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Roku Lifted to Buy; Guggenheim Sees Growth Overseas, Ad Potential

Guggenheim raised Roku to a buy based on the streaming-tech company's growth potential overseas and more potent advertising capabilities.
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Roku  (ROKU) - Get Roku, Inc. Class A Report shares rose Thursday after Guggenheim Partners upgraded the streaming platform to buy from neutral, based on its growth potential overseas and more potent ad capabilities.

The stock recently traded at $336.24, up 3.5%. It has slumped 17% over the past three months amid valuation concerns. Guggenheim’s target price is $395.

“We expect the connected television ad marketplace will continue to grow at a rapid pace and that Roku will be a primary beneficiary — this view is unchanged,” Guggenheim analyst Michael Morris wrote in a commentary cited by CNBC.

He figures the company had 5.6 million active accounts outside the U.S. as of June 30, and that number will top 100 million by the end of the decade. Roku has said its streaming players will be sold in Germany by year-end.

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Bottom line, Morris said, “we see the value in the company’s incremental international expansion, potential for additional targeted marketing partnerships and expanded advertising tools as underappreciated.”

A more conservative view: Morningstar analyst Neil Macker puts fair value for Roku at $170. 

“We view the shares as materially overvalued, pricing in unrealistic expectations for growth in a very competitive market,” he wrote in a commentary last month.

“Roku handily beat [earnings] expectations during the second quarter,” Macker said. But “customer metrics during the quarter, coupled with management’s third-quarter outlook and somewhat muted commentary concerning the second half of 2021, point to slowing growth ahead.”

“While the [81%] revenue growth was impressive, Roku only added 1.5 million accounts, down from 2.4 million last quarter and 3.2 million a year ago.”