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On Friday, FBN Securities began coverage of Roku Inc. (NASDAQ:ROKU), assigning the stock an Outperform rating and setting a price target of $93.00. Currently trading at $76.05, with a market cap of $11.1 billion, InvestingPro analysis suggests the stock is slightly undervalued. The firm recognizes Roku’s budding initiatives in various advertising and revenue streams, suggesting potential for significant growth.
Roku has recently made moves to expand its video advertising capabilities, including a partnership with Trade Desk (NASDAQ:TTD) and the introduction of self-serve options to attract small and medium-sized business demand. With revenue growing at 18% year-over-year and maintaining strong liquidity with a current ratio of 2.62, these initiatives were launched in late 2024 and are expected to increase the fill-rate for ads, which FBN Securities estimates was at 58% in 2024. The firm projects that selling 50% of unsold ad impressions at half the average cost per thousand impressions (CPM) could result in a 17% increase in video advertising revenue and a 7% rise in overall platform revenue, assuming all other factors remain constant.
Additionally, Roku is enhancing its display advertising by upgrading key ad units, such as transforming its Marquee home page from static to video ads. If Marquee represents half of Roku’s display ad revenue and sees a 20% CPM increase, this could lead to a 10% boost in display ad revenue and a 2% increase in total platform revenue, maintaining all other variables.
FBN Securities also anticipates Roku will continue to focus on managing expenses, including stock-based compensation (SBC), and on improving free cash flow (FCF) per share, which is expected to exceed 100% of EBITDA. According to InvestingPro, Roku holds more cash than debt and generated $213 million in levered free cash flow over the last twelve months. The firm’s report includes a detailed 10-year forecast for revenue and margin growth across Roku’s Platform division, which covers video advertising, display ads, streaming services distribution, and remote buttons, as well as its Devices division, which includes branded TVs, Players, third-party TVs, and other products. For deeper insights into Roku’s financial health and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively on InvestingPro.
In other recent news, Roku Inc. has garnered significant attention from various analysts due to its financial performance and strategic initiatives. Jefferies upgraded Roku’s stock rating from Underperform to Hold, raising the price target to $100, citing a 25% year-over-year platform growth that exceeded expectations. This growth was attributed to successful third-party integrations and improved fill rates. Similarly, Benchmark analysts increased their price target for Roku to $130, maintaining a Buy rating, and highlighted a notable 25% growth in platform revenue in the last quarter of 2024. The firm expressed confidence in Roku’s guidance for continued growth in 2025.
Guggenheim analyst Michael Morris maintained a Buy rating on Roku, emphasizing the company’s momentum in platform monetization and projecting strong performance by the end of 2025. Despite reducing the price target to $100 from $115, Morris remains optimistic about Roku’s strategic focus on revenue-generating offerings. Meanwhile, Citizens JMP analyst Matthew Condon reiterated a Market Outperform rating with a $115 price target, acknowledging Roku’s dominance in the budget TV segment and The Roku Channel’s growing popularity.
Citi analysts raised their price target to $103 from $70, maintaining a Neutral stance, reflecting growing investor confidence in Roku’s efforts to enhance fill rates and subscription revenue. Despite these positive developments, Citi believes the stock’s current price already reflects the potential benefits of Roku’s strategic initiatives. These recent developments underscore Roku’s strong market position and the confidence analysts have in its future growth.
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