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The Ratings Game: Roku is making progress with a key growth aim, analyst says in upgrade

Roku Inc. might not quite be ready for world domination, but its international progress is drawing cheers.

The streaming-media company recently announced that it would be making its devices available in Germany later this year, in what Guggenheim analyst Michael Morris sees as an upbeat signal of the company’s prospects given Germany’s status as the largest broadband market in Western Europe. Roku
ROKU,
+3.00%

already has a hardware presence in the U.K.

Morris upgraded Roku’s stock to buy from neutral Thursday, in part due to his rosier view of the company’s international-expansion aims. “We believe that incremental market launches become easier (though not necessarily easy) as key large markets are established,” he wrote in response to the Germany and U.K. moves. Morris expects that Roku can “accelerate the pace of international growth,” which in turn would help to expand its market opportunity.

International growth could be key for Roku, which fell short of expectations with its active-account growth during the most recent quarter. Roku benefited from growing interest in streaming during the pandemic, but the opportunity may be dwindling with many Americans already connected to streaming hardware.

Morris continues to be optimistic about the power of streaming and Roku’s ability to be a “primary beneficiary” of the shift in advertising dollars over to connected television. Roku seems to be working with advertising partners in creative ways to leverage its audience insights, Morris wrote. He views the “potential for additional targeted marketing partnerships and expanded advertising tools” to be “underappreciated.”

Morris set a $395 price target on Roku shares, which gained 3% in Thursday trading following the upgrade. His target implies roughly 18% upside from current levels.

Shares of Roku have declined about 21% over the past three months as the S&P 500
SPX,
+1.21%

has risen roughly 5%.

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