Think You Know Roku? Here’s 1 Little-Known Fact You Can’t Overlook.

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Media-streaming technology veteran Roku (ROKU 0.21%) has many surprising qualities.

It’s possible you weren’t aware that the company intentionally sells its hardware at a lower price to stimulate user growth. While Roku is well-known as the top seller of TV software in North America, it might surprise you to learn that they’ve only recently begun offering streaming sticks and TVs in regions such as Western Europe and Latin America. Additionally, it may interest you to know that before Amazon (AMZN 0.39%) selected Roku as its preferred advertising platform, Roku’s ad sales were expanding at a faster pace than the platform itself.

However, I’m not delving into the intricacies today. Instead, my purpose is straightforward. While some investors may fret over Roku’s minimal profit margins, have you considered that it might just be an exceptional cash generating machine?

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Roku is quietly printing money like a tech giant

Cash is king, and Roku is swimming in it.

Over the past year, I’ve observed that our company has managed to accumulate an impressive $977 million in free cash flow. This significant figure is a direct result of $4.25 billion in total revenue we’ve brought in. When you consider this in terms of our profitability, it equates to a free cash flow margin of approximately 23%.

Not too shabby, in my opinion.

In a notable comparison, tech giants Apple (AAPL, -0.06%) and Microsoft (MSFT, 1.27%) have cash-based profit margins of 24.6% and 25.7% respectively. However, streaming device manufacturer Roku is nipping at their heels, showing significant promise in this area.

Roku’s clever accounting

There are some tricks involved in Roku’s ultraefficient cash profits, of course.

Roku operates with minimal investments in physical assets and incurs relatively low capital costs. Consequently, an impressive 96.2% of its operating cash flow went towards boosting its free cash flow in Q1 2025.

Roku strongly prefers stock compensation; during the past year, stock awards made up nearly 19% of their operational costs. This is similar to Microsoft (18%) and Apple (20.6%), but it’s important to note that these tech giants have reached close to record highs with market caps over a trillion dollars. In contrast, Roku’s stock price has fallen by around 81% since late 2021. Lower share prices can diminish the impact of stock-based payments, but Roku continues to stand out among top companies in this regard.

In summary, Roku employs various strategies to earn substantial cash while keeping its taxable income minimal, which explains why its earnings often barely exceed the break-even point despite cash reserves growing. By Q1 2025, Roku had amassed $2.26 billion in cash equivalents without any long-term debt, suggesting that it has no need to borrow money since it’s already generating substantial profits.

Roku can afford a long-term focus

The abundant cash inflows enable Roku to delve into numerous diverse expansion plans simultaneously.

Present initiatives involve enhancing our advertising system, broadening Roku’s presence in various international markets, and boosting the quantity of exclusive content. The lineup of Roku-labeled TVs is thriving, with impressive sales figures and cutting-edge technological advancements. The latest acquisition of live TV streamer Frndly TV brings a wealth of top-tier content to our platform at an affordable cost of $185 million.

It’s common to underestimate Roku’s robust cash inflows, but I believe that’s a misjudgment. Rather than hoarding their excess funds, they are channeling them into numerous initiatives designed to stimulate growth. Notably, the hardware bearing the Roku name remains a strategic marketing tool, incurring losses instead of passing those costs onto consumers. This strategic choice to shoulder financial burdens could prove advantageous in the face of two significant challenges: escalating tariffs and potential resurgence of inflation.

A business that consistently generates low or negative free cash flow may find itself in a tight financial situation, resorting to costly loans or selling additional shares to investors to sustain its expansion endeavors. Alternatively, they might need to scale back on costly growth projects due to a lack of available funds.

Roku’s shares have seen a significant increase of 47% over the past year. However, this growth suggests that its stock might not be as undervalued as it used to be. Yet, it seems that financial analysts are underestimating the impact of Roku’s substantial cash earnings on its market value.

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2025-07-18 00:56