Roku Shares Pop on Key Banc Capital Markets Gives Stock Bullish Rating

Shares of streaming device maker Roku Inc. saw big gains this week after KeyBanc Capital Markets analyst Justin Patterson initiated coverage of the streaming-media company with an overweight rating and $228 price target.

On Tuesday Patterson said that Roku is “under-monetized” compared to its peers given the size of the company’s audience and that Roku could see faster revenue growth than is currently modeled by consensus forecasts.

The analyst also sees opportunities for the company to grow its ad-supported channels, deliver superior targeting, and improve its pricing relative to its advertising load. Furthermore, Patterson expects that the company will be able to grow its international business by entering new markets. He estimates that the company currently gets more than 85% of its revenue from the U.S. Roku shares have gained 54% over the past three months as the S&P 500 has risen 11%.

“We expect growth in ad-supported channels, and new ad units should drive faster revenue growth than consensus contemplates,” Patterson said.

According to Pattereson, Roku’s reach is expanding, with 43 million subscribers, while cable providers like Comcast (CMCSA) – Get Report and Charter (CHTR) – Get Report are contracting with 19 million and 16 million subscribers, respectively.

It was in August that Roku reported a 42% increase in second-quarter revenue to $356.1 million with an adjusted net loss of 35 cents a share. Analysts were expecting the company to report an adjusted loss of 50 cents a share on revenue of $312 million.

Average revenue per user rose 18% year over year to $24.92 with the number of active accounts rising 41% to 43 million.

Disclaimer: We have no position in Roku Inc. (NASDAQ: ROKU) and have not been compensated for this article.