Media

Why All the Good News Is Priced Into Roku’s Stock

Chris Lange

Published: June 24, 2019 4:21 pm

Last Updated: January 6, 2020 3:29 am

Roku Inc. (NASDAQ: ROKU) shares have absolutely exploded this year, more than tripling in 2019 alone. This company has built an exceptional platform on the back of its players, and as it expands in the rapidly growing Smart TV category, it has positioned itself as best in class for over-the-top advertising and is poised for international expansion.

As a result, Wedbush reiterated a Neutral rating and raised its price target to $105 from $65, implying an upside of 2.4% from the most recent closing price of $102.57.

According to Wedbush, the market clearly believes Roku has nearly unlimited growth potential and values the company similar to Netflix and Amazon. Amazon has few limits on the resources required to fund its expansion, while Netflix is in favor because of its strong international subscriber growth (in spite of its ever-expanding debt and negative free cash flow).

Wedbush detailed in its report:

Roku is in the early stage of international expansion with great opportunity and no debt. So far, it has effectively competed against the behemoths in tech – Amazon, Apple, and Google – and investors appear to believe that it has an opportunity to be a global leader in streaming platforms. Roku’s international expansion is likely to be through licensing its platform on TVs with existing international distribution; this will drive international expansion without requiring heavy investment in international distribution.

Smart TVs are under-penetrated in many markets and Wedbush expects Roku’s inexpensive dongle to be well received. As Roku expands its licensing and dongle distribution globally, the company also must spend heavily on R&D to accommodate various international standards and to collect inexpensive local content to enhance the Roku Channel offerings, along with expanding existing licenses to international.

Shares of Roku closed Monday down 2.5% at $100.03, in a 52-week range of $26.30 to $108.32. The consensus price target is $81.13.

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