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Rating upgrade sends Roku stock soaring

Shares of TV streaming service Roku (ROKU) on Tuesday notched its biggest intraday gain in recent times after research firm Oppenheimer upgraded the stock to OUTPERFORM, setting the stage for a robust recovery from the recent slump.

The Los Gatos, California-based company has been broadening the customer base after launching its own TV channel last year, adding value to the network that continues to be a favorite among the company’s 21-million subscribers.

The Roku channel helped the company emerge as a full-fledged video streaming provider, on the lines of Netflix, offering a range of licensed films and free-to-stream TV shows sourced from television and cinema studios. The company’s user-base is more or less at par with industry leaders AT&T (T) and Comcast (CMCSA).

Oppenheimer analysts predicted that Roku shares would gain 15.5% over the next one-and-half years, primarily citing the strong growth in video advertising revenues. According to the analysts, Roku channel has the potential to reach viewers of other leading platforms in a big way, which together with the company’s competitive pricing and merchandising would help it generate additional revenue.

Roku has been broadening the customer base after launching its own TV channel last year

While revenues and margins suffered in the recent quarters due to the aggressive pricing, the strategy helped Roku effectively transition its business from hardware sales into TV streaming, taking advantage of the mass migration of audience to streaming services.

The Platform business is another focus area for Roku, which outsmarted the player segment for the first time in the first quarter in terms of revenue. Analysts are also upbeat about the company’s pioneering over-the-top services that allow advertisers to access user data directly – the first such service in the industry.

The stock price nearly doubled since the company went public in September last year, and is currently inching towards the 50-mark. Roku gained more than 6% in the early trading hours Tuesday soon after the upgrade.

The company is scheduled to release its second-quarter earnings results on August 8 after the market closes. While Roku recorded a narrower loss in the first quarter, Wall Street analysts estimate the loss to widen in the upcoming quarter.

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