Roku – Expect Further Strong Growth!

Over the last year, Roku (Tiker: ROKU) has been a prime beneficiary of coronavirus-driven trends. The acceleration of cord-cutting – the shift from linear to CTV (connected TV) – has provided the company both with strong market gains and real-world growth. Heading into the steaming platform’s fourth-quarter earnings, expectations were set pretty high. In the end, Roku managed to deliver the goods, and then some.

Roku surprised the Street by posting a profit in Q4, as EPS came in at $0.48, $0.54 above consensus estimates. There was a beat on the top-line, too, with revenue hitting $649.9 million, a 58% year-over-year uptick and coming in $33.4 million ahead of the forecasts.

Roku’s active customer accounts grew by 39% to 51.2 million, higher than the Street’s call for 50.5 million. Possibly most impressive of all, Platform revenue surged by 81% year-over-year to reach $271.2 million. There was outsized growth for the Roku Channel, too, which is expanding at almost double the rate of the overall platform.

Roku also made the right noises, where other companies have stumbled during this earnings season. The company’s Q1 guidance calls for revenue between $478 million and $493 million. Consensus has $455.22 million.

However, the company did temper expectations for 2H21, where it expressed doubts about sustaining last year’s 2H coronavirus enhanced growth.

For Deutsche bank analyst Jeffrey Rand, Roku’s 4Q results “are another must see.”

“Roku reported another strong quarter and guide as the transition to streaming continues at a rapid pace,” the analyst said. “We now believe that Roku will continue to see 40%+ revenue growth over the next few years, up from our prior expectations for growth to slow to ~35% by CY22.”

To this end, Rand rates ROKU shares a Buy and boosts his price target to $500 (from $400). The upside from current levels is 10%, which going by Roku’s recent performance is relatively tame, as Rand acknowledges.

“Valuation (based on EV/Sales) and expectations have increased significantly for Roku since prior earnings and we believe that further valuation expansion has become more limited as it now trades close to high-growth digital ad peers,” the analyst summed up.

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