By Emily Bary
'It would be foolhardy to try to launch a new over-the-top service without Roku,' says analyst
Roku Inc. shares are surging in premarket trading Thursday after the company raised its full-year outlook and talked up the opportunities from new streaming entrants like Walt Disney Co.
"We are excited, to say the least, about the coming services into [over the top], and believe that we are an essential platform for these new services," said Scott Rosenberg, the head of Roku's (ROKU) platform business, on the company's conference call Wednesday evening. He cited the company's evolving suite of ad products as well as backend machine learning applications that predict which streamers are most likely to subscribe to a given service.
Disney (DIS) recently announced plans () to launch a $12.99 streaming offering that will combine its own forthcoming streaming service along with ESPN+ and ad-supported Hulu. Apple Inc. (AAPL) and AT&T Inc. (T) are among other big players ( ) with new streaming services on the horizon.
Roku's latest numbers () and commentary drew praise from analysts who see further upside for Roku's red-hot stock. Shares had climbed 230% on the year as of Wednesday's close and were up 18% in premarket trading Thursday.
"Roku second-quarter results showed strength in nearly every metric with accelerated revenue growth and robust profitability coming in ahead of guidance and consensus estimates," Guggenheim's Michael Morris wrote. "Roku is the industry-leading streaming video platform, and we maintain our conviction that the company's growing user base and value proposition for viewers, marketers, content owners, and TV brands will continue to drive economic growth and value creation for shareholders."
Read: 'Disney will win' streaming battle with Netflix, says analyst ()
Morris is upbeat about the company's ability to scale its monetization efforts, after average revenue per user growth accelerated to 26.9% "The company also attributed ad growth to expanding first-party customer relationships at scale, which provides precision targeting, premium inventory access, unique sponsorships, and significant reach," he wrote.
He rates the stock a buy with a $119 target price.
William Blair's Ralph Schackart cheered Roku's highest overall revenue growth rate since the company went public, as Roku increased its top line by 59% in the last quarter. "As the traditional-TV ad market transitions in favor of [over the top] and streamed video, we believe Roku is well positioned to take advantage," he wrote. "The share of smart TVs sold with the Roku OS is increasing, too."
Schackart has an outperform rating on the shares. While he doesn't list a formal price target, he sees "upside to $145 through the next 12 to 18 months."
Needham's Laura Martin praised Roku's "A+ execution" and keyed in on the company's commentary around its scale advantage, since it has more than 30 million active accounts on the platform. "By implication, Roku's ad targeting is better so its ROI is higher, so its CPMs (i.e., pricing) can be higher," she wrote.
Martin rates the stock a buy with a $120 target. She adds that "it would be foolhardy to try to launch a new OTT service without Roku."
Don't miss: This teenager was making $4,000-a-month reposting memes on Instagram -- until he got purged ()
RBC Capital Markets analyst Mark Mahaney admitted that his downgrade of the stock in early July "may have been premature" given the latest results.
"Roku has generated a very consistent financial track record thus far, and as the video ad spend migrates to over-the-top, we believe Roky can sustain robust growth in both active accounts and total hours streamed," wrote Mahaney, who has a sector perform rating on the stock and who hiked his target price tp $107 from $90. "We think this is mostly priced in now, however."
Roku's stock is up 56% over the past three months, as the S&P 500 is near flat.
-Emily Bary; 415-439-6400; AskNewswires@dowjones.com
(END) Dow Jones Newswires
August 08, 2019 08:48 ET (12:48 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.