Analysts Upgrade Roku, Stock Soars After Big Q2 Earnings Beat

Roku Inc ROKU reported second-quarter results which prompted two analysts to turn bullish on the streaming content provider.

Earnings came in at a loss of 8 cents per share, beating estimates by 13 cents. Sales came in at $250.1 million, beating estimates by $25.9 million. The company also issued strong third-quarter sales guidance.

The Analysts

Rosenblatt Securities analyst Mark Zgutowicz upgraded Roku from Neutral to Buy with a price target lifted from $77 to $134.

Stephens analyst Kyle Evans upgrades from Equal-Weight to Overweight, price target lifted from $84 to $120.

DA Davidson analyst Tom Forte maintains at Buy, price target lifted from $110 to $135.

Roku shares traded higher by 21% to $122.62 at time of publication.

Rosenblatt: Beating The Competition

Roku's earnings report marks the second consecutive quarter of strong growth across hours viewed, average revenue per user and users, Zgutowicz wrote in a note. The strong performance signals the company isn't facing hurdles in reselling inventory at a premium cost -- a prior thesis the research firm ascribed to.

Exiting the print, Zgutowicz said it's evident Roku's brand and audience reach is "out-scaling the unowned content model." Coupled with first-hand checks with retailers who consistently indicate Roku's streaming platform outsells Fire TVs by four to five times, the Roku brand can continue "to snowball from here."

Roku's momentum can sustain over the coming years and the company could penetrate around 50% of the total addressable market of 138 million households in 2027, the analyst wrote. The company's international business remains a "wildcard" and requires lengthy and costly investments but adds a "call option" to the stock.

See Also: Roku Reports Q2 Earnings Beat

Stephens: Downgraded 'Too Soon'

Stephens downgraded Roku's stock in late May in a move which is now deemed "too soon," Evans wrote in a note. There is "no two ways about it" as the company's prospects in 2019 and 2020 look better than previously assumed although there are some questions still need to be answered.

Margins compressed in the quarter by 450 basis points to 65.4% and it's unclear how much of the decline came from video advertising revenue share or how much was from SVOD sales through the Roku Channel. Also, it's unclear how low margins could have dipped without the likely benefit of the revaluation revenue.

"We very much doubt any of this stack of mostly unanswered questions will get in the way of the stock today though," the analyst wrote.

DA Davidson: Roku Is A 'Category 5 Hurricane'

Roku is akin to a "category five hurricane" that continues to grow in the streaming video space, Forte wrote in a note. The company should be considered "one of the pioneers" in the space and the massive growth in streaming video providers enhances the value of its platform.

Forte said the company's continued focus on growing advertising, improving The Roku Channel, selling more Roku TV devices, and expanding international represent catalysts that can generate outsized growth over time.

Photo courtesy of Roku.