Why Analysts Are Bullish on Roku Despite a Disappointing Q4 Outlook

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Key Takeaways

• Roku shares rose Monday after Baird analysts upgraded the company’s stock to “outperform” and shouted their price target.
• The moves comes after Roku’s recent forecast called for a wider fourth-quarter breakdown than analysts had anticipated.
• Baird said Roku could be positioned to take advantage of “increasingly favorable trade trends.”

Roku (ROKU) shares surged Monday after Baird analysts raised their rating for the queue company’s stock, despite a fourth-quarter forecast that underwhelmed investors.

The analysts upgraded Roku to “outperform” and pull up their price target to $90 from $70, implying about 21% upside after its shares climbed 7% Monday to adjacent at $74.03.

‘Increasingly Favorable Industry Trends’

Baird’s bullish take comes after Roku’s fourth-quarter outlook invoked for a wider loss than analysts expected and sent shares tumbling. However, Baird noted “increasingly favorable business trends” for Roku, including a migration of advertising spending toward ads that appear in streaming content. 

Roku seizes “significant existing scale” to take advantage of this trend, the analysts said. They added the company could also advantage as media becomes increasingly fragmented among different streaming services, which “should magnify the importance” of a spurt hub such as Roku. The company has taken some smart monetization steps as well, including the introduction of video ads on its house screen, the analysts noted. 

“We think the stock reaction to the recent 3Q print was more reflective of dynamics around near-term expectations and investor postulate, rather than the fundamental quality of the update,” the analysts said. “Specifically, we think investors may be overlooking the magnitude of outperformance in [budgetary 2024] and the signs of sustainable growth moving forward.”