Proactive Investors - Roku Inc (NASDAQ:ROKU) is on the path to profitability as it continues to expand its advertising, capabilities, products, and partnerships, analysts at Wedbush believe.
In a note to clients following a meeting with Roku’s vice president of Investor Relations, the analysts wrote they are “incrementally more optimistic about Roku’s rebound and trajectory.”
“Roku’s renewed focus balances new initiatives that result in a near-term return on investment with expanding free cash flow and tracking toward positive net income,” they wrote.
They wrote that their discussion focused on Roku’s repositioning in the advertising market as it launches a slew of new ad products, premium advertising spots, and partnerships, such as its collaboration with The Trade Desk (NASDAQ:TTD).
“While Roku still faces tough comparisons this year from streamer price increases and less churn last year, that eases as the year progresses and becomes significantly easier in Q4 2024,” they wrote.
“With operating expenses falling year-over-year in 2024 (down 16% year-over-year in Q1 and negative low single-digit percentage guide for Q2), growth from these advertising initiatives should flow through to the bottom line.”
The analysts see average revenue per user (ARPU) remaining relatively flat in the coming quarters as Roku benefits from improving scatter trends, political advertising, and sports-adjacent ads, offset by international expansion into regions with lower cost per thousand impressions (CPM).
“As we look forward, we expect Roku to see less volatility overall within the scatter market as it moves from solely taking traditional ad dollars (traditional TV scatter is historically the first to get cut when budgets are tight) to a more diverse base of digital advertisers,” they wrote.
“Also, Roku’s media and entertainment (M&E) partners will be able to advertise more broadly across its platform. We think Roku’s sports landing page will drive incremental M&E ad revenue as well as drive higher revenue share as Roku steers users to sign up through its platform.”
The analysts repeated their ‘Outperform’ rating on Roku and awarded it a $75 price target.
Roku shares traded hands at about $59 on Thursday afternoon.