Why Wall Street Has So Different Price Targets – The Hollywood Reporter

Despite soaring operating losses (nearly $250 million) and falling advertising, Roku’s stock skyrocketed a day after it reported fourth-quarter earnings on Feb. 15. Part of this is as active users grew to 70 million and the lead company Anthony Wood beat revenue expectations for the quarter. Roku also promised to tighten costs in the future, with plans to achieve positively adjusted earnings before interest, taxes, depreciation and amortization by 2024.

In the long-term, however, Wall Street’s view of the stock remains mixed, depending on how confident Roku is that Roku can maintain its position as a key gatekeeper amid the boom. online with your media player. (Roku shares were at $71.59 as of market close on Feb. 17.)

A team of analysts at investment bank Evercore (which has an $80 price target for the company) note that Roku has a large overexposure to the distributed ad market (ad placements are held up). back in the pre-sales process) has been increasingly pressurized over the past few years and months. Roku, the analysts note, hasn’t been able to benefit from sports or political ad spend, which has helped other ad-based businesses weather the downturn. They see a business model that is not broken in essence, but one that is facing some sizable headwinds. And one that could improve after those headwinds pass.

Roku gave weaker-than-expected guidance for the next quarter, but many analysts believe the company is cautious, with Wells Fargo analyst Steven Cahall writing, somewhat optimistically, that “Ads Markets in Q1 looks like neither worse nor better.” (Cahall has a $67 price target on the Roku.) Guggenheim’s research team led by Michael Morris considers Roku’s account base “valuable” but notes that “we’re having trouble pricing” business due to inconsistent results compared to the economic tone macro guidance and warnings cited by management.

Positives for Roku going forward include the company’s plan to reduce growth costs (a plan that only stock optimists believe in), the fact that the Roku Channel is running at a premium. Engagement is growing, with streaming hours up over 85% year over year, and a shoppable advertising partnership with Walmart. Also a plus is that the company hired three new executives this past fall, including former Fox Entertainment CEO Charlie Collier, who now heads the content business and commercials for Roku, including Roku Originals, and is known for doing less and more. A group of analysts at investment bank Oppenheimer wrote: “We believe Roku can leverage its advantages in pricing and sales to maintain its market leadership in communications solutions. consumer-oriented connection model”.

Similarly, Macquarie’s Tim Nollen, who has a $70.1 price target for Roku, wrote: “We are optimistic that the downturn seen throughout 2022 will end in Q1’23 and the person base Using Roku’s large and growing installs as well as improvements to its advertising technology and partnerships could lead to a rebound this year.”

But having an upbeat view on the stock, analysts at MoffettNathanson (who has a $38 price target) see Roku negatively impacted by the greater pressure the companies are facing. These experts argue that the stock has been artificially supported by the streaming wars, which has led all the major media companies to spend on content and marketing in pursuit of numbers. subscribers. This ultimately benefited Roku’s platform and ad business. But now, the situation has changed as companies like Disney, Warner Bros. Discovery and AMC Networks look to cut spending.

“We are not luddites, yes, we see a future in streaming. Well, we see the constant (frightening) pressures that the linear model faces. The reality, however, is that Roku’s biggest customers are currently grappling with the economics of these pressures and are beginning to pause the rapid escalation in online spending,” the analysts said. written by MoffettNathanson.

Roku’s latest revenue boost helps ease those pressures, as the company announced plans to produce its own branded TVs in January. Still, MoffettNathanson analysts consider the plan to be production, instead of continuing to cooperate with outside companies, will affect profit margins. Jeffrey Wlodarczak of Pivotal Research Group (who has a $55 price target) also expressed “serious reservations” about the company’s move to home devices, adding: “The bottom line is the outlook for Roku in the future is still difficult.”

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