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On Wednesday, Jefferies maintained its underperform rating and $55.00 price target on Roku Inc. (NASDAQ:ROKU), citing potential challenges for the company's Streaming Distribution (SSD) model. The firm highlighted recent developments indicating a pivot away from Roku's SSD services by major streaming companies. This shift is seen as a significant factor for Roku, as SSD represents approximately 40% of the company's platform revenue.
Executives from Disney (NYSE:DIS), Paramount (PARA), and Tubi have shown support for an alternative to Roku's SSD model, a move that echoes Netflix's (NASDAQ:NFLX) previous departure from Roku's services. This trend suggests that other streaming providers may also consider distancing themselves from Roku's platform, particularly with the industry's growing focus on advertising-supported video on demand (AVOD).
Despite Roku's strong position, commanding about 50% of viewing hours on Connected TV (CTV) in the United States according to Comscore data, the potential shift by streamers could impact the long-term viability and growth of Roku's SSD. The transition away from Roku's SSD model is not expected to happen immediately, but the endorsement of The Trade Desk's (NASDAQ:TTD) operating system by leading streaming executives is a clear sign of emerging competition in the space.
Jefferies' stance on Roku reflects concerns about the company's future revenue streams and market position as the streaming landscape evolves. The firm's reiteration of the underperform rating and price target suggests caution regarding Roku's stock performance in the face of these industry changes.
In other recent news, Roku Inc. has been making significant strides in its financial performance and strategic developments. The company recently reported a milestone in its Q3 2024 earnings call, surpassing $1 billion in total net revenue for the first time. This growth, a 16% increase from the previous year, was mainly driven by a 15% increase in platform revenue, which totaled $908 million. Roku is also projecting a 16% year-over-year growth for Q4 total net revenue, amounting to $1.14 billion, and an adjusted EBITDA of $30 million.
Roku Inc. has also launched Roku Ad Manager, a self-service advertising platform for small and medium-sized businesses. The company aims to reach 100 million streaming households globally within the next 12 to 18 months. Baird recently upgraded Roku's stock rating from Neutral to Outperform, seeing long-term growth potential. The firm also increased the price target for Roku's shares to $90.00, indicating confidence in the company's future performance.
KeyBanc Capital Markets maintained its Sector Weight rating on Roku, suggesting some near-term pressure on the stock. Despite market concerns, KeyBanc adjusted its projections for Roku's revenue and EBITDA for 2025 upward by 3% and 21% respectively, reflecting a more optimistic outlook. The firm also anticipates that Roku will achieve GAAP profitability by 2026 based on the company's current trajectory and the positive adjustments made to their future earnings estimates.
InvestingPro Insights
Recent InvestingPro data provides additional context to Jefferies' cautious stance on Roku. Despite the company's strong revenue growth of 15.71% over the last twelve months, Roku is currently not profitable, with an operating income margin of -5.4%. This aligns with one of the InvestingPro Tips, which notes that analysts do not anticipate the company will be profitable this year.
However, it's worth noting that Roku's stock has shown a strong return over the last three months, with a price total return of 18.74%. This recent performance suggests that some investors may be more optimistic about Roku's prospects than Jefferies' analysis indicates.
An InvestingPro Tip highlights that Roku holds more cash than debt on its balance sheet, which could provide the company with financial flexibility as it navigates the potential challenges in its Streaming Distribution model. This financial stability might be crucial as Roku adapts to the evolving streaming landscape.
For investors seeking a more comprehensive analysis, InvestingPro offers 5 additional tips for Roku, providing a deeper understanding of the company's financial health and market position.
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