1 Analyst Thinks It’s Time to Buy Roku and The Trade Desk Stocks

Streaming TV is booming — and these companies are benefiting. Is it time to pull the trigger following these two stocks’ 35% sell-offs?

| More on:
Dice engraved with the words buy and sell

Image source: Getty Images.

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Shares of Roku (NASDAQ: ROKU) and The Trade Desk (NASDAQ: TTD) are jumping in after-market hours on Thursday. As of 6:30 p.m yesterday. EDT, Roku was up 4.2% and The Trade Desk was up 2.3%. The gains come as RBC Capital analyst Mark Mahaney upgraded both stocks to outperform following a sell-off in their share prices in recent months.

The Trade Desk and Roku are both down about 35% from their 52-week highs achieved earlier this year. But both of their underlying businesses are booming, benefiting from a strong secular tailwind in streaming TV. Mahaney thinks it’s time for investors to scoop up shares of these fast-growing companies at these lower prices.

Roku: A $155 12-month price target

Along with his rating change for Roku shares on Thursday, Mahaney boosted his 12-month price target for the stock from $107 to $155, noting that the stock’s valuation is more attractive after its recent pullback. In addition to Roku stock’s more attractive valuation, the analyst cited the company’s strong positioning in streaming TV trends.

The company’s aggressive focus on expanding its platform through sales of low-cost hardware and licensing agreements with smart TV manufacturers has helped it gain significant market share in the U.S. Roku currently powers 39% of all streaming media players in the U.S., according to a survey from Parks Associates. This crushes the competition. Strategy Analytics estimates that Roku powers 36% more over-the-top devices and smart TVs in the U.S. than its closest competitor.

Roku monetizes its platform by offering both subscription-based and ad-supported streaming services for its users. The company, of course, takes a cut of these fees. Advertising, in particular, has been a boon for Roku. And it dominates in this subsegment of its business as well — Roku streamed 69% more ads than its closest competitor in the streaming platform space, according to Comscore.

Capturing the company’s momentum, Roku’s platform revenue surged 86% year over year in Q2, an acceleration from 79% growth in Q1.

The Trade Desk: A $250 price target

Though Mahaney similarly upgraded his rating for The Trade Desk shares to outperform, he didn’t increase his price target for the stock. But that doesn’t mean he isn’t anticipating significant share-price appreciation. His current price target of $250 implies 35% upside.

Similar to his thesis for Roku, Mahaney believes the The Trade Desk’s valuation has become compelling after the stock’s decline. In addition, he cites the company’s positioning amid a powerful tailwind from a shift from linear TV to streaming. Further, Mahaney is impressed by the company’s revenue growth rate and its robust earnings before interest, taxes, depreciation, and amortization (EBITDA) margin.

In Q2, The Trade Desk’s revenue rose 42% year over year. The company’s two fastest-growing ad channels were connected TV and audio, where ad spend increased 150% and 270% year over year, respectively.

For the full year, The Trade Desk expects revenue of at least $653 million, implying 37% growth. Management expects adjusted EBITDA in 2019 to be $201 million, or about 31% of revenue.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Roku and The Trade Desk. The Motley Fool has the following options: short January 2020 $125 calls on The Trade Desk and long January 2020 $60 calls on The Trade Desk. The Motley Fool has a disclosure policy.

More on Tech Stocks

Automated vehicles
Tech Stocks

Want to Be a Millionaire? This 1 Canadian Stock Could Soon See a Blistering Rally

If you can take the risk of buying falling shares of some companies with a solid growth outlook, they could…

Read more »

Money growing in soil , Business success concept.
Tech Stocks

Got $1,000? Buy These 3 Top Growth Stocks

These three Canadian growth stocks could deliver superior returns over the long run.

Read more »

Man making notes on graphs and charts
Tech Stocks

TFSA Investors: 2 U.S. Stocks I’m Never Selling

Are you looking for U.S. stocks to hold in your portfolio? Here are two stocks I’m never selling!

Read more »

grow money, wealth build
Tech Stocks

TFSA Cash: Turn Your $81.5K Into $330K by 2032

These Canadian stocks have the potential to deliver average annual returns over 15% and create significant amount of wealth for…

Read more »

Male IT Specialist Holds Laptop and Discusses Work with Female Server Technician. They're Standing in Data Center, Rack Server Cabinet with Cloud Server Icon and Visualization
Tech Stocks

1 TSX Tech Stock to Buy Today and Forget for the Next 5 Years

This high-growth tech stock could multiply your invested money in the next five years if you buy it in time.

Read more »

Businessperson's Hand Putting Coin In Piggybank
Tech Stocks

TFSA Investors: Got $6,000? Here’s How You Can Power Up Your Portfolio

Are you trying to find stocks to add to your TFSA? Here’s how you can power up your portfolio!

Read more »

Hand holding smart phone with online shop concept on screen
Tech Stocks

Shopify Stock or Lightspeed Stock: Should You Buy Either?

Shopify stock (TSX:SHOP)(NYSE:SHOP) and Lightspeed stock (TSX:LSPD)(NYSE:LSPD) are both up in the last month, but should you buy?

Read more »

Tech Stocks

Got $300? 2 Simple TSX Stocks to Buy Right Now

These two TSX stocks aren’t as popular as other names, but they are smart buys right now because both are…

Read more »