It's been quite the week for Roku (ROKU -0.52%) and its shareholders. The country's leader in getting folks streaming from their TVs kicked off the fireworks by announcing a transformative deal with Amazon (AMZN -1.38%) on Monday. An analyst upgrade and a pair of other firms jacking up their price targets followed.
The stock is up nearly 10% heading into the final trading day of the week. Roku is a name that has fallen off of many growth investing radars, but the shares are now up 55% over the past year. With its solid growth, continuing niche dominance, and projected return to profitability for the second half of this year, it's a name you should probably start paying attention to again.
At its frenzied peak in 2021, a $5,000 investment could barely be exchanged for 10 shares. That same $5,000 today could have you walking away with 60 shares. This is the kind of math that can burn investors if they're buying a falling stock with dim prospects, but today's Roku is in much better shape than it was four years ago.
Betting on the stream weaver
Roku's revenue and time spent on its platform have both nearly doubled since the shares peaked six times higher four summers ago. However, just saying that Roku is a larger company than it was back in 2021 isn't enough to convince you that this is the smartest growth stock for your next investment. Roku's success in continuing to gain market share as North America's leading streaming operating system for TVs will continue to open doors; doors like the one that was slammed off its hinges on Monday with its new partnership with Amazon.
The leading online retailer runs a popular programmatic demand-side ad buying platform, and this week it turned heads by striking an integration deal with Roku. The two companies are typically competitors in the streaming space; Roku's platform competes with Amazon's Fire TV. But despite the wide gap in market cap -- Roku at $12 million and Amazon at $2.3 billion -- the online retailer doesn't attract the same captive U.S. audience as the pioneer.
In the spirit of the "if you can't beat 'em, join 'em" adage, Amazon advertisers will now have access to Roku's massive reach of roughly 80 million U.S. households spending an average of more than four hours a day cradling the Roku remote. The early tests were fruitful. Amazon found that teaming up with Roku would deliver its connected TV clients 40% more unique viewers with the same budget. With better ad targeting and the ability to lower the instances of viewers seeing the same ads repeatedly, Amazon points out that its advertisers can generate a lot more value on Roku through this partnership.
Investors got excited about Roku's prospects following the news ahead of Monday's market open. A few analysts took the baton and ran with it later in the week.
Image source: Getty Images.
Spreading the news
Analyst Alan Gould at Loop Capital upgraded his opinion on Roku from hold to buy, boosting his price target from $80 to $100 in the process. He feels that the partnership will have a positive impact on Roku's results starting next year, making this now a good time to hop off the fence. The combination of Amazon's shopping feedback loop for advertisers and Roku's market leadership as a streaming hub make this a bar-raising collaboration.
A couple of other firms juiced up their price targets without changing their opinions. BofA was already bullish, but it bumped its price goal from $85 to match Loop Capital at $100. Citigroup remains neutral, but it still revised its target on the stock from $68 to $84.
Roku was already on the way to tear down bearish knocks on the stock. Its lack of profitability has been a popular pressure point, but its guidance in May called for a net loss of $30 million for all of 2025.
Why is this important? Well, Roku clocked in with a bottom-line deficit of $27 million for the first quarter, targeting a loss of $25 million for the current one. A $30 million loss projection for the year after a $52 million hole through the first six months translates into a profit of $22 million over the course of the next six months. Roku was already generating positive free cash flow and adjusted earnings before interest, taxes, depreciations, and amortization (EBITDA). Now it's about to scratch a reversal in net income from its bucket list.
All roads lead to Roku these days. More households are turning to Roku to fuel their smart TV streaming needs, and advertisers are doing the same. Roku shares are already bouncing back, but the best is yet to come.
