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On Friday, UBS initiated coverage on Roku Inc. (NASDAQ:ROKU) stock with a neutral stance, setting a price target of $73.00. The firm acknowledges Roku's strong position as a key player in the streaming ecosystem, owing to its operating system's significant market share in various advanced markets.
UBS points out that Roku's ability to attract advertising spending, which is shifting away from traditional television, is a positive factor for the company.
The firm also highlights the solid viewership growth on The Roku Channel and the potential benefits from Demand-Side Platform (DSP) relationships. Furthermore, new initiatives aimed at enhancing monetization of the home screen are expected to bolster advertising trends in 2025.
Despite these positive aspects, UBS maintains a cautious outlook, citing competitive risks within the TV operating system market and ongoing rationalization efforts in the streaming industry.
According to UBS, while Roku is well-positioned to capture market opportunities, the current risk-reward balance does not warrant a more optimistic rating.
The firm projects platform revenue growth for Roku to be solid but moderating, with estimates of 12% in 2025 and 11% in 2026, compared to the consensus estimates of 12% for both years and 15% in 2024.
Additionally, UBS forecasts that Roku will achieve an EBITDA margin of 9% by 2026, which is slightly higher than the Street's expectation of 8%. This projection is based on the assumption of improved operational leverage at the expense level.
InvestingPro Insights
Roku's financial landscape, as revealed by InvestingPro data, offers additional context to UBS's neutral stance. The company's revenue growth of 15.71% over the last twelve months aligns with UBS's projection of solid but moderating growth. This is further supported by a quarterly revenue growth of 16.47% in Q3 2024, indicating Roku's continued ability to expand its market presence.
InvestingPro Tips highlight that Roku holds more cash than debt on its balance sheet and its liquid assets exceed short-term obligations. These factors contribute to the company's financial stability, which could be crucial as it navigates the competitive streaming landscape and pursues growth initiatives mentioned in the UBS report.
However, the InvestingPro data also reveals that Roku is not currently profitable, with a negative operating income of $210.48 million over the last twelve months. This aligns with the InvestingPro Tip indicating that analysts do not anticipate the company to be profitable this year. This profitability challenge underscores UBS's cautious outlook and their focus on Roku's path to improved operational leverage.
For investors seeking a more comprehensive analysis, InvestingPro offers 5 additional tips for Roku, providing a deeper understanding of the company's financial position and market dynamics.
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