Roku, Inc. (ROKU) Cash Flow Statement

The conversion ratio falling toward 1.0 as net income turns meaningfully positive is what one would expect once stock-based compensation and depreciation stop masking reported losses, so the high multiples of earlier quarters were largely a product of a near-zero earnings base rather than unusually strong cash generation. The 2026Q3 ratio of 1.20 is a healthier signal, though it has been sustained only one quarter after a working capital outflow of $123.0M reduced operating cash flow, which suggests investors should monitor whether conversion holds once working capital normalizes.

The margin trajectory from 2.3% to the mid-teens over roughly nine quarters reflects both operating leverage and a capital-light model, since CapEx has consistently run below 0.3% of revenue, meaning nearly all operating cash flow converts to free cash flow. The margin remains volatile, with 2026Q2 reaching 20.7% and 2026Q3 falling to 14.5%, so the mid-teens level appears more representative of the current run-rate than the peak, and investors should weigh quarterly swings against the longer trend.

Such low capital intensity implies that depreciation and amortization, which ran as high as $97.2M in 2024Q4, reflects largely acquired or capitalized software and content-related amortization rather than physical plant replacement, so the gap between D&A and CapEx warrants further investigation to confirm what those charges represent. Because reinvestment needs are so small, the bulk of operating cash flow is available for discretionary deployment, which makes the company's capital allocation choices more consequential than its capex decisions.

Large recurring outflows of this magnitude suggest that receivables build with advertising revenue growth, and with revenue growing 24.1% year over year, collection timing may be absorbing a meaningful share of earnings each quarter. The pattern raises the question of whether the cash conversion improvement is durable or simply reflects timing, and investors should monitor receivables turnover to determine whether these outflows will reverse or persist.

The gap between cash and earnings over this window is consistent with a company whose reported losses in 2024 and early 2025 were inflated by non-cash items, so the cash picture is more favorable than the earnings history alone suggests. However, stock-based compensation that ran near $80M to $100M per quarter represents a real economic cost to shareholders through dilution, and investors should treat the cash-earnings gap as partly a product of how compensation is structured rather than purely as excess value.