Roku Swings to Profit as Advertising Margins Expand
Revenue reached $1.355 billion, topping the company’s prior outlook by $60 million.
Roku (ROKU), the streaming-platform company, swung to operating income of $146.2 million as gross-profit growth outpaced a 1% increase in operating expenses.
The quarter marked a sharp profitability inflection before the planned sale of Roku to FOX. Net income reached a record $164.2 million, nearly doubling from the first quarter and rising from $10.5 million a year earlier, though an IEEPA tariff refund accounted for $37.2 million of the result.
Revenue rose 22% from a year earlier and 8.5% sequentially, while total gross profit climbed 35% to $673.7 million. Gross margin expanded to 49.7% from 45.2% in the first quarter and 44.8% a year earlier. Adjusted EBITDA reached a record $254.3 million, up from $148.4 million sequentially, as its margin widened to 18.8%.
Platform revenue increased 25% to $1.221 billion, although its year-over-year growth slowed from 28% in the prior quarter. Advertising revenue rose 25% to $672.8 million, helped by non-media-and-entertainment advertisers growing to more than one-third of Roku Experience advertising revenue from nearly 30% in the first quarter. Advertising gross margin expanded to 62.4%, primarily because of a shift toward higher-margin products.
Subscriptions revenue grew 26% to $548.2 million, slightly faster than advertising, while its gross margin slipped about 360 basis points from a year earlier because of a shift toward Premium Subscriptions. Devices revenue fell 1% to $133.7 million, though it rebounded from the first quarter. The tariff refund lifted the segment to a 20.1% gross margin; excluding the refund, the margin would have remained negative 7.6%.
Roku exceeded its prior quarterly outlook across its main financial measures, including gross profit by $93.7 million and adjusted EBITDA by $84.3 million. The company stopped providing guidance and canceled its earnings call because of the pending FOX acquisition, withdrawing an outlook that had called for $5.535 billion in full-year revenue and $675 million in adjusted EBITDA.
Merger-related costs appeared for the first time at $18.7 million after FOX agreed to acquire Roku for $160 a share, valuing the company at about $22 billion in enterprise value. Sales and marketing spending is expected to rise in the second half as expanded television-manufacturing relationships increase model volume and distribution costs.