Roku's Position In Streaming Video Is 'Strengthening,' KeyBanc Says After Q1 Print

Roku Inc ROKU reported first-quarter results Wednesay that offer multiple "proof points" the streaming video company's long-term growth strategy is showing signs of success today.

The Analyst

KeyBanc Capital Markets' Evan Wingren maintains an Overweight rating on Roku's stock with a price target lifted from $42 to $44.

The Thesis

Throughout Q1, Roku's market share of smart TVs with built-in streaming capabilities was 25 percent, which marks an acceleration from 20 percent throughout 2017, Wingren said in a note. Revenue and adjusted EBITDA exceeded expectations in Roku's earnings report, while platform revenue and incremental gross margins also came in better than expected and accounted for most of the upside, the analyst said.

Roku reported a Q1 EPS loss of 7 cents against a consensus estimate of a 16-cent loss, and slaes of $136.6 million against a $127.62-million estimate.

Roku offered guidance for the rest of the year that implies incremental margins will slow from 78 percent in 2017 to the low-50-percent range, the analyst said. As expected, margin expansion will slow as The Roku Channel becomes a bigger contributor to ad inventory, Wingren said.

It's likely Roku's guidance is "fairly conservative," Wingren said.

It would be reasonable for investors to conclude that these "proof points" signal the company's competitive position in streaming video is "strengthening," the analyst said. Roku channel content additions offer a long-term tailwind of scale and inventory growth, as video advertising is now growing faster than the overall platform, he said.