ROKU, INC (ROKU) stock intrinsic value fair value estimate & owner earnings analysis

Roku runs a TV streaming platform. It makes money in two ways: Platform revenue (advertising, and fees from streaming services distributed through Roku's operating system and The Roku Channel), which was $4.14 billion in 2025 and grew 18%, and Devices revenue (streaming players, Roku-made TVs, smart home and audio products), which was $592 million and flat. Devices are sold at thin margins or at a loss in the holiday quarter to put more homes on the platform, where the profit is made. Roku reports more than 90 million Streaming Households, streaming hours rose from 127.1 billion in 2024 to 145.6 billion in 2025, and the company describes itself as the leading TV streaming platform in the United States, Canada and Mexico by hours streamed. The vast majority of revenue is earned in the United States. The history matters here. Revenue grew every year from $399 million in 2016 to $4.74 billion in 2025, but the business did not earn real cash for its owners until very recently. We measure owner earnings as operating cash flow with working-capital swings removed, stock-based compensation deducted as the real cost it is, and maintenance capital spending deducted. On that basis Roku lost money or roughly broke even in every year from 2016 to 2024 except 2021, including losses of $632 million in 2022 and $475 million in 2023. A 2023 restructuring (charges of $356 million, including write-downs of leased offices, office equipment and removed content) cut the cost base. 2025 was the first profitable year on this measure since 2021: owner earnings of $171 million, or $1.14 per share. The first half of 2026 confirmed the change: revenue rose 22%, operating income was $198 million against a loss of $81 million a year earlier, and owner earnings were about $250 million against about $18 million. Operating income was about $75 million in the second half of 2025 and positive in both quarters of 2026. On that evidence we set the starting level at about $395 million a year (roughly $2.60 per share). That is close to the last four quarters (about $404 million) and well above the 2025 full-year figure. We assume about $85 million of it is interest and other income on the company's roughly $2.56 billion of cash and short-term investments at June 30, 2026. Roku had not borrowed under its credit facility at year-end 2025. Accounting choices that matter: spending on content for The Roku Channel is treated as an operating cost at the cash actually paid ($184 million in 2025) rather than the accounting amortization ($223 million). Rent on offices vacated in the restructuring is kept as a cost because Roku still pays it. Stock compensation ($354 million in 2025, down from $385 million in 2024) is deducted in full. Capital spending fell from $83 million in 2023 to about $5 million a year in 2024 and 2025, so little is deducted for it. Base case ($41.68 per share): operating earnings of about $310 million in the coming year plus about $85 million of interest income. Operating earnings grow 5% a year for three years and 3% for two more, then stay flat through year ten. We credit that growth because Roku has grown revenue every year for a decade, including 2022, when it lost heavily, and we credit it at well under its recent pace (Platform revenue +18% in 2025) because Roku already leads its home markets, which leaves less room. We credit no margin expansion and no international profits. After year ten, operating earnings decline 3% a year, reflecting competition from much larger companies that own their own TV operating systems and can subsidize devices: Amazon, Apple, Google, and Walmart, which bought Vizio and is putting Vizio's operating system into its own products. Bear case ($14.18 per share): part of the 2026 improvement does not hold. Walmart moves shelf space from Roku TV models to its Vizio products, and Amazon and Google keep subsidizing their platforms. This is a concentrated risk: Amazon, Best Buy, Walmart and Target made up 81% of 2025 Devices revenue, and one customer made up 11% of total revenue. Operating earnings start at $150 million, between the 2025 level and the past four quarters, fall 4% a year for ten years, and fade to nothing over the following decade. Interest income is kept at about $60 million a year, because the cash stays but yields could fall. About $6.60 per share of this case is the value of the cash's income. Bull case ($63.55 per share): the first-half 2026 pace holds. Operating earnings start at $360 million and grow 10% a year for three years, 7% for two and 4% for two, then flatten. They decline only 1.5% a year after year ten. Interest income is about $100 million. The main risks: apart from 2021, Roku has only about a year of real profitability, so the starting level is the weakest part of this analysis. Stock compensation still takes a large share of the cash the business produces. Devices are made by contract manufacturers in China, Southeast Asia, Brazil and Mexico, which exposes Devices margins to trade policy. We could not reconcile the first half of 2026 line by line because the detailed quarterly cash-flow breakdown for content was not available to us. The half-year figure uses the reported totals. The margin-of-safety price is $24 per share. That is about 42% below the base case, a wide margin because the earnings history is short and the competitors are much larger. At that price the cash and the interest it earns support a large part of the value even in the bear case.