Roku Earns an Upgrade at MoffettNathanson

MoffettNathanson analysts upgraded Roku Inc. (NASDAQ:ROKU) to Neutral from Sell, setting a price target of $80 on the stock.

The analysts explained that over the past three years, they had consistently recommended selling Roku due to concerns that consensus projections were misinterpreting the drivers behind the company’s platform revenues. They highlighted that the unsustainable "streaming wars" allowed Roku to over-earn in high-margin areas, such as streaming service distribution and media and entertainment promotional spending. Additionally, poor financial disclosure from Roku made it difficult to assess the sustainability of its revenue growth and profitability.

As Roku’s platform revenue growth slowed dramatically—from 81% in 2021 to 10% in 2023—its adjusted EBITDA forecasts for 2024 were cut from $1.49 billion to $163 million, a sharp 90% decline. However, the analysts now see less risk ahead for Roku as it enters the second half of 2024 and into 2025. They attribute this to reduced exposure to declining media and entertainment ad spending, and greater use of third-party demand-side platforms like The Trade Desk.

Additionally, the analysts praised Roku's new leadership for successfully managing expense growth and refocusing efforts on generating free cash flow and GAAP earnings. As a result, they raised forward estimates for Roku’s financial performance and believe these improvements will help stabilize the company’s stock price.