Guggenheim Partners analyst Michael Morris raised his rating on Roku's shares from neutral to buy. He now sees the stock's price rising roughly 18% to $395 in the year ahead.
Morris argued that Roku is well positioned within the rapidly expanding connected-TV market. He expects the streaming leader's advertising tools to enjoy booming demand, as more businesses shift their marketing spending to digital channels.
Morris also highlighted Roku's intriguing opportunity in international markets, where the connected-TV industry remains early in its growth cycle.
Roku has emerged as a powerhouse in streaming. It has the top-selling smart-TV operating system in the U.S. with a nearly 40% market share.
The company's active accounts surged 28% year over year to 55.1 million in the second quarter. Ad dollars follow eyeballs, and Roku more than doubled its monetized video ad impressions compared to the prior-year period. Together, this helped Roku's net revenue and gross profit soar 81% and 130%, respectively, to $645 million and $338 million.
"Audiences, content, and advertisers continue their shift to TV streaming around the globe, and Roku is a key enabler of this long-term secular trend," CEO Anthony Wood and CFO Steve Louden wrote in a letter to shareholders. And with this global trend still in its early stages, Roku is poised for strong growth in the coming years.
Thus, Morris's $395 price target seems not only possible but probable, and long-term investors could enjoy even greater gains.