Market Overview

Needham: Buy The Dip In Roku

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Needham: Buy The Dip In Roku

Roku Inc (NASDAQ: ROKU) slipped 15% Monday on a Morgan Stanley downgrade. The scenario presented a fortunate buy opportunity for one market expert.

The Rating

Needham analyst Laura Martin maintained a Buy rating on the stock and raised her price target from $150 to $200.

The Thesis

Needham values Roku based on platform economics akin to those of YouTube, iOS, Android and Facebook.com. Upside potential comes from “winner take most economics, walled garden data advantages, scale economics and enormous barriers to entry,” according to Needham.

In 2020, the firm is expected to swell on DataXu-driven ad improvements, increasingly valuable data algorithms, and accelerated revenue growth for subscription video on-demand, particularly for non-Netflix, Inc. (NASDAQ: NFLX) distributors. Additionally, Roku could capture new households whose older TVs are incompatible with the latest streaming apps.

“In the U.S., we believe YouTube is the winning aggregator of user-generated videos and Roku will be the winning aggregator of TV and films,” Martin wrote in a report.

Needham expects an increase in Roku’s negotiated revenue shares as the platform grows its installed base. At the same time, it's slated to profit from an uptick in customer acquisition spending by Walt Disney Co (NYSE: DIS), Apple Inc. (NASDAQ: AAPL), Comcast Corporation (NASDAQ: CMCSA) and AT&T Inc. (NYSE: T).

“Any OTT service trying to get new subscribers (or viewers to watch their free content) must spend more ad dollars on Roku or risk ignoring 40% of connected TV homes that their competitors are reaching,” Martin wrote.

The circumstances position Roku to rake in ad revenue.

“Where does $70 billion of U.S. linear TV ad revenue go in 2020 as young wealthy U.S. viewers spend more time behind paywalls with zero ads? Roku is our answer,” Martin wrote.

Price Action

At time of publication, Roku's stock traded higher by 1% at $137.31 per share.

Related Links:

How Trader Sentiment On Streaming Stocks Has Changed Since Disney+ Launch

Roku Analyst Breaks Down What Black Friday Deals Mean For The Stock

Photo courtesy of Roku.

Latest Ratings for ROKU

DateFirmActionFromTo
Dec 2019MaintainsBuy
Dec 2019DowngradesEqual-WeightUnderweight
Nov 2019MaintainsOutperform

View More Analyst Ratings for ROKU
View the Latest Analyst Ratings

Posted-In: Laura Martin NeedhamAnalyst Color Price Target Top Stories Analyst Ratings Tech Best of Benzinga

 

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