Shares of streaming-TV platform provider Roku (NASDAQ:ROKU) jumped yet again on Monday after one analyst boosted her price target for the stock by $30 to $150. Another day of sharp gains builds on the stock's wild momentum this year. Shares are now up 337% year to date.
With such an enormous run-up for the stock, many investors are likely asking whether the stock is a buy, hold, or sell today. To get a better understanding of what investors should do with Roku shares as they trade near $133, here's a look at the underlying business and its valuation.
It's easy to see why analysts and investors would be optimistic about Roku following the company's second-quarter results last week. Revenue growth accelerated during the quarter. The streaming-TV platform specialist posted a year-over-year revenue growth rate of 59% -- up from rates of 51% and 45% in the first quarter of 2019 and the fourth quarter of 2018, respectively.
"Both platform and player segments exceeded our expectations resulting in an exceptional quarter," said management in the company's second-quarter shareholder letter. "Total revenue growth accelerated to 59% YoY, primarily driven by growth in advertising as Roku monetized video ad impressions once again more than doubled YoY."
Platform revenue, which accounts for 67% of total revenue, was particularly strong in the second quarter, rising 86% year over year.
Importantly, Roku's profitability is improving as well. The company's adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) rose from $7.1 million in the second quarter of 2018 to $11.1 million in the second quarter of 2019.
Meanwhile, Roku's dominance is more evident than ever, with the company's devices accounting for 39% of the U.S. streaming media player installed base, according to estimates by Parks Associates. With such significant market share, Needham analyst Laura Martin said in a note to clients this week that it would be "impossible" to launch a new streaming service successfully without distribution through Roku's platform.
A premium valuation
But investors have to pay a steep premium to get in on this growth story. Roku now has a market capitalization that exceeds $15 billion -- a steep price tag for a company expected to achieve revenue and adjusted EBITDA for the full year of 2019 around $1.1 billion and $40 million, respectively. In addition, management still expects to lose money this year on a GAAP basis. The company guided for a full-year net loss between $71 million and $61 million.
While Roku's lead over the competition does seem to be widening, investors may want to look for shares to take a breather before they jump in on this fast-growing company's stock. On the other hand, with such strong execution in the rearview mirror, current shareholders may want to keep holding in case the company continues to outperform expectations.
Put simply, I believe Roku stock is a hold at its current price of about $133.