Bank of America believes that Roku’s efforts to diversify its revenue base are reshaping the company’s long-term earnings profile. The bank reiterated its buy rating on the streaming operator and hiked its price target to $140 from $115 in a Monday note. That implies upside of 26% from Friday’s close. Analyst Brent Navon said that Roku has “several irons in the fire” that could all provide tailwinds for the stock going forward. He said that shares have nearly tripled from their 2022 lows as the company has made great efforts to diversify its revenue base over the past several years. ROKU YTD mountain ROKU 12-mo chart However, he remains bullish on Roku’s opportunities ahead. “Roku has several initiatives that have the potential to sustain a healthy rate of topline growth such as: 1) self-serve advertising, 2) continued ramp into 3rd party DSP advertising platforms, 3) low fill rates which provide greater flexibility to price along the demand curve, 4) optionality with their subscription business via newer initiatives (e.g. Howdy) or cross-selling from Frndly acquisition and 5) moderating headwinds in M & E,” Navon wrote. Besides Roku’s solid revenue trajectory, the analyst also believes that the market has underappreciated its recent profitability inflection. If this is sustained over a full calendar year, Navon says that Roku’s investor base could broaden, and this could possibly pave the way for index inclusion. “With improving operating leverage and a scalable model, we see Roku evolving into a compelling FCF/share compounder,” he added. The company is also set to benefit from favorable industry trends alongside company-specific actions. This includes improving fill rates in its advertising business, alongside growth in streaming video both internationally and domestically alongside growth in its connected TV business. Shares of Roku have climbed 40% over the past year.
