Roku (ROKU 1.00%) has been a runaway train in 2019, with the stock gaining more than 300% so far this year. The company's leading position in streaming devices and its fast-growing advertising business have propelled it into the stratosphere, and it shows no signs of slowing.

One analyst this week said she thinks Roku has a number of advantages that will give it an even better likelihood of success than Netflix (NFLX 1.74%).

A connected TV showing viewing options and apps.

Image source: Getty Images.

A bullish call

Needham & Company analyst Laura Martin on Monday reiterated her buy rating on Roku and raised her price target to $150, up from $120 -- the most bullish call yet by an analyst on this stock. As the demand for streaming continues to soar, Martin thinks Roku has staked out the most logical space within the industry.

"The vast majority of streaming services to date have chosen to either charge a subscription fee OR give consumers free programming, supported by advertising," Martin explained in her report. She said Roku has taken a different path and "is an arms dealer." She added:

[Roku] is indifferent about which over-the-top (OTT) services or business models win. Roku negotiates a 20% to 30% revenue share from every OTT service that wants access to its 30 million homes. At 3.5 hours a day per household of viewing in the second quarter of 2019, it would be impossible ... to launch a new OTT service without access to Roku's 36% of connected TV homes.

Martin went on to say that with 60 million paid U.S. subscribers, Netflix potentially has the most to lose unless U.S. consumers are willing to subscribe to "three, four, or five new [subscription video-on-demand] services," she said. She also pointed out that Netflix faces increasing competition and content budgets, but as a content aggregator, Roku has no such issues. 

Roku's two-pronged strategy

Roku is still the streaming-device leader, controlling an estimated 39% share of the market, according to Parks Associates.'s Fire TV is the current runner-up, with about 30%. 

Roku augmented its streaming-device strategy by developing an operating system (OS) custom-designed for connected TVs -- rather than using a modified mobile device OS -- and partnering with a growing number of manufacturers that use the system in their devices. It recently reported that more than one-in-three connected TVs in the U.S. are Roku TVs.

It's important to note that Roku makes very little money on its players and from licensing its connected TV OS. This is merely the first part of a two-pronged strategy, designed to attract a growing base of users.

The Roku Channel streaming on a smartphone.

Image source: Roku.

There's strength in numbers

While most investors still associate Roku with its namesake streaming devices, the company has quietly evolved into the leader in the ad-supported streaming movement. It currently boasts more than 30.5 million active accounts, reaching about one in four of the 128 million households in the U.S. These are voracious viewers, as evidenced by the 9.4 billion hours of streaming they consumed during Roku's second quarter. 

With this many eyeballs, streaming services and advertisers alike are rushing to capitalize on Roku's captive audience. As Martin pointed out, if customers subscribe to any of the premium streaming services -- like HBO, Epix, Showtime, and Starz -- Roku gets 20% to 30% of the subscription price. Additionally, it gets a piece of the advertising revenue for all the ad-supported services -- like Cheddar, Pluto TV, and Crackle -- available on its platform.

The company also serves up its own advertising on The Roku Channel (its own ad-supported offering) and from display ads on the homepage when viewers first turn on their Roku-powered devices. Last year, it said that The Roku Channel had become the fifth-biggest app and the third-biggest ad-supported app on its platform. 

Advertising is the biggest income generator for Roku, as platform revenue grew to $168 million in Q2, up 86% year over year, and now represents 67% of total revenue. The segment also has the plumpest gross profit margins at about 65%.

Roku investors cheered

Roku and Netflix both trade at about eight times Martin's 2020 revenue estimates. "Given similar valuations, we prefer Roku," she wrote. Even after its massive gains so far this year, Roku investors cheered the analyst's bullish call, bidding the stock up an additional 7%.