What happened
Roku (ROKU +0.23%) shareholders beat the market on Monday as their stock jumped 5% compared to a 0.7% increase in the S&P 500. The streaming video giant also outperformed the tech-heavy Nasdaq index, which had rallied 1.9% by 11:00 a.m. ET.
Roku shares benefited from rebounding optimism on Wall Street about its business.
Image source: Getty Images.
So what
The stock was upgraded to a buy recommendation by an analyst at Citi, who believes Roku could rally to as high as $275 per share in the next year or so. Rival streaming giant Netflix (NFLX 0.50%) received a similarly positive return outlook, and the industry leader's stock also rallied in early trading on Monday (up roughly 7%).
Citi sees subscriber growth remaining strong through 2023 even as the economics of the streaming video industry improve. Profitability could rise for Roku over time as people pay more for streaming services. Netflix is rolling out a significant price increase on its U.S. customers right now, after all. It is also expecting to generate positive cash flow in 2022 and beyond.
Now what
Roku in early November revealed slower streaming growth, but impressive gains in areas like average revenue per user. These wins helped the company boost sales by 51% to $680 million. Many investors are anticipating that the business will become far larger over time, given its defensible foothold in the ad-based streaming niche.
Roku stock might continue rebounding, especially if investors get more bullish about the streaming video market. But the real test will come when the company announces fiscal Q4 results, which will happen sometime in February. Roku faces a tough comparison with a year-ago period that included a 55% surge in streaming hours and a 39% increase in active user accounts.
Growth won't be quite as strong this time around, but Roku still has a good shot at solid sales gains and increasing profitability, likely supporting market-beating investor returns from here.
