Jason Helfstein Still Hedge His Bets on Roku Inc (ROKU) Valuation

Oppenheimer's Jason Helfstein praises Roku from the sidelines.


Roku Inc (NASDAQ:ROKU) shares are surged almost 55% on the heels of the digital streaming business’ first reporting period as a public company. It appears Roku has put its best foot forward here with its third quarter that outperformed expectations with a fourth quarter guide that bolsters more enthusiasm.

Oppenheimer analyst Jason Helfstein commends the company for a “strong quarter out of the gate” and opts to stay on the sidelines on principle of “valuation,” reiterating a Perform rating on ROKU without listing a price target. (To watch Helfstein’s track record, click here)

What can be thanked for Roku’s stellar first public quarter? Helfstein says “positive Platform dynamics,” with revenues that skyrocketed 137% year-over-year in the third quarter, a driver of segment gross profit to 155% year-over-year growth. The analyst points to “underlying organic strength and several one-time factors, including: 1) high mix of Roku-owned inventory, 2) record sponsorship revenue and 3) distribution milestones. KPIs all showing momentum, with 4Q:17 device and TV sales set to drive activation in late 4Q:17/early 1Q:18. Mix shift back toward partner inventory to weigh on 4Q:17 Platform gross margins. Roku Channel off to strong start, with potential to be revenue driver in 2019.”

Revenue shot 12% ahead of the analyst’s expectations while beating the Street by 13%, with over half of new active accounts riding a wave of licensed sources in the third quarter. Average revenue per user (ARPU) beat the analyst’s estimate by 4%, which Helfstein attributes to streaming-hour monetization that topped his expectations by 17%. However, this was “partially offset by streaming-hours/active account 12% below Opco,” writes Helfstein.

For 2017, the analyst is taking his Platform revenue forecast up 5% and for 2018 up 7%, taking under account loftier assumptions for active accounts. For 2017, the analyst tweaks his total revenue estimate upward 4% with a bump up of 5% for 2018. With “modestly higher gross margin assumptions,” the analyst raises his Platform gross profit projection up 14% for 2017 and 9% for next year. Adjusted EBITDA likewise gets the raise treatment from this analyst who is cautiously optimistic, boosting his estimate for this year up $16 million and for next year up $5 million, anticipating higher gross profit.

Everyone on the Street right now is playing it safe on this digital streaming company, with TipRanks analytics indicating ROKU as a Hold. Out of 3 analysts polled by TipRanks in the last 3 months, all 3 remain sidelined on ROKU. With a loss potential of 6%, the stock’s consensus target price stands at $26.00.