Sell-Side Bullish On Roku After Q2 Report

Roku, Inc. ROKU shares were sizzling Thursday in reaction to the streaming video company's second-quarter sales and earnings beat.

The Analysts

KeyBanc Capital Markets analyst Evan Wingren maintained an Overweight rating on Roku and raised the price target from $54 to $67.
Oppenheimer analyst Alec Brondolo reiterated an Outperform rating on Roku and raised the price target from $50 to $59.
Macquarie anaylst Paul Golding reiterated an Outperform rating on Roku and raised the price target from $49 to $57.

The Thesis

Roku's earnings, revenue and adjusted EBITDA exceeded expectations and consensus estimates, while strong active account growth was driven by momentum in TV sales, said KeyBanc's Wingren.

KeyBanc raised its estimates for revenue and gross profit to fit future growth projections, the analyst said; the decision does not factor in Samsung distribution or web and mobile streaming. The expansion of The Roku Channel is a sustainable catalyst, Wingren said.

“TRC was a top-five channel on Roku in the quarter, and likely contributed a material amount to 96-percnet year-over-year platform revenue growth,” the analyst said. “Today, it announced that Roku Channel would be launching on Samsung high-end TVs and would be free to everyone in the U.S./Canada on web/mobile. It’s early, but the expansion of TRC has the potential to drive long-term value creation above expectations.”

Oppenheimer's Brondolo discussed key business updates that he said will likely drive growth.

The Roku Channel is now available for desktop, mobile phones and tablets for free. It will also be integrated with existing Roku TV’s, allowing customers easier access to their account and content. Roku Pay continues to be a key business aspect, as it serves existing customers, content partners and advertisers, Brondolo said.

“We believe Roku can leverage its advantages in pricing and merchandising to remain the market leader in consumer-facing connected television solutions," the Oppenheimer analyst said. "Roku should benefit from the secular trend of advertising dollars leaving linear TV in favor of [over-the-top] platforms."

Macquarie's Golding said Roku's increase in OTT viewership directly influences its independence from competitors. Hours viewed were up 57 percent year-over-year and Roku TV hours have doubled, he said.

"This demonstrates the growing penetration of Roku OS TV sets. Player sales also saw a remarkable 22-percent jump in volumes in the quarter — management was clear to signal lumpiness can be expected here, but this shows that there is still demand out there for boxes."