On Friday, Wolfe Research reiterated an Outperform rating on Roku Inc. (NASDAQ:ROKU) stock, maintaining a $93.00 price target. Trading at $83 with a market capitalization of $12.05 billion, Roku's stock has shown significant volatility, as highlighted by InvestingPro data.
The firm's analysts focused on the potential of Roku's Platform segment, which they believe presents both opportunities and challenges for investors. The segment's complex structure, with multiple revenue streams and high gross margins, is seen as fundamentally tied to the growth of streaming media, yet its limited disclosure makes it difficult to forecast.
The Wolfe Research report attempts to demystify the Platform segment by breaking down its revenue into three main categories: content video ads, media & entertainment/home screen, and streaming services distribution.
Despite the intertwined nature of revenue streams and ad monetization dependent on audience rather than content, the firm's analysis aims to enable more accurate predictions of Roku's primary growth drivers, including third-party Demand-Side Platform (DSP) partnerships and streaming services distribution.
The analysis conducted by Wolfe Research suggests that Roku's Platform segment could achieve at least a mid-teens percentage sales Compound Annual Growth Rate (CAGR) through the fiscal year 2027. Currently generating $148.96 million in free cash flow, with a high EV/EBITDA multiple of 195.93x, the company shows both growth potential and valuation concerns.
Additionally, with operating expenses expected to grow at a low to mid-single-digit percentage rate, Wolfe Research forecasts a free cash flow (FCF) of approximately $600 million for fiscal year 2026, which is above consensus expectations.
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The reiterated Outperform rating by Wolfe Research underscores their confidence in Roku's business model and growth prospects, particularly within the Platform segment. The firm's detailed examination of the segment's components has reinforced their positive outlook on Roku's financial performance in the coming years.
In other recent news, the company surpassed 90 million streaming households, reflecting its continued growth in the streaming sector. Despite this achievement, analysts from InvestingPro do not anticipate profitability this year for Roku. In addition, the company unveiled Roku Data Cloud, a data solution aimed at enhancing TV streaming investments for advertisers and publishers.
Roku also announced the departure of Gidon Katz, Senior Vice President of Platform Products & User Experience, effective April 2025. Loop Capital recently increased Roku's price target to $80 while maintaining a Hold rating on the stock, following Roku's effective incorporation with The Trade Desk (NASDAQ:TTD). Benchmark, meanwhile, reiterated its Buy rating on Roku shares amid merger and acquisition speculation.
These recent developments underscore a period of significant change and growth for Roku, which continues to hold a strong position in the streaming industry.
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