RBC's Mahaney On Roku Downgrade: We Were Wrong

RBC Capital Market analyst Mark Mahaney downgraded Roku Inc ROKU's stock rating from Outperform to Sector Perform in early July.

The stock has gained more than 30% since the rating revision, the analyst told Bloomberg on Monday. 

"Our downgrade was clearly premature or, in other words of saying, wrong." 

What Happened

Roku is clearly taking full advantage of the streaming video space and positioning itself to dominate the upcoming streaming wars, Mahaney said on "Bloomberg Technology."

The company's platform-agnostic model implies it can simultaneously partner with Walt Disney Co DIS and Apple Inc. AAPL, along with any another platform, the analyst said. 

Roku is able to collect ad-supported revenue on its platform, he said. 

"The winds are definitely tailwinds — they are definitely within this company's sails," the analyst told Bloomberg's Taylor Riggs. "It's one of the best growth assets in mid-small-cap internet as far as I can tell."

Why It's Important

Most of Roku's recent stock appreciation is "very well warranted" for a company whose fundamentals are the "very best you can find" in the mid-small-cap internet space, Mahaney said. 

The company's 80% year-over-year growth in ad revenue comes with 70% gross margins, he said. 

The analyst doesn't recommend buying Roku's stock at current levels for valuation reasons.

This creates a difficult scenario where investors may want to consider buying Roku's stock on a dip, but there is no reason to expect a decline in share prices in the near-term, Mahaney said. 

What's Next

Roku has yet to fully expand internationally, but a push outside the U.S. market is "inevitable," and exposure to Europe is likely in the near-term, the RBC analyst said. 

Roku shares were up 2.82% at $138.09 at the time of publication Tuesday. 

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Photo courtesy of Roku.