We all know that Roku (NASDAQ:ROKU) is a big deal when it comes to getting streaming content to our televisions. Yet this would seem, on the surface, to be a better reflection on the streaming services themselves, like Netflix (NASDAQ:NFLX) or Hulu. However, recent word has emerged about Roku's own streaming services that lit a fire under the company's share price and gave us all pause to reconsider the streaming hardware leader.
Roku is a Bigger Fish than Expected
One of the biggest points that drove Roku up in recent trading was word from Evercore ISI. Its analyst, Mark Mahaney, noted that he looks for Roku stock to carry right on gaining, outperforming the broader market to the point where Roku hits a target price of around $400 per share. Given that Roku closed yesterday at $359.37, those are some pretty substantial gains, especially for a stock that's already carrying a three-figure price tag.
Mahaney further pointed out that, as advertisers move their spending away from normal broadcast television to streaming platforms, those companies that currently enjoy a lot of viewers are in line to reap a windfall of gains. With cable-cutting accelerating and regular people turning more to streaming platforms than over-the-air or cable broadcasts, that puts companies like Roku in line to get in on the gains.
There's one more point that's giving Roku a lot of extra steam: the revelation of its true size. Word recently emerged that Roku's Roku Channel now represents the largest ad-supported video-on-demand (AVOD) service around. It's not the only one in the space, either; ViacomCBS (NASDAQ:VIAC) recently picked up Pluto TV to augment its presence in this space, and Fox (NASDAQ:FOX) currently holds Tubi. Sony (NYSE:SONY) was actually one of the first in this space with its Crackle service, but it sold that off and reports from back in January suggest that it's looking to come back with a Bravia-focused application. However, Roku is currently the market leader in the space, and there are few signs its lead could slip.
Bullish Before, Bullish Today
Meanwhile, the word from the broader analyst pool—as evidenced by our latest research—is looking for big things to come for Roku as have already been seen. Roku has been a consensus-rated “buy” for the last two years, reports note, and the ratios have been improving pretty steadily, with a few dips along the way.
A year ago, Roku held 13 “buy” ratings, along with six “hold” and one “sell.” Jump ahead to six months ago, and the company jumped to 15 “buy”, seven “hold” and one “sell.” Three months ago, the figures slipped a mite toward bearish with 14 “buy”, seven “hold” and one “sell.” Today, meanwhile, the bulls run once more as Roku stands at 19 “buy” ratings, seven “hold” and one “sell.”
The price target, meanwhile, is a font of optimism. The average looks for a little gain, at $386.57, and the low of $105 was actually issued back in June 2020 by Stephens, who doesn't seem to have changed it since. The high price target, however—Benchmark's $600 from February 2021—may seem overly optimistic, but given the multiple $500+ targets currently on hand, perhaps not so out of line.
People Like Streaming, People Hate Bills
Roku's success in the streaming market boils down to a few key components. One, people like streaming. Just ask what's left of Family Video if people would rather drive to the video store or punch a few buttons on their remotes while on their couch. If, of course, you can actually find anyone who used to work for Family Video. Two, the addition of a pandemic keeping people mostly indoors for the last year certainly didn't hurt that at all. Three, the fact that the Roku Channel wasn't actually charging a subscription fee to watch content certainly gave it a boost. Finally, when you add in the fact that Roku has not only its own channel but the necessary hardware to put it on televisions, that's a recipe for a lot of people to take the path of least resistance and get their content.
Roku has put itself in an excellent position. It's poised to be a significant value leader thanks to its free-to-the-viewer content, which draws in plenty of interest. Its gains over the last few years have proven that much out nicely. The notion that advertisers would be interested in a pool that's as diverse and engaged as Roku's audience is makes perfect sense accordingly, and with advertisers increasingly moving that direction anyway, Roku has top-notch bait for those interested advertisers.
All these factors together make Roku an excellent candidate for addition to any decently-balanced portfolio. Even if the economy should take a downturn and not come back quite as hard as some were expecting post-coronavirus, the Roku Channel isn't likely to be on a lot of households' budgetary chopping block. It's easy to justify paying nothing for a streaming service, after all, and that makes Roku a sound alternative in the AVOD space.
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