The two stocks boast similar valuations but offer relatively different business models, according to Needham.
Laura Martin maintained a Buy rating on Roku's stock with a price target lifted from $120 to $150.
Value To Advertisers
Roku's and Netflix's stocks both trade at a similar valuation of around eight times EV on 2020 estimated revenue, which begs the question, Martin said in a Monday note: which company offers better exposure to streaming video and over-the-top growth? (See her track record here.)
Streaming video companies typically collect revenue through a monthly recurring subscription fee or by offering a free platform supported by advertising, the analyst said.
In Netflix's case, the company charges a monthly fee and needs to compete against existing rivals and those set to enter the landscape over the coming months, she said.
On the other hand, Roku is an "arms dealer" in the streaming video space, as its hardware facilitates multiple streaming platforms, Martin said.
Roku is therefore able to present a highly targeted proposition to advertisers, as each new Roku user is assigned a unique device ID and all content viewed can be extracted for superior targeting, the analyst said.
Netflix by default has "the most to lose" and could experience at least temporary churn as new rival services offer promotions, she said.
Roku Supports Netflix Competitors
Roku's streaming platform will support the growing list of Netflix rivals, including Walt Disney Co (NYSE: DIS), Martin said.
Streaming platforms pay Roku a royalty for each subscriber that Roku adds to their service, the analyst said. In addition, streaming platforms spend marketing dollars on Roku to raise awareness, which makes the case that it is may be "impossible (our word) to launch a new OTT service without access to Roku's 36% of connected TV homes," she said.
Roku Got Ahead And Could Stay Ahead
The list of streaming video providers continues to expand and presents a "complex" or "confusing" sentiment for consumers with more than one subscription, Martin said.
Roku offers the convenience of aggregating both big and small providers on one easy-to-use platform, the analyst said.
"Usually, online aggregators who get ahead, stay ahead."
Roku shares were trading 6.21% higher at $133.10 at the time of publication Monday, while Netflix shares were up 1.03% at $312.11.
Analysts Upgrade Roku, Stock Soars After Big Q2 Earnings Beat
Stephens Downgrades Roku On Valuation, Still Bullish On Long-Term Outlook
Photo courtesy of Roku.
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