By Emily Bary
Roku still expects 'substantial revenue growth' this year but says ad cancellations have increased
Roku Inc.'s earnings call left some analysts wanting more as the company discussed the impacts of ad-market weakness on its business.
Shares of Roku (ROKU) are down 7% in Friday trading after the company's latest report, which highlighted increased interest among subscribers in purchasing subscriptions through the Roku platform but also disruptions to the company's advertising business as marketers pull back spending.
See more: Roku stock falls after coronavirus drives increase in advertising cancellations ()
"Management expects 'substantial revenue growth year over year, albeit at a slower pace' for advertising," wrote Oppenheimer's Jason Helfstein. "We assume this suggests advertising 20% year over year. However, management did not give specific ad growth for April, causing some to assume very weak trends."
He continues to rate the stock at outperform while raising his price target to $135 from $120.
"While near-term revenue will slow dramatically on reduced advertising and sponsorship, many factors suggest Roku/[over-the-top programming] will emerge from COVID-19 much stronger," he wrote, citing viewership increases and the possibility of a breakdown in the traditional "upfront" model of TV ad buying, which in his view could lead more marketers to make real-time or programmatic buys through Roku.
For Morgan Stanley's Benjamin Swinburne, Thursday afternoon's report was further fodder for his downbeat view on Roku's stock. "Pre-COVID deceleration is being amplified by ad budget cuts, putting Roku's premium multiple at risk," he wrote, while maintaining an underweight rating and a $110 target price.
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Benchmark's Daniel Kurnos wrote that he "expected margins to come under pressure over time, especially short-term as ad dollars were pulled back in the AVOD [advertising-based video on demand] channel, and the negative mix shift clearly weighed on near-term results."
Still, he reiterated an upbeat view of Roku's prospects as "all of the momentum drivers, including player sales, streaming hours and new active accounts" saw further improvement in April. "Even when things begin to normalize and sports returns, given how small OTT is as a portion of overall budgets, we find it hard to envision a scenario where Roku does not keep their share," Kurnos wrote.
The analyst has a buy rating and $153 target price on the stock.
At least six analysts raised their price targets on Roku's stock after the report, according to FactSet, while at least two lowered their's. Of the 21 analysts tracked by FactSet who cover the stock, 14 have buy ratings, five have hold ratings, and two have sell ratings, with an average price target of $131.01.
Shares of Roku have added 3.7% over the past three months as the S&P 500 has declined 12%.
-Emily Bary; 415-439-6400; AskNewswires@dowjones.com
(END) Dow Jones Newswires
May 09, 2020 11:37 ET (15:37 GMT)
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