Roku just fell on earnings, but this analyst still sees long-term growth potential.
Shares of Roku (ROKU 2.55%) were already in the dumps coming into its first-quarter earnings report last Thursday, but investors hoping for a recovery got a rude awakening. The streaming distribution platform fell 10% on the update, as investor patience about meaningful profitability seems to be running thin.
However, one analyst is still bullish on Roku in spite of its recent underperformance. Benchmark lowered its price target on Roku from $115 to $105 following the report, but reiterated a buy rating.
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Benchmark still thinks Roku can double
Benchmark’s lowered price target still calls for Roku to jump nearly 90% over the next year as it noted soft second-quarter guidance. However, the analyst also believes Roku is on its way to becoming a must-advertise platform, which makes sense as ad-based streaming subscriptions are climbing rapidly.
Netflix just said that 40% of new sign-ups were for the advertising tier, and ad-based streaming should expand in the coming years, especially as advertisers are looking to replace lost ad revenue from traditional pay-TV channels.
Is Roku a buy?
Roku still has a lot of upside potential as the underlying consumption metrics continue to grow rapidly, but management needs to do a better job of driving profitability and giving a long-term vision of where the business is headed.
As the leading streaming distribution platform, Roku has some advantages, but it will need some help from its streaming partners to reach its full potential.
The stock still looks like a buy, even if doubling seems like a stretch at this point.
Jeremy Bowman has positions in Netflix and Roku. The Motley Fool has positions in and recommends Netflix and Roku. The Motley Fool has a disclosure policy.
