Roku (ROKU 2.78%) is the comeback kid in the second half of the year. Despite being an obvious leader in the booming digital video market -- it has 43 million homes streaming a daily average of 3.73 hours a day on its platform -- the stock actually declined 13% in the first half of 2020. As shelter-in-place beneficiaries soared from the initial pandemic bottom in mid-March it seemed as if Roku shares were sheltering in place instead.
Everything's clicking now. Roku shares have nearly doubled since the end of June, soaring 92% heading into this new trading week. The stock is hitting all-time highs on the heels of bullish analyst moves and Roku flexing its market-leading muscles in recent days. Wall Street's falling in love with Roku, again. If history is any kind of teacher we know that Wall Street will eventually break things off with Roku, again -- only to come running back to the fast-growing streaming video platform. Roku eventually wins. Roku always seems to get the last laugh and the next kiss.
Image source: Getty Images.
Thinking outside the TV box
Roku wasn't a hot debutante when it hit the market in the springtime of 2017. Underwriters priced the offering at $14, and it opened at $15.80. It eventually gained steam as the rest of 2017 played out, only to plummet 41% for all of 2018.
Too many investors dismissed Roku as a low-margin hardware company instead of the platform, which was booming in popularity. Roku was competing against cutthroat tech giants trying to get their sticks and boxes into as many homes as possible, but it was also signing deals with smart TV manufacturers looking for a service-agnostic operating system to fuel their streaming experiences. Roku stock would go on to more than quadruple in 2019 before slipping out of favor through the first several months of 2020.
Roku has already vanquished its biggest blindspot of the summer. There were storm clouds looming in the form of Peacock and HBO Max, two new streaming services that couldn't come to terms with Roku over the amount of ads and/or how much Roku would collect for anyone signing up for the new services through its hub. Roku finally played nice with Peacock last month. It's just a matter of time before HBO Max follows suit, but for now Roku users still have access to earlier HBO streaming platforms.
Last week was big for Roku investors, and not just because of the stock's 12% pop. At least three analysts -- Needham, BofA, and Deutsche Bank -- boosted their price targets. They were all below $200 before, and they're all perched north of that mark now. Price goals that were as low as $185 are now as high as $255. The analysts are all seemingly convinced that the recently concluded third quarter was another monster period for Roku, as the continuing migration away from linear television, the recovery of the connected TV advertising market, and the boom in premium video on demand purchases triggered by cineplex closures are tailwinds they want to get behind.
Roku is clearly back in favor, and maybe its next financial report -- come early next month -- will cement that status for good. If not, longtime Roku shareholders already know the drill. They know they own one of the market's best media stocks, and they will continue to profit from the experience even as the punch line sometimes goes over Wall Street's head. Roku always gets the last laugh.
