Analysts at RBC Capital Markets don't see a bullish scenario for
Roku IncROKU as the stock is
reasonably valued in the near term after a 60-percent gain since its IPO pricing. The firm's Mark Mahaney initiated coverage of Roku's stock
with a Sector Perform rating and $26 price target.
Rewards And Risks
Mahaney highlighted four positive aspects of the business, including:
Roku's market share of all
streaming devices
stands at 20 percent and almost 50 percent of all streaming hours.
But on the other hand, the following five risks can't be ignored:
- The competitive landscape is full of tech giants such as Apple Inc. AAPL.
- Streaming activity from Netflix, Inc. NFLX, Alphabet Inc GOOG GOOGL's YouTube and other platforms account for 50 percent of streaming hours but won't generate any material revenue for Roku.
- Roku is unlikely to be adjusted EBITDA positive until 2018 and free cash flow positive the year after.
- The majority of Roku's Player revenue is too concentrated and comes from just three retailers.
- The company generates no material revenue outside of the U.S.
Combining both the positives and negatives yields a belief that Roku's stock is "appropriately balanced against investment risks" and reasonably valued at 5x 2018 price to sales.
At time of publication, shares of Roku were down 4.46 percent at $20.90.
Related Links:
Does Roku's Place As Streaming Market Leader Make It A Buy?
Roku, Snap The Top Stocks Among Short Sellers
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