Sometimes even the most bullish analysts can be taken aback by a company’s impressive results.
Needham’s Laura Martin has long pounded the table on Roku’s (ROKU) behalf, marking the OTT leader as a prime beneficiary of rising secular trends. Along with the platform’s agnostic nature, the 5-star analyst has counted cord cutting and ad budgets rerouted from linear to CTV (connected TV) among the reasons to back Roku. Add into the 2020 mix the uptick in the sofa bound public’s TV consuming habits and it’s easy to understand the bullish case.
That said, Roku swinging into profit in Q3 has surprised even Martin. Roku delivered EPS of $0.10, “much better than our $0.52 loss estimate,” the analyst said. The figure is away ahead of consensus, too, which had Roku delivering a loss of 40 cents per share.
Roku also posted a big beat on the top line with revenue of $451.7 million out pacing the Street’s call by $83.62 million and amounting to a 73.1% year-over-year uptick.
There was much else to like in the report, Martin notes. “Roku’s most important upside value drivers in 3Q20 (our view) was its ecosystem growth of 3mm new active accounts (ie, homes) added, its 46mm Active Accounts (ie, representing about 44% of 105mm total US Connected TV homes) at 9/30/20, a 12-month ARPU of $27 (up 20% y/y and 17% above our $23 estimate), and 100% y/y growth of subscription revs.”
Roku’s recurring subscriber revenue share fees are expected to climb by 50% year-over-year to $250 million in FY2020. By Martin’s estimate this will account for 30% of Roku’s 2020 total ad revenue. What this indicates, according to the analyst is that “ROKU is building a dual-revenue stream business model, which should drive multiple expansion.”
All in all, there’s no change to Martin’s rating which stays a Buy, while the $255 price target remains intact as well. This figure suggests a 15% upside from current levels. (To watch Martin’s track record, click here)
Since the blowout earnings, the Street has been busy updating Roku models. Based on 12 Buys, 4 holds and 2 Sells, the stock has a Moderate Buy consensus rating. However, the analysts anticipate shares to stay range-bound for the foreseeable future, as the $230.94 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.
