It won’t be incorrect to call 2021 a poor year for Roku (ROKU) investors. Roku stock lost momentum and underperformed the broader markets by a wide margin.
Notably, Roku stock has lost more than 30% of its value in the past three months, as competition is heating up in the connected TV space. (See Roku stock charts on TipRanks)
Nevertheless, Roku has been a clear beneficiary of the ongoing migration of audiences, content, and advertisers toward connected TV (CTV) from linear TV. Moreover, the shift provides a multi-year growth opportunity for companies operating in this space, including Roku. I have a Bullish outlook on Roku stock.
Taking a note of the ongoing shift toward CTV, Laura Martin of Needham stated that “ROKU benefits from long-term secular growth in CTV ad growth (i.e., digital video ads shown on a large TV screen) trends.”
She believes that Roku remains hedged irrespective “of which companies win the Streaming Wars,” as it generates income from both AVOD (advertising-based video on demand) and SVOD (subscription video on demand).
Martin listed out 10 value drivers for Roku stock, including valuation upside, expansion of TAM (total addressable market), its diverse revenue streams, and walled-driven economics, to name a few, among others.
Further, the five-star analyst added that she doesn’t view Amazon (AMZN) or Alphabet’s (GOOGL) Google as “material competitive threats to ROKU.” Martin raised her ARPU (average revenue per user) estimates for the second half of 2021. Further, she increased the adjusted EBITDA and EPS estimates for Q3.
It’s worth noting that Roku’s key operating metrics, including active accounts and ARPU, continue to rise both on a year-over-year and sequential basis. Moreover, the company expects robust growth in its revenue and gross profit in Q3.
Martin has a Buy rating on Roku stock, with a price target of $550 that reflects 71.2% upside potential from current levels.
Along with Martin, the majority of the Street has a bullish view on ROKU. Its Strong Buy consensus rating is based on 13 Buys, two Holds, and one Sell.
Furthermore, TipRanks’ Stock Investors tool indicates that investors currently have a Very Positive outlook on Roku stock, with 4.6% of investors who hold portfolios on TipRanks increasing their exposure over the past month.
The average Roku price target of $475 implies 47.9% upside potential from current levels.
Disclosure: On the date of publication, Amit Singh had no position in any of the companies discussed in this article.
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