Shares of Roku have trended higher recently, adding 40% over the past month. However, Kurnos expects further gains, as there are simply too many tailwinds pushing at Roku’s back.
The 5-star analyst said, “We think Roku ends up a winner regardless for the following reasons: 1) Roku has proven to be a go-to name during “Covid on” days, while a V-shaped recovery would result in marked advertising and EBITDA outperformance; 2) We believe CPM and fill rates are already approaching pre-Covid levels, with advertisers in a better situation to handle a resurgence and the Facebook boycott potentially providing a tailwind; 3) Not only have our checks suggested that the TCL-Google partnership was mostly headline hype thus far but we have also heard several instances of comparable Roku units being sold out.”
Let’s take a deeper look at Kurnos’ list of catalysts. As for one, the current situation speaks for itself. With COVID-19 cases spiking dramatically again, more people at home equals more people viewing Roku. As for a V-shaped recovery, that remains to be seen, but as Kurnos notes in his second point, the advertising industry has already dealt with the initial impact laid down by COVID-19 and has adjusted accordingly. Kurnos’ checks indicate that CPM (cost per mille) and fill rates are only 10-15% down from what they were prior to COVID-19 and “getting better as the month improves.”
Apart from the fact advertisers are pivoting more budgets toward cord cutters and away from linear TV, there’s an additional unexpected tailwind. The charged political climate could result in a long-term ad boycott on Facebook, which could result in a big chunk of ad budgets being siphoned off elsewhere in the digital ecosystem.
As for Kurnos’ third point, according to retail checks, very little marketing power has been expended so far on the Google/TCL partnership, while checks indicate Roku’s leading brand status in the OTT segment has resulted in more enquires for its offering. Additionally, among stores polled, 63% recommend Roku’s model, citing a better UX and “smoother OS.”
All these reasons prompt Kurnos to reiterate a Buy on Roku along with a $180 price target. Expect upside of 17%, should the figure be met over the next 12 months. (To watch Kurnos’ track record, click here)
The rest of the Street isn’t quite as buoyant. ROKU's Moderate Buy consensus rating consists of 8 Buys, 4 Holds and 2 Sells. However, the average price target hits $130.69 and implies shares will drop by 12%. (See Roku stock-price forecast on TipRanks)
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.