Top Analyst Pounds the Table on Roku Stock

RBC Capital's Mark Mahaney spotlights Roku's gains-making Platform segment for a standout first quarter financial performance.


Roku Inc (NASDAQ:ROKU) investors are welcoming a solid first quarter earnings show that sent shares leaping 9% yesterday and another 7% this morning. With the Platform segment hitting a home run for the tech player, one of Wall Street’s leading analysts spotlights the beat and raise optimistically from the sidelines.

Top analyst Mark Mahaney at RBC Capital highlights, “The Q2 Guide bracketed the Street, FY18 Revenue & EBITDA Guides were raised by more than the Q1 beat… i.e. a Clean Raise. All in, Q1 Fundamentals were very strong, with Platform Revenue Growth of 106% and Y/Y improvement in Gross & EBITDA Margins.”

In reaction, the analyst reiterates a Sector Perform rating on ROKU stock with a $45 price target, which implies an encouraging 16% upside from current levels.

For the first quarter, the digital streaming platform saw a 36% year-over-year rise in revenue to $137 million, towering past the analyst’s and the Street’s expectations of $128 million, thanks to Platform Revenue’s contribution of “all the upside,” notes Mahaney. The company’s ($0.8 million) in adjusted EBITDA far outclassed the analyst’s ($12 million) and the Street’s ($11 million) forecasts. This strong point of the quarter gained advantage from more robust-than-anticipated Player Gross Margin and less-than-anticipated R&D expenses. In fact, Platform revenue rocketed a whopping 106% year-over-year to $75 million, comprising over half of the company’s total revenue at 55%. Moreover, this marks the first time Platform revenue outperformed Player revenue, riding on back of stellar video advertising momentum.

Additionally, the tech player magnetized a 46% year-over-year jump in ramping active accounts, which points to 1,500 net ads against merely 825 in the same quarter last year. Moreover, total hours streamed surged 56% year-over-year to 5.1 billion. Average revenue per user for Platform hit a 50% year-over-year lift to $15.07, which is the quickest growth experienced from the third quarter of 2016. Meanwhile, the analyst points out, “1/4 of all Smart TVs sold in the U.S. in Q1 run the Roku OS.”

For 2019, the ROKU team boosted its guide 5% to $951 million, gross profit 6% to $441 million, and adjusted EBITDA 64% to $59 million.

Overall, “We believe valuation is arguably full at these levels. Nevertheless, Roku is still 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. Major concerns/unknowns for us are device competition, potential TV OS competition, and uncertainty over how compelling the Roku value proposition is to advertisers and content channels. But we believe the market opportunity should support very robust growth for Roku for at least the near-term,” contends Mahaney.

Mark Mahaney has a very good TipRanks score with a 74% success rate and a high ranking of #14 out of 4,793 analysts. Mahaney yields 24.6% in his annual returns. When recommending ROKU, Mahaney earns 0.0% in average profits on the stock.

TipRanks analytics reveal cautious optimism circles ROKU stock. Out of 8 analysts polled in the last 3 months, 3 are bullish on ROKU stock, 4 remain sidelined, while 1 is bearish on the stock. With a return potential of nearly 9%, the stock’s consensus target price stands at $39.17.

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