NFLX vs. ROKU: Which Ad-Supported Streaming Stock is the Better Buy?

Netflix (NFLX) is identified as the superior investment in the ad-supported streaming sector over Roku (ROKU), driven by its rapid monetization and scale. NFLX's ad-supported tier now reaches 94 million users, with ad revenues expected to double again this year, contributing to Q2 revenue growth of 16% to $11.08 billion and strong 34.1% operating margins. Conversely, Roku, despite its platform dominance, faces profitability hurdles, reporting a $105.96 million loss over the past 12 months and struggling with declining hardware sales, positioning Netflix as a "Strong Buy" (Zacks #1) against Roku's "Hold" (Zacks #3).

Analysis

Netflix and Roku are both pivoting to ad-supported models, but their financial and strategic positions are markedly different. Netflix is demonstrating superior execution, leveraging its massive scale of 301.6 million global subscribers to rapidly grow its advertising business. The ad-supported tier has reached 94 million monthly active users, and the company expects to double its ad revenue for the second consecutive year in 2025. This momentum is reflected in strong financial performance, with Q2 revenue growing 16% year-over-year to $11.08 billion, operating margins expanding to 34.1%, and a raised full-year revenue outlook. In contrast, Roku, despite its dominant position as the leading streaming platform operator in North America, faces significant profitability challenges. While it posted 15% YoY revenue growth to $1.11 billion in the second quarter, it recorded a loss of $105.96 million over the last twelve months and a negative 4.04% operating margin. Its reliance on hardware is a vulnerability, with sales declining 6% YoY. Although Roku projects achieving operating income positivity in late 2025 and for the full-year 2026, its current lack of profitability and smaller scale make its valuation (P/S of 2.61x) riskier than Netflix's premium P/S of 10.53x, which is supported by robust earnings and a 31.42% consensus EPS growth estimate for 2025.

Key Decisions for Investors

• Given Netflix's proven ability to monetize its ad-supported tier, expand margins, and drive growth through its dominant content pipeline, investors should consider it the superior investment vehicle for exposure to the ad-supported streaming trend.
• For Roku, a cautious 'wait-and-see' approach is prudent; investors should monitor the company's progress toward achieving its guided full-year 2026 operating profitability before considering a position, as significant execution risk remains.
• The stark divergence in profitability and stock performance, with Netflix up 35.1% year-to-date and consistently profitable versus Roku's ongoing losses, suggests that long-only investors should favor Netflix, while hedge funds might evaluate a pair trade that is long NFLX and short ROKU.