This Analyst Is Tuned in to Roku (ROKU) Stock After Seeing Earnings Report; Should You Be?

Roku’s (ROKU) third-quarter earnings report is getting the attention of Wedbush analyst Michael Pachter as he says the media platform is rapidly growing and becoming a major player in the Smart TV category. Additionally, the analyst sees the company as the best in class option for OTT advertising. Pachter looks to the Roku screen with optimism as he sees “significant opportunities ahead” with international expansion especially as The Roku Channel is now available on third-party Smart TVs and the web.

Flipping to the Q3 numbers, revenue came in at $173 million, a bit lower than Pachter’s estimate of $176 million – but higher than consensus of $169.  Adjusted EBITDA was $2.0 million versus Pachter’s estimate of $2.2 million, consensus of $4.1 million, and guidance of $8 – 3 million. Non-GAAP EPS was $0.9 versus the analyst’s estimate of $0.11 and consensus of $0.12.

In response to the numbers, Pachter says that “by all metrics, Roku’s growth is impressive; however, in Q3:18, the upside to guidance was narrower than in prior quarters […] We estimate that ARPU from The Roku Channel (“TRC”) sub-segment is the fastest growing contributor to overall revenue growth and ARPU growth. As Active Users on the Roku Platform seek out free content, they are steered toward The Roku Channel. We expect TRC to be Roku’s highest ARPU contributor by the end of 2019, and expect continued growth as Roku expands internationally. We believe the category’s accelerated growth in ARPU stems from Roku’s ability to charge higher CPMs given all of the data it has on its audience and its ability to place finely targeted advertisements for its partners. We think Roku’s international expansion potential is significant, and given the favorable contribution to ARPU, more rapid international expansion would represent upside to our current estimates.”

All the talk about Roku’s future has made Pachter adjust the FY18 estimates for revenue to $733 million from $732 million, for adjusted EBITDA to $29 million from $24 million, and for EPS to $0.11 from $0.07, reflecting Q3 results and management’s updated guidance. FY19 estimates are staying the same when it comes to revenue ($990 million,) but Pachter is altering estimates for adjusted EBITDA to $52 million from $47 million and EPS up to $.020 from $0.11.

Bottom line: Pachter reiterates an Outperform rating on ROKU stock with a price target of $65. (To watch Pachter’s track record, click here)

Out of 8 analysts who have been watching ROKU stock in the last three months, 6 are bullish, and two are sidelined. The consensus price tag of $68.63 shows just about 42% upside from where the stock is currently holding in the marketplace. (See ROKU’s price targets and analyst ratings on TipRanks)

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