Market Overview

Here's Why One Analyst Says Roku Is Undervalued

Here's Why One Analyst Says Roku Is Undervalued
Related ROKU
Benzinga's Top Upgrades, Downgrades For December 18, 2018
Jim Cramer Advises His Viewers On Apache, Waste Management And More

Roku Inc (NASDAQ: ROKU) has come a long way from its trading debut price of $15.78 and it is now trading at $44.75.

The Analyst

Needham's Laura Martin reiterated a Buy rating on Roku and increased its price target from $28 to $50.

The Thesis

The analyst compared Roku to Netflix, Inc. (NASDAQ: NFLX) by saying that it's a pure play on over-the-top TV viewing growth, but without content risk. (See Martin's track record here.)

Based on strong active user and ARPU growth in the third quarter, Martin said she expects Roku to reach its EBITDA break-even point in the third quarter of 2018, one quarter earlier than in her prior forecast.

Martin raised her price target for the stock for the following reasons:

  • Valuation.
  • Strategic position.
  • Active user growth. 
  • Expanding ARPUs and margins.
  • Rising competitive moats.

When it comes to valuation, Netflix is the best comp to Roku, said Martin. Netflix trades at eight times 2018 expected revenue, while Roku trades at seven times. Roku is materially cheaper than Netflix, the analyst said. 

ARPU per user has risen around 50 cents each quarter so far in 2017, and the company's competitive moats are rising as its IP gets built into more TVs under exclusive multiyear deals, said Martin. Roku estimates that 20 percent of connected TVs sold in the US in 2017 will be theirs. 

The Price Action

The stock traded sharply higher in November, after the company reported better-than-expected earnings. It closed up 17.86 percent at $46.52 on Monday. 

Related Links: 

Expert: Roku's Post-Q3 Run Could Be Masking Balance Sheet Concerns

Roku Rips And Dips

Photo courtesy of Roku.

Latest Ratings for ROKU

Dec 2018KeyBancMaintainsOverweightOverweight
Dec 2018SunTrust Robinson HumphreyInitiates Coverage OnHold
Dec 2018DA DavidsonUpgradesNeutralBuy

View More Analyst Ratings for ROKU
View the Latest Analyst Ratings

Posted-In: Linda Martin NeedhamAnalyst Color Price Target Reiteration Analyst Ratings Best of Benzinga


Related Articles (NFLX + ROKU)

View Comments and Join the Discussion!

Latest Ratings

ADIMorgan StanleyDowngrades0.0
ALKSGoldman SachsDowngrades26.0
BHGECredit SuisseUpgrades25.0
BLMNMorgan StanleyUpgrades0.0
OKTADA DavidsonInitiates Coverage On62.0
View the Latest Analytics Ratings
Don't Miss Out!
Join Our Newsletter
Subscribe to:
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
Your weekly roundup of hot topics in the exciting world of fintech.
Thank You
for registering for Benzinga’s newsletters and alerts.
• The Daily Analysts Ratings email will be received daily between 7am and 10am.
• The Market in 5 Minutes email will be received daily between 7am and 8am.
• The Fintech Focus email will be received every Friday between 2pm and 5pm.

Raymond James: Rising Home Prices, Wages Could Be A Major Boon For Lowe's

Funko Pops: Stock Rises As Analysts Initiate Coverage