenue climbed. In Q3, the company reported trailing 12-month free cash flow of $443 million, its highest in years.