How Wedbush Views Roku After Earnings

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Roku Inc. (NASDAQ: ROKU) released its third-quarter financial results after markets closed Wednesday. Although the results ultimately beat expectations and the guidance was raised, investors still sent this stock lower. Considering Roku stock has gained about 207% over the past 52 weeks, it’s hard to keep pushing higher unless the company continues to hit home run after home run.

Despite the major sell-off in Roku happening on Thursday, one analyst is still fairly positive on the stock, calling for about 35% upside from current prices. 24/7 Wall St. has included some highlights from the report below, as well as what Wedbush said after the fact.

The company posted a net loss of $0.09 per share and $173.38 million in revenue, which compared with consensus estimates of a net loss of $0.12 per share and $169.08 million in revenue. The same period of last year reportedly had a net loss of $8.79 per share and $124.78 million in revenue.

Active accounts increased 43% year over year to a total of 23.8 million. Streaming hours were up 63% to 6.2 billion.

Average revenue per user (ARPU) increased 37% year over year to $17.34, on a trailing 12-month basis.

Wedbush reiterated an Outperform rating for Roku with a $65 price target, implying upside of 35% from the current price level.

Overall the firm believes that Roku has built an exceptional platform on the back of its players, and now as it expands in the rapidly growing Smart TV category, it is positioning itself as the best in class option for over-the-top advertising. Roku has significant opportunities ahead with international expansion, particularly as the Roku Channel is now available on third-party smart TVs and the web.

Wedbush detailed in its report:

We estimate that ARPU from The Roku Channel (“TRC”) sub-segment is the fastest growing contributor to overall revenue growth and ARPU growth. As Active Users on the Roku Platform seek out free content, they are steered toward The Roku Channel. We expect TRC to be Roku’s highest ARPU contributor by the end of 2019, and expect continued growth as Roku expands internationally. We believe the category’s accelerated growth in ARPU stems from Roku’s ability to charge higher CPMs given all of the data it has on its audience and its ability to place finely targeted advertisements for its partners. We think Roku’s international expansion potential is significant, and given the favorable contribution to ARPU, more rapid international expansion would represent upside to our current estimates.

Finally, the firm adjusted its 2018 full year estimates. Wedbush expects to see a net loss of $0.11 and revenue of $733 million. Consensus estimates call for a net loss of $0.11 per share and $722.85 million in revenue.

Shares of Roku were last seen down about 19% at $47.90, with a consensus analyst price target of $68.08. The stock has a 52-week range of $23.86 to $77.57.