Needham's Takeaways From Roku's Q1

Roku Inc ROKU reported first-quarter results Wednesday that signal an acceleration of its longer-term strategy of dominating the video streaming space, according to Needham.

The Analyst

Needham's Laura Martin maintains a Buy rating on Roku's stock with an unchanged $50 price target.

The Thesis

Roku's earnings report contained multiple bullish datapoints, Martin said in a Thursday note: 

• An increase in revenue and adjusted EBITDA guidance for fiscal 2018.
• Revenue growth accelerated from 28 percent in the prior quarter to 36 percent.
• Gross margins expanded from 41 percent to 46 percent.
• EBITDA came in at break-even.
• Net user adds rose 46 percent to 20.8 million.
• Average revenue per user rose 50 percent from a year ago to $15.07, a record high. 

Martin identified five takeaways that she said represent upside value drivers for Roku: 

• Half of Roku's growth came from its operating system that's built into TV brands, which represents a "big moat."
• Roku's market share of streaming devices rose from 20 percent in 2017 to 25 percent.
• Roku's inclusion in Samsung TV and potential expansion to other major brands "potentially doubles" its total addressable market.
• It is apparent Amazon.com, Inc. AMZN and Best Buy Co Inc BBY's collaboration is exclusive to the one retailer.
• Advertisers will be able to more efficiently target the estimated 10 million Roku users with no traditional TV subscription.

Price Action

Roku shares were down 1.33 percent at the time of publication Thursday afternoon. 

Related Links:

Roku's Position In Streaming Video Is 'Strengthening,' KeyBanc Says After Q1 Print

Roku's Valuation Reflects Its Advertising Opportunity, DA Davidson Says In Initiation

Photo courtesy of Roku.