What is ROKU's Intrinsic value?

Roku Inc (ROKU) Intrinsic Value Analysis

Executive Summary

As of June 5, 2025, Roku Inc's estimated intrinsic value ranges from $53.87 to $131.27 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $131.27 +78.1%
Discounted Cash Flow (5Y) $64.67 -12.2%
Dividend Discount Model (Multi-Stage) $53.87 -26.9%

Is Roku Inc (ROKU) undervalued or overvalued?

With the current market price at $73.69, the stock appears to be moderately undervalued.

Understanding Intrinsic Value

Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate Roku Inc's intrinsic value, including:

  1. Discounted Cash Flow (DCF): Values the company based on projected future cash flows
  2. Dividend Discount Model (DDM): Values the company based on expected future dividend payments

Weighted Average Cost of Capital (WACC)

The cost of capital is a critical factor in valuation models, representing the required return for investors.

WACC Component Low High
Long-term bond rate 3.9% 4.4%
Equity market risk premium 4.6% 5.6%
Adjusted beta 0.5 1
Cost of equity 6.2% 10.5%
Cost of debt 7.0% 7.0%
Tax rate 2.1% 3.4%
Debt/Equity ratio 1 1
After-tax WACC 6.5% 8.6%

Valuation Methods

1. Discounted Cash Flow (DCF) Valuation

Our DCF model projects cash flows over 5-year and 10-year horizons, with the following key assumptions:

  • Forecast Period: 5-year DCF and 10-year DCF
  • Terminal Growth Rate: 0.0% (range: 3.0% - 5.0%)
  • Discount Rate: 7.6% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $4,113 (FY12-2024) to $10,117 (FY12-2034)
  • Net profit margin expansion from -3% to 12%
  • Capital expenditures maintained at approximately 3% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $65 $7,228M 91.1%
10-Year Growth $131 $16,995M 81.4%
5-Year EBITDA $73 $8,399M 92.3%
10-Year EBITDA $112 $14,199M 77.7%

2. Dividend Discount Model (DDM)

The DDM values a company based on its expected future dividend payments. We used two approaches:

Multi-Stage DDM:

  • Current payout ratio: 0.0%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 8.3%
  • Long-term growth rate: 4.0%
  • Fair value: $53.87 (-26.9% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 10.5% (Low) to 6.2% (High)
  • Long-term growth rate: 3.0% (Low) to 5.0% (High)
  • Fair value range: $(7) to $(56)
  • Selected fair value: $-31.48 (-142.7% from current price)

Key Financial Metrics

Metric Value
Market Capitalization $10807M
Enterprise Value $8551M
Trailing P/E 0.00
Forward P/E 0.00
Trailing EV/EBITDA 16.90
Current Dividend Yield 0.00%
Dividend Growth Rate (5Y) 0.00%
Debt-to-Equity Ratio 1.01

Investment Decision Framework

To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:

  1. Forecast Certainty: DCF methods rely on long-term projections, while earnings power value focuses on current normalized earnings
  2. Business Model Alignment: Dividend models are more appropriate for mature companies with established dividend policies
  3. Historical Accuracy: How well each method has predicted fair value historically

Valuation Weight Matrix

Valuation Method Weight Weighted Value
Discounted Cash Flow (10Y) 40% $39.38
Discounted Cash Flow (5Y) 33% $16.17
Dividend Discount Model (Multi-Stage) 27% $10.77
Weighted Average 100% $88.43

Investment Conclusion

Based on our comprehensive valuation analysis, Roku Inc's weighted average intrinsic value is $88.43, which is approximately 20.0% above the current market price of $73.69.

Key investment considerations:

  • Strong projected earnings growth (-3% to 12% margin)
  • Consistent cash flow generation

Given these factors, we believe Roku Inc is currently moderately undervalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.