Covid-19 has been responsible for the acceleration of many trends. Among them is the move from linear TV to OTT services, what is known as cord cutting. The sector’s leader, Roku (ROKU) has been a prime beneficiary, with shares rising 107% year-to-date.
But Roku’s success in the year of Covid-19 sets it up to continue reaping the rewards even in a post-pandemic world. So much so that at least one Roku bear is capitulating; Pivotal analyst Jeffrey Wlodarczak upgraded Roku from Sell to Hold, while boosting the price target from $75 to $240. (To watch Wlodarczak’s track record, click here)
Nevertheless, and even though the rating is not yet a Buy, it is a significant turnaround in sentiment based on several reasons which invalidate Wlodarczak’s previous bearish Roku thesis. Or as the analyst puts it: “When you find yourself in a hole, stop digging.”
“Recall our original 4Q 2019 Sell rating was premised on valuation and the likely emergence of significant competition in 2021,” the 5-star analyst reminded investors. “But the unfortunate Covid-19 pandemic appears to have accelerated [ROKU’s] lead (and pushed back competitive responses) with the potential for that lead to be sustainable especially as the platforms build global scale.”
Amazon’s Fire TV remains Roku’s only current serious rival for the DTC (direct to consumer) streaming crown, and Wlodarczak believes other potential contenders such as Comcast/Cox Flex failed to grasp the opportunity aggressively enough. The result of which is now a two horse (streaming) race. It is worth remembering, however, that Fire TV is one amongst many Amazon initiatives, while Roku is focused solely on the streaming market.
And that’s not all Roku has going for it. Add into the mix Liberty Media Chairman John Malone’s bullish comments on Roku’s path for future growth, the anticipated addition of HBO Max, – the only heavyweight streaming service missing from Roku’s platform – the “clear inevitable decline of traditional PayTV,” and Roku’s likely “materially too conservative” Q4 guidance, and it is easy to understand why Wlodarczak is changing his tune.
So, that’s Pivotal’s take, what about the rest of the Street’s view on Roku’s prospects? Based on 12 Buys, 6 Holds and 1 Sell, the stock has a Moderate Buy consensus rating. However, most analysts are still playing catch up with Roku’s share price, and the Street expects nearly 11% downside, as the $247.26 average price target indicates. (See Roku stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
