The worst is over for Roku (NASDAQ: ROKU) shareholders this year, according to one Wall Street firm.
Morgan Stanley raised its rating to equal-weight from underweight for Roku shares, citing the company's strong performance in growing its streaming platform.
"Roku benefits from strong secular tailwinds as consumer behavior 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," analyst Benjamin Swinburne said in a note to clients Tuesday.
Roku sells streaming video players and licenses its operating system to television manufacturers, which enables consumers to watch video content over the internet.
Swinburne increased his price target to $38.00 from $32.00 for Roku shares, representing 1.4% downside to Friday's close.
Swinburne also noted the company reported active account growth above his expectations over its last three quarters. He believes Roku can grow its active account user base by 20% annually over the next five years to 45 million users.
"Roku's platform business has outperformed our expectations to date," he said. "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."
The company's stock is down 25.6% this year through Friday versus the S&P 500's 1.8% return. The shares took on 43 cents, or 1.1%, to $38.97 early Tuesday morning.
