KeyBanc Flips To The Roku Channel For A Happy Narrative

Tech testimony in the Senate and fresh Amazon.com, Inc. AMZN competition pressured Roku Inc ROKU shares, but the video streamer quickly recovered — and one analyst said it could do better than merely bounce back.

The Rating

KeyBanc Capital Markets analyst Evan Wingren maintained an Overweight rating on Roku and increased the price target from $67 to $81.

The Thesis

The first two months of the quarter showed relatively stable year-over-year growth in Roku customers, with 59.4 percent against last quarter’s 60.5 percent. As the second-quarter rate accompanied 46-percent active account growth, third-quarter pacing may result in AAG beyond KeyBanc’s 38-percent estimate, Wingren said in a Monday note. (See his track record here.)

During the same period, growth in virtual multichannel video programming distributors “slowed slightly, but remains robust," the analyst said.

“Despite the deceleration, we believe that ad-supported adoption of streaming clearly continues to ramp above expectations,” Wingren said. “In fact, we believe vMVPD adoption has been significant enough to drive subscriber growth for the traditional media sector. This is a long-term bullish signal for Roku, as continued growth in ad supported streaming consumption will ultimately trickle down to the platform and The Roku Channel, in our view.”

Consumer search results reveal rising interest in The Roku Channel, which remains small relative to other streaming platforms, but could ramp as Roku acquires content and accelerates marketing, Wingren said.

A new partnership with JVC is driving additional optimism, the analyst said; the electronics manufacturer will begin integrating Roku’s operating system in its TVs later this year.

“Although JVC is a small OEM, the continued roll-up of OEMs and more SKUs in the market represents another indicator that momentum of the platform is continuing, in our view."