Entertainment technology company Roku Inc. (ROKU) has been on a tear since its initial public offering (IPO) roughly 10 months ago. According to one team of bulls on the Street, the Los Gatos, California-based tech company could see its value more than quadruple since garnering a $1.3 billion valuation in September, thanks to a variety of factors including a secular shift toward over-the-top TV viewing, connected TVs and Roku’s growing advertising business.
In a note to clients Monday, Needham analyst Laura Martin lifted her 12-month price target on ROKU stock from $50 to $60. In September 2017, Roku shares hit the public market trading on the Nasdaq exchange with an IPO price of $14 per share. Trading down about 0.5% on Monday morning at $ 49.50, ROKU shares reflect a 4.4% loss year-to-date (YTD), compared to the S&P 500’s 5% return over the same period. (See also: Roku Surges 68% After IPO: Tech Titans at Risk?)
Roku makes hardware that allow customers to view streamed online video and audio content through their TVs, and licenses its operating system to TV manufacturers.
Delivering Premium CPMs
Earlier this year, analysts at KeyBanc estimated the ROKU had a 35% hold over the video streaming player space, selling its operating system in about 20% of smart TVs in North America in 2017.
While much of video streaming has moved to ad-free environments, bulls on the Street are optimistic about Roku’s new ad-supported Roku Channel. Needham noted that since Roku’s ad business doesn’t have text ads or programmatic ads, it is able to command “premium CPMs” of between $30 and $100.
She added that Roku should benefit as the streaming space becomes increasingly crowded with tech giants such as Amazon.com Inc. (AMZN) and traditional media companies like the Walt Disney Co. (DIS) competing against global leader Netflix Inc. (NFLX). This is because Roku gets a cut of revenue when consumers sign up for additional services.
Martin also highlighted “event (ie, take-over upside),” indicating that the companies that could have bought Netflix at under $10 billion “will not want to make that same mistake again by passing on Roku.” (See also: Why Roku Is a Unique Play in Video Streaming.)
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