Roku, Inc. (NASDAQ:ROKU) is the globe’s leading set-top box maker, but the stock has certainly had a roller-coaster 2018.
Flash back to 2017, when the tech player kicked off an IPO at $14 to close September 28 at $23.50- an almost 68% upturn. Yet, 2018 has poked a twist in Roku’s bullish narrative. By April 3, 2018, the stock dipped to a low, hovering just over $30. The company’s fourth quarter print for 2017 left investors unsatisfied.
That said, since Roku’s bottom point, the stock has started to make a fiery comeback. Roku shares have vaulted almost 55%. Moreover, since the company’s IPO, the stock has climbed nearly 100% in value. Should you take the odds here?
We see Roku has stirred confidence among TipRanks’ top analysts. We track over 4,800 analysts by their 1) success rate and 2) average return to determine which insights you can trust on Wall Street. Let’s explore what the best experts have to say about Roku’s market potential.
When a Short-Seller Finally Sees the Potential
Back in November, short-seller Andrew Left of Citron Research tweeted Roku was a “total joke.” How the tables have turned. By May 25, the bear had a bullish change in tune. “A LOT has changed in 6 months,” explained Left. The former bear now wants “to be long,” and is no longer out to “pop some real bubbles” on Roku.
“The trend to OTT cannot be ignored and $NFLX is telling us valuation is out the window in this megatrend,” asserts Left, who sees a potential stellar takeover candidate ripe for Netflix’s (NASDAQ:NFLX) picking.
To TechCrunch, Roku founder and CEO Anthony Wood noted that his company’s “revenue growth has been modest because we’ve been driving drown prices.” Make no mistake- “we think we’re on the right profitability path.”
With a second quarter print due August 8, how does the Wall Street round-up look like?
Roku’s Newest Bull and Biggest Bull Say…
Oppenheimer’s Jason Helfstein (Profile & Recommendations) just upgraded ROKU from Perform to Outperform and set a new $50 price target (7% upside potential). On the heels of a dip, Helfstein took advantage of an entry point opportunity.
“It’s a Roku Channel world,” and we’re just living in it.
Helfstein has now become a believer in Roku’s monetization potential: “The rapid adoption of The Roku Channel gives us incremental confidence in the channel’s ability to garner viewership on other platforms, such as Samsung, allowing Roku to monetize a broader portion of the OTT ecosystem than we had previously assumed was possible.”
Running the numbers, Helfstein puts a $44 per share value on the core platform. The off-platform Roku Channel prospect Helfstein tags at $7 per share.
Needham’s Laura Martin (Profile & Recommendations) boasts an impressive ranking on Wall Street: #123 out of over 4,800 analysts. Also, the analyst stands as Roku’s biggest bull.
Once, Citron Research’s Left had reacted to Martin’s optimistic price target as “irresponsible.” Yet, even Left has changed his perspective, so maybe Martin had the right idea all along. Martin once saw an opportunity for Roku to become “the next Netflix.”
Spotlighting “earnings upside potential” ahead, Martin just lifted her price target $10 higher to $60 (28% upside potential). In other words, Martin predicts the most room for Roku shares to run of any other analyst on Wall Street.
Martin calls for “strong US viewing trends toward OTT streaming generally and connected TVs.” At a closer look, the analyst is keyed into 1) the company’s rising capture of the streaming device market 2) the “incremental value” stemming from The Roku Channel, and 3) “event (ie, take-over) upside.”
Prepare for a big comeback ahead, wagers Martin. “Valuation looks inexpensive vs NFLX and WWE and we expect Roku to be sold before it triples again.”
Once again, Martin draws a comparison to Netflix, and warns other tech players not to be sorry for overlooking Roku: “We expect companies that could have bought Netflix at less than 410B will not want to make that same mistake again by passing on Roku.”
The Bear That Left the Camp
Left isn’t the only one fleeing the bears on Roku. Morgan Stanley’s Benjamin Swinburne (Profile & Recommendations) decided to take a step to the sidelines on the tech stock. After all, valuation here doesn’t suggest “market overreaction” anymore.
The analyst upgraded ROKU from Underweight to Equal Weight while hiking the price target from $32 to $38. However, this still reflects close to 19% in downside potential. Swinburne isn’t leaving the ROKU bears lightly.
Still, Swinburne acknowledges the stock’s valuation is now “more balanced.” In fact, valuation was largely what had turned Swinburne sour on the stock. Swinburne’s point of contention was never whether Roku was showcasing “solid execution” on user base growth and average revenue per user. “Roku’s platform business has outperformed our expectations to date,” acknowledges the analyst.
Swinburne writes, “Roku benefits from strong secular tailwinds as consumer behavior shifts from viewing TV over traditional distribution (e.g. free-to-air broadcast, cable/satellite/telco) to ‘over-the-top’ (OTT) internet video consumption, indicating potential upside to account growth and the time spent per account.”
Even if the analyst sees downside potential from the sidelines, he sees an earnings story that boils down to “advertising, which is still in its early stages.” Roku needs to boost visibility into the platform’s “monetizable hours streamed.”
Wall Street’s Verdict: There’s a Silver Lining Here
Ultimately, Wall Street’s best performing analysts split on Roku- between the sidelined and the bullish. That said, the bulls win out. Roku has received 3 bullish ratings in the last three months against 2 analysts hedging their bets- and one is a former bear. With a return potential of 4%, analysts are optimistic on this ‘Moderate Buy’ stock. The 12-month average price target stands at $49.40.