Roku's Q1 Inspires 23% Stock Pop, Higher Price Targets Across The Board

Analysts across the Street upped their valuations of Roku Inc ROKU to accommodate a post-earnings surge. Roku reported first-quarter revenue of $206.7 million and a loss per share of 9 cents against consensus estimates of $191.97 million and 25 cents, respectively.

Management also achieved a 4.8-percent margin, with $10 million in adjusted earnings before interest, tax, depreciation and amortization (EBITDA) exceeding Street expectations for a $9.6 million loss.

To top off the beats, Roku raised its full-year guidance for sales, gross profit, adjusted EBITDA and net income.

Here are top takeaways from the report.

Industry Leadership

Analysts celebrated acceleration in three key metrics: 74.5-percent growth in streaming hours, 39.9-percent growth in active accounts, and 26.5-percent growth in average revenue per user.

“Roku continues to capitalize on secular streaming and cord cutting trends as it strengthens market share, user engagement, monetization and active account additions through investments in its platform and content offering,” Guggenheim analysts Michael Morris and Curry Baker wrote in a note. “We believe accelerating streaming hours growth reflects higher brand affinity and user stickiness – which strengthens the company's long-term monetization potential.”

The metric growth supported a 79-percent increase in platform revenue to bring the segment up to 65-percent of total revenue. They also hoisted Roku to the top of operating systems in smart TVs. The firm’s market share expanded from 25 percent to 33 percent.

“Long term, we view ROKU as one of the best plays on ad-supported OTT,” RBC analysts led by Mark Mahaney wrote. “Roku is attacking a very large $70B TV Ad spend opportunity and as this spend migrates to over-the-top, we believe Roku can sustain robust growth in both Active Accounts and Total Hours Streamed, while improving monetization to drive material ARPU and, of course, revenue growth.”

Strength In Growth Initiatives

DA Davidson considers the quarter proof of Roku’s prospects.

“Last quarter management stated its plans for 2019 were to invest in areas that would drive account growth, which is why we are very encouraged by the roughly 40% year-over-year growth in active accounts,” analyst Tom Forte wrote. “Again displaying that management can continually execute on its growth initiatives.”

Costly Path To Profits

Wedbush expects several years of high research and development spending as Roku expands internationally and competes for TV licensing with Amazon.com, Inc. AMZN and Alphabet Inc GOOGL.

The costs may eventually be offset by opportunities in The Roku Channel, foreign markets, and the new subscription video-on-demand (SVOD) channels of Apple Inc. AAPL and Walt Disney Co DIS.

“This [SVOD growth] may drive increased cord-cutting and grow the overall pool of active users for the Roku platform, introducing new users to TRC,” Wedbush analyst Michael Pachter wrote. “It may, however, take eyes and time away from TRC, putting advertising revenue growth at risk. We expect Roku to drive TRC viewers by increasing content spend while enhancing TRC features and advertising capabilities, driving expenses higher.”

Persistent Competition

While anticipating upward trajectory, Guggenheim warned of debilitating rivalries in the streaming space.

“Despite consistent growth in Roku’s device share, we continue to believe competition is fierce within the streaming market and view a potential deceleration in Roku’s user base or engagement as derailing to ROKU’s premium valuation,” they wrote.

The Ratings

• DA Davidson maintained a Buy rating and raised its target from $80 to $92;
• Guggenheim maintained a Neutral rating but raised its target from $72 to $75;
• KeyBanc Capital Markets maintained an Overweight rating and raised its target from $76 to $84;
• RBC Capital Markets maintained an Outperform rating and raised its target from $70 to $90; and
• Wedbush maintained a Neutral rating but raised its target from $55 to $65.

Roku's stock traded higher by 23 percent at $80.05 per share at time of publication.

Related Links:

Citi Downgrades Roku To Sell On Increased Competition, Valuation

3 Reasons Guggenheim Downgraded Roku

Photo courtesy of Roku.