Roku's (ROKU) - Get Report shares have room to run as investors are underappreciating the competitive moat and monetization potential of the streaming-tech company, analysts said in a wide-ranging KeyBanc note this week.
The firm initiated Roku with an overweight rating and $228 price target.
At last check the stock moved up 6.7% to $168.30 a share.
"We expect growth in ad-supported channels, and new ad units should drive faster revenue growth than consensus contemplates," KeyBanc analyst Justin Patterson said.
The analyst noted that Roku's reach is expanding, with 43 million subscribers, while cable providers like Comcast (CMCSA) - Get Report and Charter (CHTR) - Get Report are contracting with 19 million and 16 million subscribers, respectively.
Roku for now lags in advertising revenue, with less than 13% of the ad spending its peers garner. Comcast, for instance, got over $5 billion in ad revenue in the second quarter, compared to less than $1 billion for Roku.
With television ad spending expected to grow over the long term, KeyBanc sees Roku's growth opportunity as underrepresented in its share price.
Roku has other potential catalysts ahead, like international expansion, an increase in ad-supported channels, direct response advertising, and transactional video-on-demand.
Last month, Roku reported a 42% increase in second-quarter revenue to $356.1 million with an adjusted net loss of 35 cents a share. Analysts were expecting the company to report an adjusted loss of 50 cents a share on revenue of $312 million.
Average revenue per user rose 18% year over year to $24.92 with the number of active accounts rising 41% to 43 million.
Roku said that demand for its streaming devices increased following the start of shelter-at-home orders in mid-March as the coronavirus pandemic spread.