Shares of streaming stick manufacturer Roku (ROKU) are up more than 3% this past week, thanks partly to the broader market’s relief rally. Though streaming market pressures could persist through the coming economic slowdown, famed investor Cathie Wood couldn’t be more bullish on the name.
Wood sees Roku shares doubling up many times over in the coming years. Can shares soar 600-700% in just a few years, or is Wood’s prediction a long shot?
Indeed, many exogenous factors would need to go right if Roku is to stage a recovery towards its prior all-time high of $470 per share. Even if rates were to retreat sharply and induce a return to speculative high-growth names, Roku needs to find its competitive edge in a streaming market that’s lost its luster.
Undoubtedly, Roku stock is capable of a lot of gain from these depths. That said, it’s hard to find anyone who’s more bullish on the name than Wood. The highest Roku price target is $240 per share, implying over 150% returns in the year ahead.
Though a multi-year horizon could see far greater returns from the battered streaming play, investors shouldn’t be inclined to set the bar so high for the risk of being caught offside in what could be another boom and bust.
There are few catalysts to propel Roku stock back above the $150 mark. Sure, the stock is oversold and is looking undervalued, but management will need to execute to regain the premium multiple it once commanded. Although I am not nearly as bullish as Cathie Wood, I am more inclined to be bullish than bearish at these depths.
Roku has savvy managers running the show, and it’s more than capable of adapting as the streaming market matures.
Ad-Based Streaming Could Favor Roku in the Streaming Wars
Roku seems to be an ad-supported streaming pioneer. With new content to come down the Roku Channel pipeline, we may see an evening of the playing field as Netflix (NFLX) embraces ads to reduce subscriber bleed going into a recession.
Just as Netflix has teamed up with its ad-supported business, Roku may decide to partner up to improve its odds of becoming more capable in the video-streaming market’s next frontier.
Indeed, there are way too many streaming subscriptions to keep track of these days. It seems like every media firm has its own service. In that regard, Netflix and Roku are no longer unique streaming pure-plays.
As the streaming scene gets much more crowded, we could see more consolidation in the space. Though Netflix-Roku rumors are going away, the fact remains that Roku would act as an excellent pick-up on this latest dip for a firm looking to enter the business of streaming.
Roku Looks like a Prime Acquisition Target
Arguably, a content-heavy firm makes more sense as a suitor than Netflix. In any case, Roku has a lot it can do with its growing base of users as it looks to shift its business model to content and software and away from hardware.
With a limited content-spending budget relative to its bigger brothers in streaming, it seems like Roku would be in much better hands alongside a content behemoth.
Sure, Roku has a healthy balance sheet and a relatively large content budget from a firm its size. However, such a budget is dwarfed by bigger streamers in the space.
Smart TVs — the 2022 line of Samsung TVs that can stream Xbox video games from the cloud — are getting smarter. And this trend poses a real threat to Roku’s hardware business. With little other than the Roku Channel to keep users from ditching their stream sticks, Roku’s future is clouded in a haze of uncertainty.
Wall Street’s Take on Roku
Turning to Wall Street, Roku has a Moderate Buy consensus rating based on 16 Buys, five Holds, and one Sell assigned in the past three months. The average Roku price target of $144.68 implies 62.9% upside potential.
Analyst price targets range from a low of $80.00 per share to a high of $240.00 per share.
The Bottom Line: Roku Stock Could See Strong Upside
Cathie Wood loves Roku stock after such a nasty spill. Though the firm faces challenges, the stock is already priced like it’s going out of style. At 4.1 times sales, there’s a lot of gains to be had if Roku can thrive in the era of ad-based streaming.
With a $13 billion market cap, Roku’s relatively small size appears to be a disadvantage as it looks to make a splash in content production.
