Roku Inc. has recently received coverage from UBS, which has a neutral stance on the company and has set a price target of $73.00.
UBS recognizes Roku's strong position in the streaming ecosystem, attributing this to its operating system's significant market share in advanced markets. As advertising spending continues to shift to digital platforms, Roku stands to benefit, particularly through its ability to attract ad dollars. UBS highlights the growth of viewership on The Roku Channel and the potential advantages of its relationships with Demand-Side Platforms (DSPs), which could increase Roku's advertising revenue.
Despite these positive indicators, UBS maintains a cautious outlook on Roku's future due to competitive risks in the TV operating system market and ongoing rationalization efforts in the streaming industry. While Roku is well-positioned to seize market opportunities, UBS believes that the current risk-reward balance does not justify a more optimistic rating. UBS projects solid but moderating platform revenue growth for Roku, estimating a 12% increase in 2025 and an 11% rise in 2026, aligning with consensus estimates for those years but falling short of the anticipated 15% growth in 2024.
Roku's financial landscape shows a mix of strengths and challenges. The company has experienced a revenue growth of 15.71% over the past twelve months, consistent with UBS's projections. Roku reported a quarterly revenue growth of 16.47% in Q3 2024, demonstrating its ability to expand its market presence despite competition. Additionally, Roku's balance sheet indicates a favorable financial position, with more cash than debt and liquid assets exceeding short-term obligations. However, profitability remains a challenge for Roku, as it reported a negative operating income of $210.48 million over the last twelve months. Analysts do not expect the company to achieve profitability this year. UBS projects that Roku could achieve an EBITDA margin of 9% by 2026, slightly above the Street's expectation of 8%, assuming improved operational leverage at the expense level.
Roku's growth strategy relies on capturing advertising spending. Its strong position in the streaming market positions it well to benefit from the shift towards digital platforms. UBS notes that new initiatives aimed at enhancing the monetization of the home screen are expected to boost advertising trends in 2025. The growth potential in advertising is supported by the viewership growth on The Roku Channel. Roku's relationships with DSPs could also play a pivotal role in maximizing advertising revenue, allowing for more targeted ad placements and improved campaign performance.
In summary, while Roku is well-positioned to capitalize on the changing landscape of advertising and streaming, it faces challenges that could impact its growth trajectory. The company's financial stability and ability to attract advertising dollars present a promising outlook. However, profitability concerns and competitive risks in the TV operating system market require a cautious approach as Roku moves forward.