Wall Street is catching streaming fever.
Two leading media analysts, Ben Swinburne of Morgan Stanley and Mark Mahaney of RCB Capital Market on Monday said they were initiating coverage of Roku, indicating that streaming is becoming an important consumer behavior that investors might be able to cash in on.
“Secular tailwinds driving Roku are clear, as consumers and publishers flock to over-the-top (OTT) TV,” Swinburne said in his report.
Swinburne rates Roku stock as a lukewarm even-weight. Roku went public last month.
He notes that Roku might be well positioned to take advantage of fast growth in OTT viewing. He notes that among Roku’s active accounts, aggregate hours viewed in are up 60% in the first half of 2017.
“Despite a strong track record in consumer hardware, [Roku’s] high margin platform business is quite nascent. Current multiples suggest it is getting credit for strong growth, with visibility limited,” he adds.
Swinburne describes Roku as a high growth business without material near term profits. In his bull-case scenario, Roku stock could hit $32, versus a base case of $22 and a bear case of $14.
Roku closed Friday at 21.87
Mahaney entited his report “Stream On!” and explained that “Roku’s The Name, Streaming’s The Game.” He thinks the stock could climb to $26 and rates it as Sector Perform
“Given the dramatic growth in Streaming –exemplified by Netflix’s extremely robust Subscriber growth – the leading Streaming OS should be a very valuable asset, and Roku may well be that asset,” Mahaney said.
Among the positives for Roku are having a well-established brand, a large market opportunity, a strong technology stack advantage and a robust financial model.
The risk, according to Mahaney includes a highlight competitive landscape, a concentrated content base, a lack of sustainable profitability, consumer concentration risk and limited international exposure.
Mahaney estimates Roku will generate $631 million in 2018, but he doesn’t expect the company’s earnings before interest, taxes, depreciation and amortization (EBITDA) to be positive till 2019.