Roku (ROKU -2.76%) is hot, and a longtime bull thinks it's going to get even hotter. Needham analyst Laura Martin is lifting her price target on the video-streaming pioneer to a Street-high $150, seeing more upside to a stock that has established itself as the thinking investor's play to cash in on the cord-cutting revolution.
The stock continues to be her top mid-cap pick for this year, a brilliant call for shares that have more than quadrupled so far in 2019. Martin sees advertisers continuing to flock to the platform, especially these days, when a growing number of people are no longer consuming video ads on traditional television. Roku is an "arms dealer" in this booming niche, and its position -- service-agnostic, playing nice with all of the large and small streaming services -- makes it the ideal play for investors wanting some skin in the over-the-top market.
It's a TV star
Roku was one of last week's biggest winners, soaring 25% higher following another blowout quarter. Every metric investors use to measure the popularity of its platform -- audience count, usage, average revenue per user -- is sharply on the rise, and since some of those variables are stackable, it's resulting in explosive growth.
Total revenue may have soared 59% in Roku's second quarter -- accelerating for the third consecutive report -- but the real story here is the 86% surge in platform revenue. Roku's high-margin platform business is now accounting for more than two-thirds of the revenue mix, a welcome contrast to the low-margin device sales that used to dominate Roku's operations just a couple of years ago.
Roku's platform is now being consumed by 30.5 million active accounts, and those folks certainly bring a new meaning to the term "active" accounts. Divide the 9.4 billion hours of content streamed through Roku's platform by the number of active accounts, and then again by the 91 days in the quarter, and you arrive at average consumption of 3.4 hours a day per account. These low-cost devices and the growing number of smart TVs coming factory-installed with Roku's operating system are being used by their entertainment-hungry owners.
Needham's Martin has been a vocal optimist on Roku before being bullish on this year's hottest mid-cap was cool, but even fence-straddlers are hopping over into the bullish camp. Analysts at Stephens and Rosenblatt upgraded the stock from neutral to buy last week after the head-turning second-quarter results.
Between Roku's rapidly ascending growth and the media giants that will be launching new streaming services in the coming months, it seems as if the only thing more exciting than Roku right now is where it will be in the future. The bar is being raised to $150 -- an eye-rubbing target when the stock began the year barely above $30 -- but now more than realistic given how far Roku has come in such a short time.