Roku (ROKU) shares have gained 260% over the last year and outperformed Netflix. That came on the back of a broad-based rally in US tech companies last year that led to 45% gains in the Nasdaq Index.
With those huge gains in mind, what are the analyst forecasts for Roku shares in 2021 and is it still a good buy?
The stay at home stocks that include the likes of Roku, Netflix, Amazon, and Zoom Video Communications performed particularly strongly in 2020. That stands in contrast to some of the larger Chinese tech stocks. Alibaba shares, for example, underperformed badly in 2020, which was largely due to the company’s troubles with Chinese regulators that also led to the shelving of Ant Financial IPO.
However, while Alibaba shares sagged in 2020, some of the other Chinese tech companies managed to dodge the pessimism stemming from the government opening an antitrust probe into the tech giants. Baidu and JD.com are respectively up 142% and 146% over the last year.
Roku fourth quarter earnings
Roku has scheduled its fourth quarter 2020 earnings for tomorrow. Analysts polled by TIKR expect the streaming company to report revenues of $616 million in the quarter—up almost 50% from the corresponding quarter last year.
Looking at the long-term picture, analysts expect Roku’s revenue growth to come down to 39% in 2021 from the expected growth of 54% in 2020. The company’s revenues had increased by 52% and 45%, respectively, in 2019 and 2018.
Meanwhile, analysts expect Roku to post an adjusted net loss of $87 million in 2020 – up from $60 million in 2019. However, the company’s net loss may narrow to $51 million in 2021.
Roku share price forecast
According to the estimates compiled by MarketBeat, Roku shares have an average one year price target of $301.35 which is a 36% discount over current prices. The lowest price target for Roku is $105, while $500 is its highest price target.
Of the 24 analysts covering Roku shares, 16 have a buy or higher rating while only one has rated it as a sell. The remaining seven analysts have a hold or equivalent rating on Roku shares.
Analysts are turning bullish
Analysts were mostly bullish on Roku shares over the past month. In January, Bank of America raised its target price from $380 to a street high of $500. Meanwhile, JP Morgan initiated coverage on the shares with an overweight rating and $475 price target.
Moffett Nathanson, Smith Barney, Citi, and Wells Fargo lifted Roku’s target price to $365, $460, $460, and $414 respectively last month. Macquarie raised its rating from positive to outperform and increased the target price from $275 to $460, Deutsche Bank also raised its target price from $260 to $400.
However, as has been the case with most other tech companies, these target price increase come after sharp rallies – Roku shares continue to trade above its consensus price target.
What’s the valuation of Roku shares?
Since Roku is not making net profits, we would need to value the shares on alternative metrics. The shares trade on an NTM (next-12 months) enterprise value to sales multiple of 25.2x. The multiples are the highest for the company since it became a publicly-traded company.
In comparison, Netflix shares trade at an NTM EV-sales multiple of 8.5x. Incidentally, in 2018, Netflix shares were trading at a premium to Roku shares. However, by 2019, Roku shares were trading at a premium to Netflix. The current premium that Roku shares are enjoying over Netflix is the highest that we’ve seen.
Streaming companies are trading at a premium
It is worth noting that investors have been willing to pay a valuation premium for streaming companies. For instance, Disney shares are trading at their highest valuation multiple ever as the company is transitioning its business towards streaming. The shares have been rerated by the markets. Meanwhile, as production studios like Disney and HBO are focusing on streaming, it will mean more competition for companies like Netflix and Roku. Disney’s subscribers are growing at a fast pace and the company has outlined an aggressive growth plan for its Disney+ streaming service over the next four years.
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