Market Overview

Strong Growth Projections For Roku Lead RBC To Recommend Buying The Dip

Share:
Strong Growth Projections For Roku Lead RBC To Recommend Buying The Dip
Related ROKU
80 Biggest Movers From Yesterday
What To Do With Roku's Stock Following 20% Sell-Off?
Jim Cramer's Confusing Calls on Nvidia Corporation (TalkMarkets)

As a company, Roku Inc (NASDAQ: ROKU) is well-positioned to sustain high revenue growth over the coming years, meaning that the recent 25-percent correction in the stock should be bought by investors, according to RBC Capital Markets. 

The Analyst

Analyst Mark Mahaney upgraded Roku from Sector Perform to Outperform with a price target lifted from $48 to $70.

The Thesis

Roku deserves credit for operating a strong business with some of the best subscriber and growth metrics within the internet space, Mahaney said in the upgrade note. (See his track record here.) 

The streaming device maker growing its active accounts at a 46-percent year-over-year rate, while streaming hours are growing at a "very consistent" 58-percent year-over-year rate, the analyst said.

Nearly one in four of all new smart TVs sold in the U.S. contain Roku's technology, which makes the case for a strong platform revenue growth rate for at least the next several years, Mahaney said. 

Roku also stands to benefit from two near-term catalysts and two long-term catalysts, he said.

In the near-term, RBC's conversations with Roku management revealed improving terms such as revenue share and inventory with nearly all of its ad-supported content partners, the analyst said. The rise in popularity of The Roku Channel puts it within the top five channels in terms of active reach; since Roku owns the ad inventory, it can benefit from pricing power and better data visibility, he said. 

Over the longer-term, the company stands to benefit from an international expansion, and the The Roku Everywhere strategy could boost engagement within existing accounts and generate new ad revenue opportunities, Mahaney said. 

Roku shares are trading at 7 times 2019 estimated P/S and 5 times 2020 estimated P/S. That's not cheap, but conservative expectations for a 50-percent compound annual revenue growth rate through 2021 in the platform segment with 60-percent or higher gross margins warrants a "very premium" multiple, according to RBC. 

Price Action

Roku shares were trading up nearly 2 percent at $58.14 at the time of publication Friday. 

Related Links:

KeyBanc Flips To The Roku Channel For A Happy Narrative

Roku Is A Streaming Leader With Shares 'Priced To Perfection,' Wedbush Says In Initiation

Photo courtesy of Roku. 

Latest Ratings for ROKU

DateFirmActionFromTo
Nov 2018Morgan StanleyMaintainsEqual-WeightEqual-Weight
Nov 2018WedbushUpgradesNeutralOutperform
Oct 2018RBC CapitalUpgradesSector PerformOutperform

View More Analyst Ratings for ROKU
View the Latest Analyst Ratings

Posted-In: Mark Mahaney RBC Capital Markets streaming video The Roku ChannelAnalyst Color Upgrades Price Target Analyst Ratings Best of Benzinga

 

Related Articles (ROKU)

View Comments and Join the Discussion!

Latest Ratings

StockFirmActionPT
BBCIBCUpgrades0.0
BKNGWells FargoUpgrades0.0
DARJP MorganUpgrades25.0
EEXBarclaysDowngrades12.0
HPCredit SuisseUpgrades65.0
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.

Greener Pastures: Pendulum Swings Back After Market Came Up Red Yesterday

Cryptocurrency Market Update: Market Miserably Grinds Toward 2018 Lows, Bitcoin Not Spared