Roku: Needham Lifts Price Target as Stock Surges

Roku Inc. (ROKU), the maker of streaming content hardware, shares were gaining ground in trading Monday after Needham & Co. upped its price target on the stock to $50 from $28 a share.

In a research report covered by StreetInsider.com, Needham analyst Laura Martin maintained her buy rating, saying she upped the price target because of valuation, strategic position, active user growth and expanding average revenue per user (ARPU) and margins. “Like Netflix (NFLX), we view ROKU as a pure-play on over-the-top (OTT) TV-viewing growth, but ROKU has no content risk,” wrote the analyst. She noted that announcements from the likes of Disney (DIS), Alphabet’s (GOOG) Google and Amazon (AMZN) that they are launching new streaming services actually helps Roku but hurts Netflix. (See also: Roku Prices IPO at $14, Valuing It at $1.3B​.)

At $50 a share, the analyst is implying the stock can gain an additional nearly 14%. Since it went public in September, shares of Roku are up nearly 70%. Recently Roku was trading at up 11.8% or $4.64 to $44.11. The way Needham sees it, Roku is the best comparison to Netflix for investors but comes at a much cheaper price.

Platform Potential

Earlier this month, the streaming content device maker offered up its first quarterly earnings report as a public company, easily beating Wall Street expectations for the quarter that ended Sept. 30. During the third quarter, Roku said it had $124.8 million in revenue, up from $89 million in the third quarter of last year. The net loss narrowed to $7.9 million from $12.7 million in the third quarter of 2016. Analysts had been looking for revenue of $110 million and losses of $12.7 million, reported Variety. A large portion of Roku’s uptick in revenue can be attributed to advertising and licenses, which Roku classifies under its platform revenue. Non-hardware sales were $57.5 million while its streaming players brought in $67.3 million of sales for the quarter, noted Variety. The platform business, jumped 137% year-over-year where hardware only saw a 4% increase. During a conference call to discuss third-quarter results, CEO Anthony Wood said advertising makes up two thirds of the platform revenue. (See also: Roku Set to Surpass Rivals in Web-Connected TV.)

Looking out to next year, Needham also boosted its estimates thanks to a strong third-quarter user and ARPU growth and improving gross margins. Needham thinks Roku will break even on EBITDA in the third quarter, which is a quarter ahead of expectations.