Why Roku Stock Soared Today

What happened

Shares of Roku (NASDAQ: ROKU) soared today, finishing the session with a 12% gain, after getting a bullish vote of confidence from Wall Street. Needham analyst Laura Martin reiterated her buy rating and $45 price target, going so far as to call Roku Needham's "Top Pick for 2019."

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So what

The analyst is encouraged by strong engagement levels, estimating that Roku users tend to view content on the platform for 3 hours per day. Martin estimates that 10% of viewers age 18 to 34 in the U.S. are on Roku, and 10 million Roku users have no traditional linear TV subscription. That means Roku is the most effective way for advertisers to reach that important demographic of users. While Netflix is incredibly popular and easily the top dog in video streaming, the company uses a subscription model and does not sell advertising. Martin has previously made a somewhat specious comparison of Roku to Netflix.

Other operating metrics show signs of strong momentum, in the analyst's view, such as active accounts jumping 43% year over year to nearly 24 million in the third quarter.

Now what

Needham believes that Roku is becoming a crucial platform that will play a meaningful role in the over-the-top (OTT) future of TV. There's even a possibility that a larger company would be interested in acquiring Roku. Legacy media companies have been aggressively expanding via acquisitions in recent years, and Roku could be seen as an important distribution channel for advertising models.

Roku shares have taken a beating amid recent market volatility, losing nearly two-thirds of their value since peaking in early October. The streaming TV platform said in November that it expects to post a net loss in the fourth quarter, which sent shares tumbling. Earlier this month, Martin significantly reduced her price target from $85 to the current price target of $45, to factor in several risks including the ongoing trade war with China that could hurt demand for Roku TVs manufactured in the Middle Kingdom.

Risks aside, Martin is still one of Roku's most prominent bulls on Wall Street.

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Evan Niu, CFA owns shares of NFLX. The Motley Fool owns shares of and recommends NFLX. The Motley Fool has a disclosure policy.