Many investors will have their eyes set on Roku (ROKU) this Thursday, as the company is slated to release fourth-quarter earnings at the close of market. The streaming service’s stock is down about 30% since October 2018, but a January release of user stats sent the stock surging by 25% in January and the stock has risen nearly 25% since then.
RBC Capital’s top analyst Mark Mahaney believes “Street estimates for Q4 are reasonable, with greater upside than downside potential,” as he maintains his Outperform rating on the stock $70 price target.
On the financials, Mahaney says, “we are modeling Q4:18 Revenue of $261M, which is above the mid-point of management’s guidance of $255-$265M and a tad below the Street at $262MM. Our Adjusted EBITDA estimate of $18.7M is slightly lower than the Street at $19.6M and at the higher end of company guidance of $13-$20M.” Overall, the analyst is a bit less optimistic than Wall Street but more so than that of the company.
Mahaney also discusses meetings with Roku management, including CEO Anthony Wood, CFO Steve Louden and IR VP James Samford. He says his “conversations primarily included three key topics – 1) Ad business growth and sustainability of growth; 2) key focus areas and opportunities in 2019; and 3) The Roku Channel (TRC) traction and opportunity around TRC.” Mahaney believes there is tremendous opportunity in ads, as “10% of 18-24 year olds watch TV on Roku, but 10% of Ad dollars have not shifted” which shows “the company is still in very early days.” Furthermore, the analyst points out that “TRC…grew from nothing to a top-5 channel by Reach on Roku in the past year. Going forward, as deal grows and come up for renewal, an important factor is TRC,” which is will provide more opportunities for ads
Bottom line, Mahaney views “Roku as one of the best plays on Ad-Supported OTT. Roku is attacking a very large $70B TV Ad spend opportunity and as this spend migrates to over-the-top, we believe Roku can sustain robust growth in both Active Accounts and Total Hours Streamed, while improving monetization to drive material ARPU growth,” all of which contribute to his Outperform rating on the company.
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, Mahaney has a yearly average return of 22.9% and a 67% success rate. Mahaney is ranked #34 out of 5,180 analysts on Wall Street.
Wall Street has mixed reviews on Roku. Of eight analyst ratings tracked by TipRanks, five recommend Buy and three recommend Hold. The average price target is $47.71, which represents a 12% downside, though this may simply be a case of analysts playing catch-up in updating their models since Roku’s surge. (See ROKU’s price targets and analyst ratings on TipRanks)