That’s the thought from many investors and analysts, as the streaming service platform is expected to increase its user base and generate more revenue as streaming services become more popular. While the details on the two new services are scant, it is expected that Roku will at least host Disney+, which will compete for a high share of the children’s programming segment. As Roku takes a share of advertising and subscription revenue from companies on its platform, it should be able to grow with the additions of new media services.
On the news, Laura Martin of Needham remains bullish on ROKU stock, maintaining her Buy rating and $85 price target, which implies nearly 50% upside from current levels (To watch Martin's track record, click here)
For Martin, Disney is an important piece to Roku’s growth. The analyst believes Disney+ could add nearly $200mm/year to Roku and represents about $1B of incremental value, or 15% of Roku’s current EV and market cap. Martin thinks Roku “shares in the value created by its platform through a standard rev-share model by taking a share of advertising and subscription revenue of every app available on its platform,” and the addition of Disney would contribute through this revenue-sharing model.
Martin says Disney projects “ Disney+ will have 20-30mm US subscribers (and 60-90m global subs) by 2024 at pricing of $7/month and $70/year.” Combined with Roku’s 27 million household, “if Roku holds “share” and signs up 20% of DIS’s projected 20-30mm US subs, it implies Roku would sign up 4mm-6mm DIS+ subs between 2020 and 2024, which implies added revenue to Roku in 2024 of $87mm (ie, 5mm subs signed up by Roku x 25% mid-point rev share x $70/year in 2024).”
But while external relationships may provide Roku a boost, some analysts believe Roku’s real growth will come from original content, the method Netflix, Amazon and Hulu are using to expand. The Roku Channel remains a popular channel in the Roku lineup, as it is estimated that 10% of Roku’s 27 million households are actively watching the channel.
Granted, not everyone is as enthusiastic about Roku as Martin. Out of 11 analysts polled in the last 3 months, 5 remain neutral on ROKU stock, 4 are bullish and 2 are bearish. Worthy of note, the 12-month average price target stands at $62.60, suggesting the stock has about 11% upside potential over the next 12 months. (See ROKU's price targets and analyst ratings on TipRanks)