Regardless of how the coronavirus vaccine movement finally boils down, one thing seems quite clear, at least as far as entertainment goes. The “everything-from-home” movement is here to stay, and companies are moving to better position themselves in a world where more and more of our lives are lived online. One of the companies increasingly well-positioned to take advantage of such a landscape is Roku (NASDAQ:ROKU), and Citi recently demonstrated its own assessment of Roku by bolstering its price target while maintaining a “buy” rating
Because Citi Said So
Citi hiked its assessment of Roku from its previous target of $220 to nearly double that at $375. The target was hiked on the strength of several factors, reports note, including an expectation that value per account holder will likely increase. This expectation comes on the tail of new distribution agreements, among others, and includes one particularly significant point: the increasing likelihood that Roku will soon be offering customers access to AT&T (NYSE:T) subsidiary WarnerMedia's HBO Max.
That's not the only such point, of course; based on word from Citi analyst Jason Bazinet, there's also the matter of a new distribution arrangement with Discovery's streaming service, as well as increasing connection to international markets, which should further step up the company's ability to connect with customers and offer them access to streaming media. In fact, Bazinet has a new figure for average value from a Roku customer going forward: $619.
But Not Just Because Citi Said So
Meanwhile, the broader analyst community is likewise in favor of Roku as an investment strategy, as our latest research shows. The consensus is currently a “buy”, and it's been a “buy” for the last six months. The ratios have held fairly stable in the interim; six months ago, the company was at two “sell” ratings, five “hold” and 14 “buy”. Today, it's one “sell”, seven “hold” and 14 “buy.” While there's an increasing note of caution being sounded surrounding picking up more—thanks to the increased “hold” count—it's clear the notion of abandoning Roku is increasingly repulsive to analysts.
The price target, meanwhile, is approaching double what it was six months ago. The $133 of six months ago looks downright peaked against today's $224.36. Given that the stock closed yesterday at $306.13, it seems clear most price targets are underestimating Roku.
Oh, and the Streaming Market Says So Too
While the word of analysts certainly carries plenty of weight, perhaps the surest way to tell that Roku is in a good position to do well comes from a look at the broader streaming market. Certainly, getting Discovery content in will help. The recent move for HBO Max to start getting all of Warner's newest movies at the same time they're released to theaters—assuming any theaters are actually allowed to operate near you—will make it more valuable to the end user, and also to Roku, which facilitates access therein.
With that increasing move to streaming services comes a likely shift in advertising, too; why pay to advertise on regular broadcast TV any more when people are so obviously moving to streaming? One of the biggest points in advertising is that advertising to an empty room is pretty much worthless; you have to be where the people are to succeed, and with people moving to streaming, so too must advertisers and their dollars, accordingly.
Beyond that, Roku is increasingly making itself a good value. The Roku Channel, for example, recently announced its “Winter Streamland” program, which brings a range of shows, available at no charge, to the user base. This includes content from Showtime and STARZ, as well as all the best in British from AcornTV. Streaming music channels courtesy of IheartRadio will be throwing on Christmas music standards as well.
There's only one potential downside for Roku et al: streaming fatigue. Back when cord cutting was getting started, it was a terrific value. Why? Because at the time, most everyone was sending their content to Netflix (NASDAQ:NFLX), or maybe Hulu. One ticket got you most of the content available.
Now, we see an increasingly fragmented streaming field, a host of walled gardens with their own exclusive programming trying to get everyone in the door and keep them there. To see it all requires multiple streaming memberships—and fees accordingly—to the point where some may just pass the whole thing up and turn pirate instead.
A consolidation may have to take place in the future just to keep users' interest. Even there, however, as the company that provides the streaming hardware, Roku stands a great chance of being one of the leaders in the field, so an investment here—even at Roku's current share price—may be worth getting in on.
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