Roku's 'Stellar Quarter' Keeps These Analysts Pressing The Buy Button

Streaming video hardware and software maker Roku, Inc. ROKU reported second-quarter results that prompted three analysts to turn incrementally bullish on the stock.

Roku reported quarterly losses of 35 cents per share, which beat the analyst consensus estimate by 16 cents. The company reported quarterly sales of $356.07 million, which beat the analyst consensus estimate of $312.46 million by 13.96%.

Needham analyst Laura Martin maintains a Buy rating on Roku's stock with a price target lifted from $150 to $190.

Benchmark's Daniel Kurnos maintains a Buy rating with a price target lifted from $180 to $185.

Rosenblatt Securities analyst Mark Zgutowicz maintains a Buy rating with a price target lifted from $190 to $195.

Needham: Key Growth Metrics

Roku reported a 42% year-over-year revenue growth at $356 million and an 83% better than expected EBITDA loss at $3.4 million. Martin said the most important "upside value driver" in the quarter was the addition of 3.2 million new members. In fact, the company's 43 million ACtive Accounts implies a market share of 50% of all U.S. connected TV homes.

Roku's results are also highlighted by "Content Distribution Fees" doubling from the first quarter to $60 million. This category includes subscription video on demand (SVOD) revenue that represents a predictable revenue stream and transactional video on demand (TVOD) that benefited from the closures of cinemas and consumers staying mostly home.

The Roku Channel also doubled its exposure to 43 million people and implies that 40% of Roku's entire installed base watches free ad-driven content.

Finally, monetized video ad impressions rose more than 40% year-over-year for the first time ever at 50%, the analyst wrote. Encouragingly, 92% of advertisers who spent more than $1 million in the first half of 2019 returned back to the platform in the first half of 2020.

Benchmark: 'Stellar' Quarter

Kurnos said Roku reported a "stellar quarter" although the stock lost momentum as it's difficult to continue delivering "enough upside to keep the momentum going." Management even noted it saw no indication of benefiting from a favorable shift in timing like other COVID-19 winners.

"We suspect the primary culprit is the EBITDA outlook for a 2020 loss despite a nearly breakeven result in 2Q as management continues to invest in building on their 'competitive advantages,'" the analyst wrote in a note.

Also, management isn't getting enough credit for a strong advertising quarter with an estimated 24% ad-supported video on demand (AVOD) growth.

While valuation will remain a point of concern for investors, Roku should be able to show a 35% annual growth rate for the foreseeable future and this will drive margin expansion and solidify Roku's "place in the ecosystem," the analyst said.

Rosenblatt: Interntional Expansion Outlook

Roku's presence outside of the U.S. extends to just four countries and the company is seeing good success so far, Zgutowicz said. By the end of 2021, the company should have 7.2 million active accounts in Canada, Mexico, UK and Brazil, and a 6.5% broadband household penetration rate in these four countries.

The average revenue per user in the four countries in 2021 will be around $9.59 versus $29.07 in the U.S. But as time passes, the spread between the two will narrow as Roku continues to expand. But management isn't expected to provide any perspective on its international performance until next year.

ROKU Price Action: Shares of Roku were trading lower by 8.8% at $150.75.

Related Links:

2 Analysts On Why Disney, Roku Are Streaming Stock Alternatives To Netflix

Netflix Lacks Lack Near-Term Catalysts, Credit Suisse Says After Q2 Report