Because of the potential to achieve strong returns, it makes sense that investors want to find companies benefiting from secular trends. Roku (ROKU 3.82%) fits the bill, but long-term shareholders haven't been rewarded.
As of Aug. 22, this streaming stock trades an alarming 80% below its peak, even though it has climbed 27% in 2025. This huge dip might prompt investors to want to add the business to their portfolios. However, it's important to know these three things about Roku first.
Image source: Roku.
1. Hardware's diminishing importance
Eight years ago in Q2 2017, Roku generated 54% of its revenue from the hardware segment. This has changed drastically. In the latest quarter, hardware accounted for just 12% of the top line.
The growth in the platform segment is the catalyst. Roku makes most of its money these days from advertising and subscription arrangements. For instance, Roku might control certain ad inventory from other streamers. Or when a customer signs up for a streaming service on Roku, the company generates revenue. The beauty of this is that the platform segment commands a strong gross margin of 51%, while hardware has generally been sold at a loss in recent quarters.
To be clear, though, hardware is still vital to Roku's overall strategy. The business depends on getting its devices, like its media sticks and TVs, into more households. When this happens, Roku can then monetize viewership via the platform segment. But it's important that investors understand how the revenue mix has shifted over the years. Based on these trends, I'd suspect hardware will have less of an impact on financial performance five or 10 years out.
2. Going up against big tech
Roku is in an advantageous position because it's an agnostic streaming platform. It essentially benefits from the massive content investments other companies make, like Netflix or Walt Disney. But that doesn't mean it's immune from competition.
In fact, Roku goes up against some formidable peers. Alphabet, Amazon, and Apple all have their own streaming hardware devices. They also have their own streaming services. For a household looking to aggregate all their content offerings in one place, they're looking at what these four companies sell.
Roku does command top market share in North America, so it has done well thus far. However, these tech giants have deep pockets to invest lots of money in content and to improve the user experience. They are adept at digital advertising. And they can operate without trying to achieve strong profits from streaming, as they all have other segments that are very lucrative.
Roku's leadership team needs to remain focused on improving all facets of its business to maintain its position. It can't rest on its laurels.
3. Durable revenue growth
Between 2019 and 2024, Roku's top line increased at a compound annual rate of 29.5%. Between 2024 and 2027, Wall Street consensus analyst estimates call for revenue to grow at a yearly clip of 12.1%. Beyond that, investors can expect the double-digit gains to continue.
The company obviously benefits from the ongoing cord-cutting trend. As more households ditch cable TV, they find themselves signing up for streaming services. This boosts viewership, with streaming hours on the Roku platform soaring 17% year over year to 35.4 billion in Q2.
But there will also be a tailwind from the growth of digital advertising. According to Nielsen data, 47% of all daily TV viewing time in the U.S. comes from streaming. As this share increases, the ad dollars will follow because companies will want to target an engaged audience. And this benefits Roku, particularly the previously mentioned platform segment.
Investors looking to buy Roku know more about its revenue mix, competition, and key growth driver.
