Roku (NASDAQ: ROKU) reported third-quarter 2026 revenue of $1.50 billion, up 24% year over year and $92 million ahead of the $1.41 billion consensus estimate. Diluted EPS of $1.20 crushed the $0.53 estimate and the $0.16 prior-year figure. Platform revenue climbed 23% to $1.31 billion. Devices revenue jumped 33% to $194 million.
The real story sits below the headline numbers. Adjusted EBITDA more than doubled to $249 million from $117 million, lifting the margin to 16.6% from 9.7%. Net income surged 639% to $183 million. Free cash flow on a trailing-twelve-month basis reached $796 million, up 80% year over year. These are not accounting artifacts: operating cash flow for the first nine months was $703 million, up from $376 million, driven by higher net income and working capital improvements including a $191 million increase in accounts payable.
Advertising led the charge. Revenue grew 23% to $727 million, the ninth consecutive quarter of double-digit growth, and gross margin expanded 470 basis points to 63.2%. Management attributed the margin gain primarily to a mix shift toward higher-margin ad products. More than 80% of in-stream video ad impressions were delivered programmatically. Political advertising exceeded the comparable 2024 election quarter. The Media & Entertainment vertical posted its highest year-over-year revenue growth in four years. The programmatic infrastructure and DSP integrations (including an upcoming expansion with Google's DV360) are structural drivers that should support margin durability.
Subscriptions revenue rose 23% to $581 million, but gross margin fell 180 basis points to 40.9% due to a strategic mix shift toward Premium Subscriptions. That trade-off is deliberate: Premium Subscriptions generate lower margins but deepen engagement and create bundling opportunities. The company launched bundles offering up to 30% savings across 35 combinations in September. Roughly 95% of Premium Subscription sign-ups are from customers who had never subscribed to that service directly. Roku also grew its share of U.S. SVOD subscriptions even as the overall market declined sequentially.
Devices remains the problem child. Revenue rose 33% to $194 million, but gross margin was negative 25.1%, driven by elevated memory costs. The segment posted a $48.6 million gross loss, wider than the $22.9 million loss a year ago. Roku-made TVs approached 8% of U.S. TV unit sales, a position built in roughly three years, and the company launched its first OLED models in September. The device business is effectively a customer acquisition cost, and rising memory prices are making that cost steeper. Management noted that the Roku TV OS requires significantly less DRAM and Flash than competing platforms, which lowers partner costs and could become a competitive advantage as memory prices stay elevated.
Operating expenses fell 6% to $484 million, with sales and marketing down 21% to $191 million. That decline reflects timing: management expects distribution costs for Roku TV model sales to be weighted toward Q4 2026, so the expense line may not stay this lean. Research and development grew just 3%, and general and administrative rose 17%. The operating leverage is real, but the S&M decline is partly a calendar effect.
The beat looks sustainable on the Platform side. Advertising gross margin expansion is driven by mix, not one-time items, and the programmatic buildout is still in early innings. Subscriptions margin compression is a deliberate trade-off that should pay off in retention and engagement. The device business will remain a drag as long as memory costs stay high, but it is a small part of gross profit.
The bigger question is what happens after the FOX acquisition closes. Management reiterated it is on track for its second-half 2026 forecast but will not provide a new outlook due to the pending deal. That silence is standard in M&A, but it also means investors have no forward guideposts beyond the proxy statement forecast.
For now, the print supports the bull case: Roku is growing revenue at a mid-20s clip, expanding Platform margins, and generating substantial free cash flow. The device losses are a known cost of doing business. The pending acquisition by FOX adds a layer of uncertainty, but the operating momentum is undeniable. Watch the Q4 distribution costs and whether advertising margin holds above 60% as the mix continues to shift.