Jon Hadad

About the Author Jon Hadad

Jon Hadad graduated from the University of Delaware with a degree in political science. Prior to joining the Smarter Analyst team, he was an industry analyst at a New York research firm.

Roku Inc (ROKU) Stock Is a Winner, but Valuation Is Pretty Full, Says Wedbush

Roku (ROKU) stock skyrocketed 28% Thursday, propelling shares to a new all-time high as investors were delighted by stronger-than-expected first-quarter earnings. Since this time last year, the company saw accounts rise 40%, to nearly 29.1 million, as higher revenue per user contributed to total revenue surging 51%, to more than $200 million.

Yet, even as investors poured into the stock yesterday, Wedbush analyst Michael Pachter is holding to this Neutral rating, but raises his price target by $10, to $65. (To watch Pachter’s track record, click here)

Though Pachter is neutral on ROKU stock, the analyst sees the company continuing to grow. Pachter says, “Roku has built an exceptional platform on the back of its players, and as it expands in the rapidly growing Smart TV category, it has positioned itself as best in class for OTT advertising and is poised for international expansion.”

On a product level, Pachter believes Roku’s new offering of Premium Subscriptions on The Roku Channel (TRC) “likely drove adoption of Roku’s free ad-based content in addition to subscription fees.” Furthermore, while some may look at new SVOD apps like Apple+ and Disney+ as a threat to the platform, Pachter says these are “a positive for Roku, as it earns perpetual revenue share for users that sign up on its platform.”

While Roku would directly benefit from SVOD sign ups from its platform, Pachter says increased SVOD options “is contributing to increased cord-cutting and grow the overall pool of active users for the Roku platform.” Conversely, if users find that TRC is unable to keep up with SVOD competitors on content, it is also possible that engagement shifts from TRC to the competition, which would risk advertising revenue growth.

Pachter is optimistic that the company has room to grow, but is wary about the costs associated. In order to compete with Google and Amazon on TV licensing, for example, Roku must continue its high spending on R&D. And in order to expand overseas, Pachter says the company has to spend “handsomely.” And content spending must continue in order for TRC to compete with rival SVODs. So while Pachter believes, “Roku has substantial growth opportunities,” this is currently priced in to his updated $65 price target.

All in all, while a strong earnings release was enough to send ROKU soaring, the stock still hasn’t won over all of Wall Street. TipRanks’ analysis of 14 analyst ratings shows a Moderate Buy consensus, with seven analysts recommending Buy, five saying Hold and two recomnned Selling. The average price target among these analysts stand at $69.93, and represents a 15% downside, though this is most likely a result of analyst’s not reacting quickly enough to Roku’s surge. (See ROKU’s price targets and analyst ratings on TipRanks)

If you liked this analyst news article on ROKU, you should check out the Top Nasdaq Stocks section as well.


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