Roku (ROKU 6.42%) stock dropped 18% in 2024 according to data provided by S&P Global Market Intelligence. The market was wary of competition and is losing patience with its losses.

The top streaming platform

Roku is the top U.S. streaming platform. More people buy and use its streaming devices than any competitor, including Amazon. It's also the top platform in Canada and Mexico, and it's starting to make a bigger play for international business.

The device business comes with low margins. Even though it's what Roku's known for commercially, Roku actually makes much more money from its ad segment. The two work together, though, in an important dance. When users buy a Roku device, they get a Roku account to access all of the streaming networks available on the platform, including Roku's free channels. More users means more viewers and more space for Roku to place ads and make more, higher-profit sales. The ad business accounted for 85% of the total in the 2024 third quarter and produced a 54.2% gross margin.

However, Roku still isn't profitable. It reported a $94 million net loss for the first nine months of 2024, although that was better than $631 million last year. Management is guiding for a $65 million loss in the fourth quarter. Wall Street is expecting an $0.85 loss per share in 2025.

Part of the market's concern is also that it hasn't been able to increase average revenue per user. Management is claiming that's due to its international expansion, which is crucial for keeping up its growth, but the ad business isn't following yet.

Finally, the market took it hard when Walmart announced that it would acquire Roku competitor Vizio back in February. That was completed in December.

Harsher than necessary

The market wasn't very forgiving of Roku's deficits last year, but there were many positives throughout the year. The third quarter was the fifth consecutive quarter of positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) and free cash flow, and net loss is improving while sales continue to increase. It's finding new ways to generate growth, from the international expansion to innovative ad launches and partnerships. It recently started showing ads on its home page, so even viewers who will go to a premium streaming channel see ads.

The market is starting to sense the opportunity here, and Roku stock is up 32% over the past six months.