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Roku shares rise amid Morgan Stanley upgrade

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Roku shares are higher in the US Tuesday following news Morgan Stanley analysts have upgraded the stock. A better-than-expected performance and a brighter potential to monetize its business are among the reasons the investment bank analysts eased their bearish stance on the stock.

By 1515 BST, Roku shares were 0.78% higher at $38.84. The stock has been moving mildly higher in recent weeks.

Roku’s upgrade

Morgan Stanley Analyst Benjamin Swinburne, sees an improved picture and outlook for the streaming player manufacturer. That has led him to raise his outlook for the stock to equal-weight from underweight and his price target to $38 from $32 per share.

“Roku benefits from strong secular tailwinds as consumer behaviour shifts from viewing TV over traditional distribution (e.g. free-to-air broadcast, cable/satellite/telco) to 'over-the-top' (OTT) internet video consumption, indicating potential upside to account growth and the time spent per account” Swinburne wrote in a research note.

The analyst is also positive on the company’s potential user growth outlook and anticipates the tech business could see 20% year-on-year growth of its active user base in the next five years. That would mean some 45 million users by 2023.

“Roku's platform business has outperformed our expectations to date,” Swinburne said. He added: "Roku's earnings story is about advertising, which is still in its early stages, with low visibility into the monetizable hours streamed on the platform.”

Improving performance

Roku’s first-quarter earnings report, released earlier this month, showed a better-than-expected performance for the tech company. Revenues grow 36%, active account users rose 47% and streaming hours surged 56%.

Soon after that, Citron Research – previously not a fan of the stock – reversed its negative view of the company. Looking at the broader industry, Citron Research said Roku could even be worth as much 3 times its current value.

“The trend to OTT cannot be ignored and $NFLX is telling us valuation is out the window in this megatrend,” Citron said in a tweet last week.

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