KeyBanc analyst Justin Patterson upgraded his rating to overweight from sector weight with a $518 price target. Despite the upgrade, Roku shares were falling 1.7% to $382.97 per share in early market trading Wednesday. Shares are up more than 15% year to date.
"We believe Roku is becoming a key enabler of the direct-to-consumer (D2C) video ecosystem, as evidenced by its large active accounts base (~51M as of 4Q20). We believe the company's AdTech investments are expanding Roku's [total addressable market], providing ample runway to sustain 40%+ revenue growth largely in N. America," Patterson said.
On Monday, Roku announced that it has agreed to buy Nielsen’s Advanced Video Advertising business, which includes Nielsen’s video automatic content recognition and dynamic ad insertion technologies. Roku's acquisition of Nielsen's advertising assets allows Roku to expand its total addressable market, according to Patterson.
Roku and Nielsen will enter into a strategic partnership to integrate complementary Nielsen ad and content measurement products into the Roku platform and further advance Nielsen ONE, Roku said. Additional terms weren’t disclosed.
Separately, on Tuesday, the Los Gatos, Calif.-based company announced plans to sell up to $1 billion in stock and use the proceeds for “working capital and general corporate purposes, including sales and marketing, research and development, repayment of debt, capital expenditures and acquisitions or investments.”
The risks to KeyBanc's bullish view include the potential of more competition, the loss of television partners and content distribution disputes, according to Patterson.