It’s all falling into place for Roku (ROKU). Actually, that’s not quite an appropriate description of the streaming platform’s prowess. For Roku, everything was already going swimmingly during the pandemic; the coronavirus provided a meaningful tailwind to streamers as the stay-at-home mandates resulted in elevated viewing figures and an uptick to new subscribers.
However, any worries that the numbers would drop as society returns to normal patterns are misplaced, according to Deutsche Bank analyst Jeffrey Rand. Following the analyst’s latest industry checks, Rand came away confident that streaming viewership will “hold up well in 2Q despite economies reopening.”
As has been noted many times, the pandemic has accelerated the shift from linear TV to streaming services – what is commonly known as cord cutting – a trend already prevalent before Covid hit. Along with a change in consumers’ viewing habits, advertising budgets are increasingly being siphoned away from linear TV services to streamers, a process Rand’s latest checks confirm is still at play in Q2 and which the analyst finds “unsurprising.” “With linear TV viewership continuing to decline,” the analyst added, “We see no signs of this trend reversing going forward.”
The good news for Roku is that while last year’s economic downturn resulted in the slashing of advertising budgets, these are now “starting to reach or exceed” pre-pandemic levels. What’s more, advertisers are also increasingly cottoning on to the “benefits of advertising on streaming.” Rand highlights a conversation with a contact at a consumer staples company who said the brand is “finding the ability to target certain people is far superior for streaming vs. linear TV and only advertising on linear TV no longer provides the reach needed.”
What all this also means, is that investors could be due for a pleasant surprise when the quarter’s results are in.
“With both viewership and advertising trends leaning positive as we approach the end of the quarter, we believe risks are weighted to the upside for 2Q results,” Rand summed up. “Longer-term, we remain bullish on the transition to streaming and Roku’s competitive positioning in the market and believe that Roku should continue to trade at a premium valuation.”
To this end, Rand rates ROKU shares a Buy, while his $500 price target suggests ~20% upside from current levels. (To watch Rand’s track record, click here)
The rest of the Street agrees. Based on 14 Buys, 2 Holds and 1 Sell, the stock has a Strong Buy consensus rating. The average price target, though, is a more modest one; at $443.27, the figure implies shares will add 5% in the year ahead. (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.