Roku Inc (NASDAQ:ROKU) shares are on a 3% upturn after already shooting up close to 18% thanks to a confident call from Needham analyst Laura Martin, who based on valuation, strategic standing, active user gains, growing average revenues per user (ARPUs) coupled with margins, and soaring competitive moats sees fit to get more positive on the digital streaming business.
As such, the analyst reiterates a Buy rating on ROKU stock while boosting the price target from $28 to $50, which represents a 4% increase from where the stock is currently trading. (To watch Martin’s track record, click here)
Martin writes, “Like NFLX, we view ROKU as a pure-play on over-the-top (OTT) TV-viewing growth, but ROKU has no content risk. Recent announcements and press reports that DIS, GOOG, AMZN, etc. are launching new OTT services helps ROKU but hurts NFLX. Based on strong 3Q17 active user & ARPU growth plus expanding gross margins, we raise our 2018 estimates and now project ROKU will hit EBITDA breakeven in 3Q18, one quarter earlier than our prior projections. We believe NFLX is the best comp for ROKU and note that ROKU is materially cheaper. Finally, at a market cap of $3.6B vs $85B for NFLX, ROKU has more exit options.”
Meanwhile, “ROKU’s competitive moats are rising as its IP gets built into more TVs under exclusive multi-year deals […] User growth beat Wall Street estimates in 3Q17 because Wall Street underestimated ROKU-TV sales. We expect this to occur again in 4Q17, ROKU’s biggest quarter of the year,” asserts the analyst.
With average revenue per user increasing at a pace of around $0.50 per quarter as seen this year, the digital streaming business’ 14 million active users have brought to the table $2.56 each in platform revenue in the first quarter, 15 million users each yielded $3 in the second quarter, and 16.7 million users realized $3.44 in the third quarter.
Not only does Martin raise her 12-month price target expectations, but she likewise bumps up earnings forecasts from fiscal 2018 through fiscal 2020 taking under account robust user gains seen in the third quarter as well as ARPU over-delivery and gross margin momentum.
Martin is the sole bull at the Wall Street party that is far less enthusiastic on the company, with TipRanks analytics demonstrating ROKU as a Hold. Out of 5 analysts polled by TipRanks in the last 3 months, 1 are bullish on Roku stock, 3 remain sidelined, while 1 is bearish on the stock. With a loss potential of nearly 34%, the stock’s consensus target price stands at $31.00.