Roku Inc (NASDAQ:ROKU) has earned a price target raise from Wedbush analysts who highlighted that the company continues to beat expectations despite ongoing macroeconomic headwinds and a weak advertising business.
They upped their price target on the stock from US$100 to US$120 and repeated their ‘Outperform’ rating. Roku shares traded at about US$103 late morning on Friday.
The Wedbush analysts noted that Roku has returned to profitability after cutting its expenses and guided positive earnings before interest, taxes, depreciation and amortization (EBITDA) in the fourth quarter and for 2024.
Amid the difficult advertising environment and constrained media and entertainment (M&E) spending, the analysts believe Roku should benefit from an improved upfront cycle.
“We think that as the ad market rebounds, Roku is poised to expand profitably as a platform and free ad-supported TV ("FAST") channel leader,” they wrote in a note to clients.
“Roku continues to grow market share as ad dollars shift from linear TV to digital connected TV [and] has shown resilience by expanding some of its key platform sub-segments, diversifying its advertising product offering, and launching new advertising products (banner ads on Roku City, direct purchases).”
They believe Roku’s 4Q guidance of revenue of $955 million, which assumes a slowdown in average revenue per user (ARPU) given a tougher year-over-year comparison and ongoing softness in M&E, and adjusted EBITDA of $10 million is conservative.
“While a challenge in the current environment, we believe it is not beyond reason that Roku could reach its target of EBITDA profitability one year earlier should 4Q account growth follow typical seasonal growth patterns while ARPU comes in flat quarter-over-quarter,” they wrote.
For 2024, they believe Roku will also exceed expectations.
“We think that many of Roku’s initiatives will result in revenue growth higher than we modeled, and together with improved expense management, should drive consistent earnings growth,” they wrote.
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