Roku Had A 'Stellar' Quarter, But Is The Stock Valued Too High Right Now?

Streaming video company Roku Inc ROKU reported fourth-quarter results that came in better than expected but not all analysts were equally impressed.

The Roku Analysts: Rosenblatt Securities analyst Mark Zgutowicz maintains a Buy rating on Roku's stock with a price target lifted from $420 to $560.

Needham analyst Laura Martin maintains a Buy rating on Roku with a price target lifted from $400 to $550.

Wedbush analyst Michael Pachter maintains a Neutral rating on Roku with an unchanged $475 price target.

'Stellar Quarter': Roku reported another "stellar quarter" highlighted by the Roku Channel growing at twice the rate of the overall platform, Zgutowicz wrote in a note. In fact, the Roku Channel strength is "bursting at the seams" and now reaches 63 million household viewers.

Management's focus on building out the Roku Channel through expanding content will translate to more viewers and by default more advertisers on the platform. Roku's CPM is nearly one-third the cost of what Facebook charges so there is reason to believe "we're still in inning #1" of Roku's advertising business buildout.

The recent acquisition of Quibi's content is part of management's strategy to enhance and differentiate itself, the analyst wrote. investors should expect to see more exclusive content acquisitions "very soon."

Related Link: Is Roku Pushing Into Original Content?

8 Takeaways From The Earnings Call: Roku's management hosted a post-earnings conference call with analysts and eight key takeaways support an incremental bullish stance on the stock, Martin wrote in a note. These include:

• Fourth-quarter EBITDA of $113.5 million was nearly three times higher than expected.
• Roku's installed base of unique homes rose by 5.2 million to 51.2 million Active Accounts and represents nearly 50% of all US Connected TV homes.
• Disputes between Roku and TCL appear "behind them" as the two are working on a UK and Brazil launch in 2021.
• Whenever a user signs up for a paid subscription (i.e Netflix) within Roku's platform, the company keeps an estimated 20% commission for the life of the customer. This proposition continues to grow with new streaming video on demand entrants.
• Some advertisers are generating superior returns on investments on Roku versus other large social media platforms and there is plenty of upside for continued growth.
• Roughly 50% of Roku's total 46 million homes are watching the Roku Channel at least once a month.
• Roku's 100% always logged-in first-party data is becoming more valuable.
• Roku's average revenue per user over a trailing 12-month period was up 24% at $28.76.

Valuation Concerns: Roku's "substantial" revenue growth and profitability profile should continue expanding moving forward, but Pachter said the stock's valuation is too rich at current levels. Specifically, Roku's EV-to-EBITDA multiple of nearly 100 times on 2023 EBITDA is simply a "rich valuation" despite "sustainable" revenue growth.

ROKU Price Action: Shares of Roku were trading higher by 2.5% at $464.36.