Why Roku Still Has More Upside Than Netflix

Roku Inc. (NASDAQ: ROKU) shares have absolutely exploded in 2019, and it seems that analysts can’t raise their price targets quick enough. However, one analyst is getting out in front of the pack by taking the most bullish stance on the street, and even going as far as to say that Roku is a better pick than Netflix Inc. (NASDAQ: NFLX).

Needham just issued a Buy rating and raised its price target to $150 from $120, implying upside of roughly 20% from the most recent closing price of $125.32.

The firm noted that while Netflix and Roku trade at roughly the same multiple when comparing 2020 estimates, Roku is the preferred choice.

Both of these companies are looking to benefit from increasing consumer migration to streaming services, but Roku is a platform that aggregates content and resells other services. What this means is that Roku doesn’t need to compete on content or on monthly fees.

According to the report, Roku “is an arms dealer.” Needham went on to say:

It is indifferent about which over-the-top services or business models win. Roku negotiates a 20-30% revenue share from every over-the-top service that wants access to its 30million homes. At 3.5 hours a day per household of viewing in the second-quarter of 2019, it would be impossible … to launch a new over-the-top service without access to Roku’s 36% of connected TV homes.

This also comes after Roku reported second-quarter results wherein it demolished analysts’ expectations and shares shot up about 20%. At that time, the streaming entertainment provider posted a net loss of $0.08 per share and $250.1 million in revenue, which compares with consensus estimates that called for a net loss of $0.22 per share and $224.2 million in revenue. The second quarter of last year had breakeven earnings and $156.81 million in revenue.

During the quarter, active accounts had a net addition of 1.4 million sequentially to a total of 30.5 million. Streaming hours increased 0.5 billion hours sequentially to 9.4 billion, and streaming hours are up 72% year over year.

Average revenue per user of $21.06 over the trailing 12 months increased by $2.00 from the first quarter. Platform revenues increased 86% year over year to $167.7 million, and player revenues rose 24% to $82.4 million.

Shares of Roku were last seen up about 7.5% at $134.72, in a 52-week range of $26.30 to $135.55. The consensus price target is $112.67.

Netflix was up less than 1% at $311.14 a share. Its 52-week range is $231.23 to $386.80, and the consensus analyst target is $388.40.