The market wasn't expecting a lot out of Roku (ROKU +2.43%) in November, but the pioneer of streaming media devices more than doubled with its 115% surge last month. A blowout third quarter is the clear catalyst behind the pop, but this wasn't a one-act play. Roku stock has moved higher for five consecutive weeks, checking in with double-digit percentage gains in three of the past four weeks.
November's monster rally closed out with a 10% gain last week, fueled by a big analyst move. Laura Martin at Needham boosted her price target from $28 to $50. As a platform-agnostic platform, Martin views Roku as a beneficiary of new content services that have recently lauched or are expected to roll out soon. She sees Roku as a great way to play the streaming video revolutioin without the content risks. She feels that Roku's strategic position, rising competitive moats, growing popularity as a platform, and widening margins and average revenue per user make it a compelling value even after November's meteoric spike.
Image source: Roku.
Fighting fire with fire
It wasn't just the stock market heeding Needham's bullish update. Noted worrywart Citron Research took to social media to bash Martin's $50 price target.
Time to pop some real bubbles. $ROKU, total joke. Citron trusts Mark Mahaney at $28 price target and that is IF they can hold comp back. Today's Needham research is irresponsible. Unless $ROKU finds a way to stream a BTC- this stock is MUCH LOWER....caveat emptor
— Citron Research (@CitronResearch) November 28, 2017
Needham's Martin and Citron's Andrew Left would eventually get a chance to argue their positions on CNBC, and while the stock would go on to give back some of its early week gains, it still closed out the week with double-digit percentage gains and the entire month with a triple-digit jump.
The rally is naturally traced all the way back to its Nov. 8 report, Roku's first report as a public company. Revenue soared by a better-than-expected 40%, propelled by a 137% explosion in platform revenue. This isn't just a hardware company, and a rapidly growing base of users on Roku's service-agnostic streaming platform is also generated greater revenue per viewer.
Roku still isn't profitable, but Needham's Martin is boosting her financial forecasts through the next few years. She now sees Roku breaking even on earning before interest, taxes, depreciation, and amortization (EBITDA) in the third quarter of next year, just ahead of her initial read back in October.
Another thing that likely helped was the stock's heavy short position relative its thin float. Many outlets were crediting the rally's momentum past the blowout earnings to a short squeeze, as short interest had ballooned to 7.2 million shares by mid-November.
Roku is likely to end the year as one of 2017's biggest IPO winners, now more than tripling since going public at $14 just three moths ago. November's been a hard act to follow, but now we'll see what December has to offer.
