On Monday, Loop Capital updated its assessment of Roku Inc. (NASDAQ:ROKU), increasing the price target to $80 from the previous $70 while maintaining a Hold rating on the stock.
Currently trading at $84.12, Roku has shown strong momentum with a 46.7% surge over the past six months. The adjustment follows Roku's effective incorporation with The Trade Desk (NASDAQ:TTD), which has led to an upward revision of revenue estimates by the analyst. According to InvestingPro data, the company's revenue grew by 15.7% in the last twelve months.
Roku's strategic moves and financial performance have been under scrutiny, with the company's integration into TTD being a significant factor in the revised valuation. The company maintains strong financial health with a current ratio of 2.57, indicating ample liquidity to meet short-term obligations.
Despite speculation around a potential sale of the company, the analyst has expressed the belief that Roku's founder, CEO, and controlling shareholder Anthony Wood is not inclined to sell. Moreover, potential buyers such as TTD and Netflix (NASDAQ:NFLX) are not viewed as likely suitors.
The firm's neutral stance is influenced by a desire to observe an acceleration in Roku's platform revenue, which is currently growing at a low to mid double-digit rate. The current valuation, which stands at approximately 2 times the firm's 2025 revenue estimate, is considered reasonable. This is especially true given Roku's positive adjusted EBITDA and free cash flow status.
The analysis points out that while the valuation is not demanding, a Hold rating is appropriate at this time. The firm awaits further evidence of Roku's revenue growth potential before considering a rating change. Loop Capital's revised price target reflects a cautious optimism about Roku's future financial performance, balanced by a wait-and-see approach to the company's growth trajectory.
In other recent news, Roku Inc.'s earnings report showed a significant milestone, surpassing $1 billion in total net revenue for the first time, driven by a 15% increase in platform revenue. Amid this financial growth, Roku has been the subject of M&A speculation, with discussions of potential merger with The Trade Desk (TTD) noted by Benchmark and Guggenheim analyst Michael Morris.
Benchmark has maintained its Buy rating on Roku shares, while Loop Capital and UBS initiated coverage with a neutral stance. Needham also reaffirmed a Buy rating on the company's shares, projecting that Roku could be acquired at a significant premium within the next year.
Roku's strong position in the streaming industry and its potential for advertising growth were highlighted, despite facing challenges from The Trade Desk's development of a competing TV operating system. These are recent developments in the company's trajectory.
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