On Tuesday, Loop Capital maintained its Hold rating on Roku Inc. (NASDAQ:ROKU) shares, with a steady price target of $70.00. The firm's analysis acknowledged the ongoing development of a competing TV operating system by The Trade Desk (NASDAQ:TTD), which has been known for some time and represents another challenge to Roku's operating system market share.
In late August, it was reported that TTD had proposed a more advantageous revenue share to device manufacturers and had secured an agreement with one producer.
Despite these developments, Loop Capital expressed surprise at Roku's stock price dropping by 5% following the announcement last week and noted that the stock had not rebounded since. The firm's stance on Roku remains unchanged, as they await signs of platform revenue growth beyond the current low-double-digit range. Interestingly, such growth could potentially be aided by Roku's recent integration into TTD's Demand-Side Platform (DSP).
Loop Capital highlighted that Roku's valuation does not appear demanding, trading at approximately 2 times revenue, with the company being both adjusted EBITDA and free cash flow positive. The firm reiterated its Hold rating and $70 price target, signaling a neutral position on the stock's prospects.
In other recent news, Roku Inc. reported a major milestone, surpassing $1 billion in total net revenue for the first time. This 16% increase from the previous year was primarily driven by a 15% increase in platform revenue, totaling $908 million. The company also projects a 16% year-over-year growth for Q4 total net revenue, amounting to $1.14 billion, and an adjusted EBITDA of $30 million.
UBS initiated coverage on Roku with a neutral stance, noting the company's strong position in the streaming ecosystem and its ability to attract advertising spending. However, the firm also expressed caution due to competitive risks within the TV operating system market.
Jefferies maintained its underperform rating on Roku, citing potential challenges for the company's Streaming Distribution model. Meanwhile, Baird upgraded Roku's stock rating from Neutral to Outperform, citing overlooked long-term growth potential.
KeyBanc Capital Markets maintained its Sector Weight rating on Roku, suggesting some near-term pressure on the stock. However, the firm adjusted its projections for Roku's revenue and EBITDA for 2025 upward by 3% and 21% respectively, reflecting a more optimistic outlook.
These recent developments highlight the differing perspectives of various analyst firms on Roku's potential growth and challenges.
InvestingPro Insights
Roku's financial landscape presents a mixed picture, aligning with Loop Capital's cautious stance. According to InvestingPro data, Roku's revenue growth stands at 15.71% over the last twelve months, which is consistent with the "low-double-digit range" mentioned in the article. This growth rate, while positive, may not be sufficient to alleviate concerns about the company's competitive position.
InvestingPro Tips highlight that Roku "holds more cash than debt on its balance sheet" and "liquid assets exceed short term obligations," suggesting a solid financial foundation despite current challenges. This financial stability could provide Roku with the flexibility to navigate the competitive pressures from companies like The Trade Desk.
However, it's worth noting that Roku is "not profitable over the last twelve months" and is "trading at a high EBITDA valuation multiple," according to InvestingPro Tips. These factors may contribute to investor caution, reflected in the stock's recent price movements.
For investors seeking a more comprehensive analysis, InvestingPro offers 5 additional tips that could provide further insights into Roku's financial health and market position.
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