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Roku: Where Do the Bulls Go From Here?

It might seem a little incongruous to suggest Roku (ROKU) could be this decade’s Netflix. However, following a breakout year, the claim might not be such an outlandish one to make. Netflix was the 2010s’ most successful stock, and similarly disruptive. So, could Roku have the same impact in the 2020s?

Roku’s share price rose by 349% in 2019, bolstered by a series of earnings reports that beat the Street’s estimates. While investors are surely happy with such mighty returns, the question on investors’ minds is whether now is really the time to invest in the streaming player company.

According to some on the Street, Roku has several catalysts which could propel it further ahead in 2020.

International Market Penetration

While Roku is practically a household name in the US, it is far from ubiquitous in other markets. Until recently, Roku had no significant international OEM (Original Equipment Manufacturer) partnerships. This all changed on January 6 with the announcement that 15 TV brands will launch Roku TV models in not only the U.S., but also in Canada, Mexico and the UK. More announcements of this kind are expected later this year and are set to provide big account growth for the company.

Roku has also been gearing up for the European market, spending significant resources and engineering hours building a tuner-card for the region. The “heavy lifting” according to CFO Steven Louden has already been done and now only slight country-specific adjustments need to be made to each country’s rollout.

Roku’s recent UK launch has been successful so far and RBC’s Mark Mahaney thinks international markets will be a key growth initiative in 2020. The 5-star analyst said, “Roku accounts for 35-40% share in terms of Active Accounts in the U.S. and while there may be some more opportunity for the company to grow domestically, we believe that International markets now offer a much larger, untapped opportunity for Roku.”

Streaming Wars

With the recent launches of Disney+ and Apple+, and further ones on the way – HBO Max, Comcast, etc.- Roku’s agnostic nature means it stands to benefit from a proliferation of services. According to Mahaney, the trend will benefit Roku in at least three ways: “i) it should serve as a highly effective customer acquisition channel for new OTT launches and offerings given its 32MM active accounts; ii) it should be able to generate potential material new AVOD and SVOD revenue-share revenue; and iii) potential further streaming fragmentation should reduce Roku’s dependence on Netflix, YouTube, and Amazon.”

To this end, Mahaney reiterated an Outperform rating on Roku and kept his price target of $160, indicating possible upside of 20%. (To watch Mahaney’s track record, click here)

The Rest of the Street’s Take

On the Street, Roku currently ranks as a Moderate Buy, with a breakdown of 10 Buys, 1 Hold and 2 Sells. With an average price target of $149.50, analysts believe Roku has further fuel in the tank to add an additional 12% to its share price in 2020. (See ROKU stock analysis on TipRanks)


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