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Roku topped revenue expectations by a wide margin Thursday
Roku
Roku Inc. shares are up 12% in midday trading Friday and on track to close at a record after analysts cheered the company’s strong growth despite the pandemic.
The streaming-media company grew revenue 73% in the third quarter and increased its user base by 43%. “These growth rates won’t all carry into Q4, but Roku has clearly cemented its position as the leading [connected TV] platform and [advertising-based video on demand] service,” wrote Macquarie analyst Tim Nollen.
Among the high points was a surge in player revenue as the company benefited from international expansion with its streaming devices. The strong demand meant tight inventory and allowed Roku to spend less on promotions than it normally would have, but Nollen notes that the company expects to resume its normal approach to marketing heading into the holidays.
Nollen maintained an outperform rating on the stock while boosting his target price to $275 form $200.
RBC Capital Markets analyst Mark Mahaney was encouraged that Roku’s active-account growth has accelerated for three quarters in a row.
“We view Roku as well positioned in arguably the fastest-growing ad vertical today,” he wrote, referring to over-the-top streaming and connected television. This “should support sustainable premium revenue growth and margin expansion for years to come.”
Mahaney has an outperform rating on Roku’s stock and boosted his price target to $262 from $208.
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MoffettNathanson analyst Michael Nathanson wrote that Roku appeared to experience a “V-shaped recovery” in terms of advertising spending, and he argued that the near-term picture looks bright for Roku as more eyeballs and ad dollars move to streaming from traditional television. A move to bring the company’s ad-supported Roku Channel over to Amazon.com Inc.’s connected TVs “should drive faster advertising growth,” he wrote.
Still, Nathanson has some competitive concerns about Roku’s mid- to long-term road map Comcast Corp. reportedly works with Walmart Inc. on connected TVs and as Alphabet Inc. has made a number of moves of its own in the streaming arena over the past few months.
“Despite Roku’s clear first mover status, these actions effectively create more competition in the connected TV and device market that is key to Roku’s ability to build and leverage their distribution scale in content monetization,” he wrote. “Further, unlike the development of [streaming video on demand], which saw traditional media companies foolishly license their best content to Netflix, the [advertising-based video on demand] marketplace is now being widely embraced by those same content owners.”
Nathanson has a neutral rating and $180 price target on the stock.
At least 14 analysts boosted their price targets on Roku shares after the report, according to FactSet, with the average price target now standing at $220.70. Of the 25 analysts tracked by FactSet who cover Roku’s stock, 16 have buy ratings, seven have hold ratings, and two have sell ratings.
Roku shares have risen 88% so far this year as the S&P 500 has gained 8.7%.
