Here's Why Roku Stock Just Jumped 12%

(MENAFN- ValueWalk) The leading TV streaming platform got a major vote of confidence from a Wall Street analyst.

Roku (NASDAQ:ROKU), the leading TV streaming platform, was one of the top gainers on Friday, as its stock price rose some 12% to over $69 per share.

It was a welcome surge for Roku investors , as the stock price has fallen 24% year-to-date and is down about 12% over the past 12 months.

Shares fell below $50 per share after the company released second quarter earnings on August 1 . The results were solid, with robust revenue gains and narrower losses, but several Wall Street analysts lowered their price targets, citing potentially more challenging conditions in the second half and increased competition, causing slower growth.

But on Friday, one of the catalysts was an analyst upgrade that led to the stock price climbing some 12% on the day.

Roku stock got a boost when analyst Michael Morris at Guggenheim raised Roku's price target to $75 on Thursday, from $65 per share. He also gave Roku a buy rating, after previously tagging it with a neutral rating.

Morris made the change based on some growth catalysts that he believes are underappreciated. Roku, the leading streaming platform in the U.S., should see additional growth from advertising on its platform and more original content on its platform, which will drive more traffic and advertising.

Roku has about 83.6 million active accounts, which is up 2 million from the first quarter and 14% over the second quarter of 2023.

In the second quarter, Roku saw a significant increase in advertising revenue, outperforming the growth rate of the overall ad market. In the second quarter letter to shareholders, founder and CEO Anthony Wood and CFO Dan Jedda, CFO said the massive reach of the Roku home screen, which reaches 120 million people daily, is highly valued by advertisers.

New original content is also a key driver of advertising revenue, they said.

“While the foundation of our content spend remains with third-party licenses and revenue shares, we continue to leverage Roku Originals to attract viewers and advertisers,” Wood and Jedda wrote.“For the Roku Original“The Spiderwick Chronicles,” we drove viewers from various entry points across the Roku platform, including a takeover of the Roku Home Screen, Roku City, and a“Spiderwick” tile. The series achieved the highest reach and engagement of any on-demand title in The Roku Channel's history during its opening weekend and was sponsored by Airbnb.”

Roku stock may have also gotten a boost from Fed Chair Jerome Powell's comments at the Jackson Hole Economic Symposium on Friday, where he indicated more strongly than ever that rate cuts are coming.

Stocks were rising on the news, particularly small and mid cap stocks, which stand to benefit the most from lower interest rates because they reduce the cost of borrowing and investing. With a market cap of about $10 billion, Roku is in the midcap range.

Roku has a median price target of $65 per share, which would suggest the stock price would drop 6% from its current price. However, Guggenheim's price target of $75 per share would suggest an 8% increase above the current price.

Roku expects 11% revenue growth in the third quarter to $1 billion and adjusted EBITDA of $45 million, up from $43.6 million in Q2. It has continued to narrow its net loss to $34 million, from $107 million the same quarter a year ago.

I'm more bullish than bearish on Roku, siding with Guggenheim's outlook. But I'd wait to buy at least another quarter to see if it continues to move toward profitability. This is a stock to keep an eye on over the long term, particularly if it can continue to leverage its massive audience to generate additional advertising revenue.

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