Key Points

Roku stock has soared like a phoenix from the ashes, climbing 78 percent over the past year.
The latest catalyst is a report that Roku may be an acquisition target for a major U.S. media company.
Even if Roku is not acquired, there are plenty of reasons to be bullish on the streaming pioneer.

Roku (NASDAQ:ROKU) has been something of a puzzle for shareholders. Despite leading in its field, the stock has not earned the respect it deserves. Yet the company's business is performing strongly across the board. Investors have begun to recognize this, and the stock has gained 78 percent over the past year.

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In the latest development, the stock rose more than 20 percent on Friday on reports that the company has been in talks to be acquired by a major U.S. media company, according to Bloomberg, citing "people with knowledge of the matter."

It appears that investors have not been the only ones taking a fresh look at the streaming pioneer. Let's review Roku's recent results, understand what might make the company attractive to a potential suitor, and why investors should not ignore these reports.

Image source: The Motley Fool.

A lot to like

After years of operating losses and investing to enter new markets, Roku turned profitable in Q2 of 2025 and has remained in the black every quarter since. Just as importantly, the company keeps growing its market share and expanding its reach, laying the groundwork for future expansion. Its recent results help paint a positive picture.

In the first quarter of 2026, Roku generated total revenue of $1.2 billion, up 22 percent, marking the company's strongest year-over-year quarterly growth in four years. The results were driven higher by its platform segment, which includes advertising revenue, which increased 27 percent, and subscriptions, which jumped 30 percent. Overall, platform revenue rose 28 percent to $1.1 billion, while device revenue declined 16 percent to $118 million. Roku sells its devices at or near cost to draw viewers into its ecosystem (more on that later).

The company continues to find new ways to build on that strategy, which keeps paying off. Last year, Roku launched its own paid streaming channel, named Howdy. The subscription service launched in August at a modest price tag of just $2.99 per month to attract more price-sensitive customers. Roku seeded its ad-free channel with thousands of titles totaling 10,000 hours of entertainment, with programs and movies from Lionsgate, Warner Bros. Discovery, and FilmRise. It also included select Roku original programming.

While critics quickly dismissed the service as too little, too late, Roku was undaunted. In the ensuing months, Howdy has racked up more than 1 million subscribers, according to a report by industry analyst Antenna. The report also noted that Howdy had enviable retention rates, with 51 percent of those who signed up in the first month still subscribers six months later, far exceeding the retention rates of premium and specialty subscription video on demand (SVOD) services, at 47 percent and 38 percent, respectively.

Another winning strategy has been The Roku Channel, the company's home-grown ad-supported channel, which closed out 2025 with a 3 percent share of all U.S. TV viewership, according to Nielsen. The channel ranks in the Top 10 among all media companies, putting Roku in select company alongside Alphabet's YouTube, Disney, and Netflix, among others. Roku previously revealed that The Roku Channel ranked No. 2 on its platform in terms of engagement.

If that were not enough, Roku announced earlier this year that it had surpassed 100 million households worldwide, illustrating its growing global reach. Moreover, the company's decision to sell its devices at or near cost is paying off: Roku's collection of branded TVs and other streaming devices are used by "more than half of all U.S. broadband households."

Roku's large and expanding reach makes it an attractive target for a potential acquirer, giving them instant access to more than 100 million households. But even if Roku is not acquired, it has all the pieces in place for a successful future, which makes it an attractive stock for investors.

The recent spike in its share price has skewed its valuation, selling for 40 times next year's expected earnings. However, measured using the more appropriate forward price/earnings-to-growth (PEG) ratio, which takes into account Roku's rapid growth, clocks in at 0.19, when any number less than 1 is the standard for an undervalued stock.

That is why investors should not sleep on Roku, merger or not.

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Danny Vena, CPA has positions in Alphabet, Netflix, Roku, and Walt Disney. The Motley Fool has positions in and recommends Alphabet, Netflix, Roku, Walt Disney, and Warner Bros. Discovery. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.