Keybanc analyst Justin Patterson upgraded Roku (NASDAQ:ROKU) from Sector Weight to Overweight with a $115 price target on Wednesday.
Roku is turning the corner on monetization and also demonstrating more expense discipline, according to Patterson.
Thus, the analyst raised his 2025E and 2026E EBITDA by 4% and 6% to $362 million and $530 million (both 5% above the Street consensus), and established 2027E revenue of $6.0 billion (7% above Street) and EBITDA of $743 million (12% above Street).
Also Read: Roku’s Amazon Deal Revenue To Be A ‘Gradual Ramp,’ Not a Sudden Boost, Analyst Says
From June 30, 2022, to June 30, 2025, Roku shares increased by 7%, lagging the NASDAQ’s +85% gain and many mid-to-large cap stocks in Patterson’s coverage universe. The analyst attributed this to Roku being slower to scale back investment post-COVID-19, headwinds toward endemic advertisers, and an over-reliance on its OneView platform.
However, Roku continues to have a highly engaged audience, he highlighted. Users streamed 35.8 billion hours in the first quarter (+17% year-over-year growth), with hours on The Roku Channel increasing at a materially faster rate (+84% Y/Y). Patterson’s ad checks indicate a shift in budget from legacy channels to CTV. As ad innovation ramps up and sports increasingly shift to CTV, the analyst expects the pace of budget shifts to increase.
Patterson noted that Roku became a “self-help” story. He referred back to the past three years of consumer Internet, noting that self-help stories were some of the strongest performers (e.g., DoorDash (NASDAQ: DASH), Meta Platforms (NASDAQ:META), Netflix (NASDAQ:NFLX), Spotify Tech (NYSE:SPOT), Uber Tech (NYSE:UBER)).
According to the analyst, Roku has made three key shifts. It established partnerships. Roku is leveraging The Trade Desk (NASDAQ:TTD) and now Amazon.com (NASDAQ:AMZN) as third-party monetization partners, which he noted can improve fill rates over time. Patterson said the opportunity for more partners to be onboarded over the coming years (e.g., Alphabet (NASDAQ: GOOGL), Google, Yahoo), which should sustain mid-teens revenue growth.
According to the analyst, Roku has been opening up home screen monetization and focusing more on specific ad verticals. This reduces the reliance on media and entertainment while also exposing Roku to the political cycle.
Roku imposed expense discipline by making GAAP profitability and FCF generation a core focus. As part of this, Patterson noted more discipline on headcount and incremental investments. He noted GAAP profitability in 2026E and more meaningful profitability in 2027E.
Patterson projected second-quarter revenue of $1.08 billion and EPS of $(0.14).
Price Action: ROKU stock is trading higher by 0.81% to $89.37 at last check on Thursday.
Read Next:
Photo: Shutterstock
