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Roku Topped Estimates, but Uncertainty Lies Ahead


On Monday, Roku (ROKU) released an update on Q1 figures and investors liked what they saw.

The stay-at-home measures have provided Roku with new account growth beyond its initial guidance for the quarter, with the company estimating a net increase of 3 million active accounts from December 31 to March 31, reaching 39.8 million.

Roku expects revenue for the quarter to come in between $307 million and $317 million, up by 51% year-over-year, beating its previous call for revenue between $300 million and $310 million, and well ahead of the Street’s call for revenue of $299.8 million.

The stock skyrocketed 32% since the earnings announcement, and a few long-time bulls believe there’s good reason to be more cautious on the name.

5-star Needham analyst Laura Martin reiterated a Buy rating on Roku shares, while lowering the price target to $150 (from $200), due to “growing uncertainties about the timing and shape of an economic recovery in 2021.” Martin believes it is appropriate to take a “more cautious outlook for 2021 US advertising growth.” (To watch Martin’s track record, click here)

“We lower our 2Q20 and FY20 forecasts because our channel checks imply US ad weakness for the next 1-2 quarters.” Martin noted.

Rosenblatt Securities’ Mark Zgutowicz seems to agree: “While some may have expected to see greater growth here given March stay at-home CTV viewership spikes, we suspect to see these benefits to accrue in 2Q.”

But overall, Zgutowicz remains cautiously optimistic: “While cognizant we’re barely 2 weeks into a quarter that has seen relative flattening of the curve optimism, we continue to monitor what has broadly been viewed in the programmatic industry as a much “better than feared” start to 2Q.” Zgutowicz keeps a Buy rating on Roku, along with a $110 price target. (To watch Zgutowicz’s track record, click here)

Last but not least is 5-star RBC analyst Mark Mahaney, who lowered his estimates along with a reduction to the price target for Outperform-rated Roku. The figure comes down from $142 to $139. (To watch Mahaney’s track record, click here)

With Ad-based revenue “increasingly material for Roku,” Mahaney expects the streaming platform to take a hit. Overall, though, Mahaney remains positive concerning Roku’s prospects.

“We believe (based on 3P data points) that Roku will likely face material headwinds from weak Advertiser demand trends in the short term due to the COVID Crisis. That said, we continue to view ROKU as one of the best plays on ad-supported OTT, with the company being one of the best-positioned to take share of the very large, underpenetrated $70B TV Ad spend opportunity,” Mahaney commented.

Turning to the rest of the Street, Roku’s Moderate Buy consensus rating is based on 6 Buy ratings, 3 Holds and 2 Sells. The average price target among these analysts stands at $118.91, which is about 7% lower than its current value — most likely a result of the recent quick surge and analysts’ inability to turnaround new price targets so quickly. (See Roku stock analysis on TipRanks)

 

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