Roku rises in pre-market trading after Baird upgrades stock to 'outperform'

Investing.com -- Shares of Roku (NASDAQ:ROKU) rose in pre-market trading on Monday following an upgrade from analysts at Baird Equity Research, who revised their rating on the stock to “outperform” from “neutral”. 

The analysts also raised the price target for Roku to $90, citing favorable shifts in industry trends, strategic innovations by the company, and encouraging early performance indicators.

Baird flagged several key reasons for the upgraded outlook. One of the main drivers is the continued shift of advertising dollars from traditional linear TV to connected TV, where Roku holds a significant position. 

Additionally, the fragmentation of content across streaming services amplifies the importance of Roku's user interface. Other supportive factors include improved monetization of subscription streaming services and the value of Roku's unique advertising formats.

The analysts were optimistic about Roku's recent moves, which include innovations such as video ads on its Home Screen, the creation of landing pages like Sports Zones to enhance engagement, and integrations with third-party demand-side platforms that expand its advertising reach. 

These initiatives, coupled with disciplined cost management and investment in The Roku Channel, suggest a pathway to better financial performance and scalability.

Early signs of improvement were evident in Roku’s third-quarter performance. Highlights included a rise in brand advertising, growth in streaming hours driven by Sports Zones, and notable subscription activity via Roku Pay during the Olympics, showcasing the platform's ability to generate user engagement and revenue.

Baird also emphasized Roku’s potential for margin growth. With operating expenses being carefully managed, they foresee adjusted EBITDA more than doubling by 2026, presenting an attractive valuation for the stock. 

The analysts argued that investor expectations have recalibrated since Roku’s third-quarter results, positioning the company to meet or exceed future estimates.