- Bank of America raised its price target for Roku stock to $500 from $380 on Monday, implying an 18% surge from Friday’s close.
- The bank’s analysts expect the shift of advertising dollars to streaming platforms to continue driving record quarterly profits and revenue.
- International expansion and the addition of content from HBO Max and the defunct Quibi will also bolster results.
- Watch Roku trade live here.
2020 was a banner year for Roku as shares of the Los Gatos, California-based company rose some 142%.
The jump came amid a boost in viewership from the COVID-19 related stay-at-home audience, and despite a vaccine rollout, Bank of America doesn’t see the run ending anytime soon.
The firm reiterated its “buy” rating on Roku and raised its price tag from $380 to $500 per share on Monday.
BofA gave seven distinct reasons for its bullishness in the Monday note.
First and foremost, analysts argued the continued move away from traditional pay-TV will buoy revenues for streaming providers like Roku.
About one-third of U.S. households have already cut traditional pay-TV, according to data from Roku. And eMarketer expects fewer than half of US households will subscribe to traditional pay-TV by the end of 2024.
Second, analysts at BofA noted an increased advertising budget allocation towards programmatic buying would greatly benefit the company.
Unlike traditional TV advertising, programmatic buying involves companies putting ad impressions up for auction and then having advertisers bid for the impressions. The system allows advertisers to manage the reach and frequency of their ads more effectively.
Roku’s acquisition of DataXu last year (now called OneView) helps the company take advantage of the shift away from traditional TV advertising to programmatic Ads.
Programmatic Ad spending growth is expected to accelerate 54% year-over-year to $6.73 billion by 2021, according to BofA.
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Third, BofA analysts expect international expansion to increase revenues significantly. Roku holds 38% of the streaming market share in the US and 31% in Canada. However, the company’s new plans will increase its penetration in international markets, especially in the UK and Brazil.
That’s incredibly important after Netflix revealed the value of international subscribers in its most recent quarter, BofA analysts argue.
Fourth, analysts expect increased content from the addition of HBO Max and the acquisition of defunct streaming platform Quibi to help bring in new customers.
Fifth, given the size and reach of Roku’s platform, it has become an essential partner for streaming services, which are now competing for streaming rights of newly released movies after COVID-19 shut theatres down across the nation. BofA expects 2021 to be a year filled with new movies on Roku’s platform as pandemic lockdowns continue.
And finally, Roku is set to benefit from the latest version of its operating system, the Roku OS 9.4, and its increasing brand awareness.
Shares of Roku traded at $426.98 as of 1:07 PM EST Monday, giving the company a market cap in excess of $54.5 billion.