Roku Inc. shares were higher Wednesday, after Needham named the stock its Top Pick for 2019, citing the streaming-video company’s strong position in a growing market, scale and demographic reach.
Analyst Laura Martin reiterated her buy rating on the stock and $45 price target, which is about 64% above its current trading level.
Roku ROKU, +1.24% which is benefiting from the launch of a free ad-supported streaming channel on the web earlier this year, reached 24 million unique active accounts in the third quarter, marking a 43% increase from the year-earlier period, said Martin, a key metric for monetizing its scale and reach.
“Engagement lengths are highly correlated to revenue and Roku now commands nearly 3 hours/day/household of users’ viewing,” she wrote in a note. About 10% of U.S. TV viewers aged 18 to 34 are now on Roku and 10 million of its users do not have a linear TV bundles, meaning advertisers can only reach them by buying Roku ads, she wrote.
The company is becoming more broadly accepted by the largest TV ecosystem companies as an integral part of the future of streaming and OTT services, said the note. Finally, the company may be or become an acquisition target.
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Last week, KeyBanc analysts said they too recommend buying Roku shares and said channel checks signal strong momentum in the current quarter.
“ROKU has corrected from trading at a premium to its peer group to a discount, despite consensus estimates moving higher post 3Q earnings,” analysts wrote in a note. “This sell-off (outside of the tech-pocalypse) has been driven by a smaller and lumpy component of the platform business, and noise around its TCL partnership, both of which we view as overdone.”
Roku entered a partnership with TCL (The Creative Life), the third biggest TV brand in the world, in 2014, to build and delivery smart TVs that run the Roku operating system. TCL announced a restructuring in December that prompted speculation it would stop making Roku TVs, talk the company has dismissed.
KeyBanc lowered its stock price target to $59 from $81.
Roku shares have fallen 47% in 2018, while the S&P 500 SPX, +0.26% and the Dow Jones Industrial Average DJIA, +0.01% have fallen 11%.
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