Roku Stock Earns Another Rally When It Needed It the Most

Roku (NASDAQ: ROKU) is on a roll. Shares of the streaming video pioneer rose 23% in April, soaring 71% over the past year. It's kicking off May with a strong start, moving higher after Thursday's close with blowout first-quarter results.

The top dog in turning TVs into an ocean of on-demand opportunities launched the industry's first streaming player 18 years ago. Today, it serves more than 100 million homes worldwide, and entertainment-hungry viewers spend an average of four to five hours a day on the platform. A buoyant stock needed a buoyant report. Roku delivered for its shareholders.

Image source: Getty Images.

Expectations were high for Roku heading into this week's telltale financial update. Roku was bracing investors to expect an 18% increase in revenue for the first three months of this year. The $1.25 billion it ultimately delivered on the top line, was a 22.4% jump. It's Roku's strongest year-over-year quarterly top-line growth in four years.

The bottom line gets even better, as Roku continues to build on its streak of four consecutive profitable quarters. Its guidance three months ago was calling for a net income of $50 million. It clocked in at $85.7 million. It's not a surprise that Roku would jack up all of the metrics it offers for 2026 guidance.

Things are starting to add -- and ad -- up

Roku stock is doing something new this year. The company that would routinely break down its revenue into platform and devices is giving investors a deeper dive into its leading business. Roku is now breaking up its platform category between ads and the money it collects by selling and promoting subscriptions on its platform.

Ad revenue rose 27% to $612.6 million, roughly half of its total top-line results. Subscription revenue rose 30% to $518.5 million, but that surge wasn't entirely organic. Roku acquired the Frndly TV app in May of last year. Back that out, and its subscription business would've climbed a more modest but still impressive 23% for the period.

Roku posted this growth despite a mere 8% increase in the streaming hours it served during the quarter, compared with the first three months of last year. This isn't ideal, but when your ad and subscription revenue are jumping north of 20% -- tripling the usage uptick -- this is the kind of monetization momentum investors like to see. Roku has been striking savvy marketing partnerships with some of the tech titans it directly competes with in its streaming services stocks space, and it's clearly helping the pioneer.

Thinking inside the box

The bulk of its business comes from the devices it sells at cutthroat margins. This segment declined 16%, but at less than 10% of the revenue mix, if you own Roku, you're really just a shareholder for the success of its high-margin platform business.

Roku's growth is impressive, particularly once you dig deeper than the headlines. Adjusted earnings before interest, taxes, depreciation, and amortization soared 165%. Its trailing free flow has surged 81%.

Some of its recent bets are paying off. The Roku Channel -- a launch that seemed controversial when the platform-agnostic pioneer began offering its own ad-supported channel -- remains the platform's second-most-popular app in terms of engagement.

The low-cost Howdy -- an ad-free streaming service costing just $2.99 a month -- hasn't even been available for a whole year. It was introduced in August. I know I was critical about its chances of succeeding, but when you're reaching 100 million homes, it's apparently easy to top a million subscribers for a niche offering.

Roku stock isn't cheap. It's trading for more than 50 times forward earnings, but those profit targets should inch higher after another strong report. Roku keeps slaying aspects of the bearish narrative, and now it has momentum with more bullish catalysts on the horizon.

Rick Munarriz has positions in Roku. The Motley Fool has positions in and recommends Roku. The Motley Fool has a disclosure policy.