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Roku Impresses With First Publicly Reported Quarter

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Roku Impresses With First Publicly Reported Quarter
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Roku Inc (NASDAQ: ROKU) reported stellar quarterly results Wednesday  — its first report as a public company — driving shares up solidly. Sell-side firms were left impressed by Roku's strong user growth.

The Analyst

Morgan Stanley's Benjamin Swinburne reviewed Roku's quarterly results.

The Rating

Morgan Stanley maintained its Equal-weight rating on Roku and increased its price target from $22 to $25.

The Thesis

Roku's quarterly results highlighted the secular tailwinds driving user growth and monetization, Swinburne said in a note. Thanks to strong smart TV and Roku player sales and strong ad growth, the year-over-year active account and ARPU growth accelerated from the second quarter, Swinburne said

Player sales were up 35 percent and, along with stronger-than-expected Roku TV sales growth, helped add 1.55 million net new active accounts in the third quarter, the analyst said. Strength across advertising and content licensing was the driver of acceleration in ARPU growth from 35 percent in the second quarter to 37 percent in the third quarter, according to Morgan Stanley.

The growth in hours per active account decelerated, probably due to the rising mix of Roku TV accounts, which generally have lower engagement than player customers, Swinburne said.

Advertising revenue mix drove gross margin expansion, according to Morgan Stanley. Roku's fourth-quarter guidance assumes a return to a more balanced mix among advertising, content distribution and licensing fees, which together is called platform revenue, Swinburne said.

Terming the Q4 guidance as bullish, Morgan Stanley said revenue, gross profit and adjusted EBITDA were all above expectations. Roku expects to be adjusted EBITDA positive on a full-year basis for the first time in 2019, Swinburne said.

Morgan Stanley raised its estimates for Roku accordingly.

"With shares up nearly 30 percent after market close following strong results, we see a balanced risk/reward given valuation and Roku's early stage platform business," Swinburne said of the stock's valuation.

The Price Action

Roku shares were seen tacking up 40.36 percent to $26.44.

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Latest Ratings for ROKU

DateFirmActionFromTo
Oct 2018RBC CapitalUpgradesSector PerformOutperform
Oct 2018WedbushInitiates Coverage OnNeutral
Oct 2018NeedhamMaintainsBuyBuy

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Posted-In: Benjamin Swinburne Morgan Stanley RokuAnalyst Color Price Target Analyst Ratings Best of Benzinga

 

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