Shares of streaming-TV platform specialist Roku (ROKU +0.34%) continue to defy gravity. The stock is up nearly 6% as of 9:45 a.m. EDT Wednesday following bullish commentary from an analyst at Guggenheim. Reflecting the optimism for Roku in the market, Guggenheim's rosy outlook follows another big price hike and buy rating for the stock from a different analyst late last month.
Shares of Roku have surged in 2019, rising more than 220% year to date. But Guggenheim analyst Michael Morris believes there's still significant upside ahead.
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The path to $119
Morris believes Roku's strong performance in Q1, which saw revenue growth accelerate, wasn't a one-off outcome but rather indicative of robust underlying business momentum.
Roku's first-quarter revenue soared 51% year over year as streaming hours jumped 74% and average revenue per user increased 27%.
"We see continued growth in account and streaming metrics, closing of the video advertising pricing gap with traditional television, demand by third parties for audience development opportunities, and incremental content distribution revenue recognition as key catalysts for shares," Morris said (via CNBC).
Key to Morris' thesis is that the $0.04 in advertising revenue the company generated per streamed hour on Roku will close in over time on the $0.19 per hour generated on traditional TV.
Morris upgraded his rating for the stock from neutral to buy. In addition, the analyst increased his 12-month price target from $75 to $119, representing 20% upside from where shares are trading at the time of this writing.
Key catalysts
In Roku's first-quarter shareholder letter, management said over-the-top (OTT) TV advertising is getting increasing mindshare and investment from marketers.
"While traditional linear TV ads still make up the bulk of TV ad budgets, TV advertisers are beginning to commit more ad budgets to OTT," Roku said, "and we expect this trend to gain even more momentum and eventually catch up with the shift in viewing behavior toward OTT."
Digital advertisements served through Roku's platform can not only be scaled to a massive audience, but they can be more targeted than traditional ads and reach an audience that is "increasingly unavailable through traditional TV advertising," management asserted in its most recent quarterly update.
Advertising was key to Roku's 79% year-over-year growth in platform revenue during Q1. Helping drive momentum in advertising during the period, monetized ad impressions on its platform more than doubled year over year -- a trend the company expects to persist throughout 2019.
