Covid-19 has been a game changer on many levels. It has also accelerated trends already at play before the pandemic hit. One of which has been the move from linear TV to CTV (connected TV). But along with consumers’ changing viewing habits so have advertisers shifted their focus to the digital realm.
Wedbush analyst Michael Pachter believes these are perfect market conditions for Roku (ROKU).
“In spite of the uncertainty in the current environment,” Pachter said, “We think Roku remains on solid footing for future expansion as ad spend is diverted from TV to OTT and overall ad spend will certainly expand again in a post-recession environment.”
The thing with Roku is it stands to benefit on several fronts. Apart from the advertising revenue, the shift to CTV will increase sales of physical hardware – Roku devices – and increase the active accounts on its software platform, both can augment the ad revenue windfall.
“Additionally,” says Pachter, “The accessibility of live sports over OTT platforms has accelerated cord-cutting, which should continue in a recessionary environment as streaming has a more favorable and flexible price point than cable.”
These are all long-term benefits to drive adoption and grow revenue, but more pertinent, Roku will report Q3 results today after market close.
Pachter expects Q3 revenue of $373 million, above the consensus estimate for $366 million.
The 4-star analyst anticipates a non-GAAP loss per share of $0.38, also better than the Street’s forecast of a $0.40 loss per share.
Pachter expects Roku to see out the quarter with 45.4 million active accounts, up 6% quarter-over-quarter and 41% year-over-year.
As noted, the 2020 macro trends have been in Roku’s favor and have sent shares are up by 57% year-to-date. Therefore, Roku’s “rich valuation” is the reason why Pachter currently sticks to a Neutral (i.e. Hold) rating. That said, the price target gets a boost and is increased from $160 to $220, implying possible upside of a modest 4%. (To watch Pachter’s track record, click here)
There are plenty of Buy ratings for Roku from Pacther’s Wall Street colleagues – 13, in fact. With the addition of 5 Holds and 2 Sells, the stock has a Moderate Buy consensus rating. Following the share gains, the $188.42 average price target implies nearly 13% decline over the next 12 months. (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.
