Markets

Why Roku Stock Jumped Higher Again Today

What happened

Shares of Roku (NASDAQ: ROKU) were up 2% as of 9:35 a.m. EDT on Thursday after Rosenblatt securities analyst Mark Zgutowicz reiterated a buy rating on the stock with a $560 price target. That represents significant upside compared to the current quote of $325.

So what

The gains follow a 5.6% surge on Wednesday after Roku released its annual streaming survey, The Streaming Decade, that declared "TV streaming has passed a tipping point."

Dovetailing with that report, Zgutowicz believes Roku has solid momentum right now, which should result in "strong platform revenue and gross margin" performance when the company reports earnings results in November.

Three people sitting on a couch and watching TV.

Image source: Getty Images.

Even as the great reopening continued through the first half of 2021, Roku reported accelerating revenue growth. The top line rose 81% year over year in the second quarter, driven by a 117% increase in platform revenue, which got a boost from advertising.

Now what

The recent gains in advertising are likely the start of a longer-term wave of investment by brands looking to move ad dollars over to streaming services. Roku now has 55 million active accounts, with a complete advertising management solution in its OneView ad platform that should make it attractive to advertisers.

Management expects revenue to grow 51% year over year in Q3, reaching $680 million. Gross profit is expected to improve slightly less, with an increase of 49% year over year, and management also forecast higher operating expenses from hiring, product development, and sales and marketing, which should bring adjusted EBITDA to $65 million.

Furthermore, Zgutowicz does not expect Roku to experience meaningful supply chain disruptions through the holidays.

All told, the analyst believes Roku is a buy before earnings next month, and given the recent pullback in the share price on top of the momentum in advertising, he might be right on the money with his bullish call.

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John Ballard has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Roku. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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