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Roku stock: One analyst breaks down the best and worst case scenarios

Roku's (ROKU) stock is what you might call a mixed bag. It has climbed by nearly 65% year-to-date but is down about 52% over the last twelve months.

So, what should you make of it?

Needham analyst Laura Martin recently broke down both the bull case and bear case for the streaming platform, following the company's announcement of its own Roku-branded TVs and its latest earnings report this month. Roku unveiled its new TVs in January.

Martin, a highly-regarded Roku watcher, currently has a Buy rating on Roku with a price target at $80. (Roku opened on Friday morning at $64.21 a share.)

That said, Martin said it is important to consider Roku's "Bear" scenario before diving into, or selling off, the company's shares. Here's her case for both scenarios.

The bull case

Roku's case for relevance is, in part, about population – at the end of 2022, there were 70 million Roku accounts. However, that definition of active accounts doesn't actually get at the full scope of Roku's reach.

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"By implication, Roku’s population reach is 2x higher than its reported active accounts," Martin wrote in a Feb. 23 note to investors. Roku's reach, in other words, is bigger than it looks.

Additionally, Roku sits right in the center of the streaming wars and could be poised to be a winner no matter how the rest of the sector plays out, Martin added.

"Roku is a key beneficiary of streaming growth, regardless of which streaming service wins – it is an arms dealer," Martin wrote, noting that the company's advertising and monetization possibilities grow as the streaming marketplace expands.

Martin's also optimistic about the company's "expansion through smart home products such as cameras, video doorbells, plugs, and lights, which are coupled with recurring revenue subscription plans for cloud recordings, consumer notifications and alerts," she said.

Martin also counts Roku's much-discussed foray into building its own TVs as a possible win.

SAN JOSE, CALIFORNIA - NOVEMBER 18: Roku's company logo is seen in front of Roku headquarters on November 18, 2022 in San Jose, California. Roku announced plans to lay off 200 employees in the United States, or nearly 7 percent of its workforce. (Photo by Justin Sullivan/Getty Images)
SAN JOSE, CALIFORNIA - NOVEMBER 18: Roku's company logo is seen in front of Roku headquarters on November 18, 2022 in San Jose, California. Roku announced plans to lay off 200 employees in the United States, or nearly 7 percent of its workforce. (Photo by Justin Sullivan/Getty Images) (Justin Sullivan via Getty Images)

The bear case

However, it's not like Roku's riding high, headed straight to the top.

In part, the company faces steep competition from Alphabet (GOOG, GOOGL), Amazon (AMZN), Apple (AAPL), Samsung, Vizio, and LG. It's also faced "chronic" losses, which Martin expressed concern about, in addition to the company's "anemic international growth with 60 million US active accounts vs 10mm international active accounts" at the end of 2022.

For Q4 2022, the company's operating losses grew to $249.9 million, a staggering decline from the same quarter in 2021, where the company's operating income was about $21.4 million.

Martin also notes Roku's dual class share structure as part of the company's bear case, flagging that "voting is controlled by Roku's Founder/CEO and company insiders." This is a corporate governance concern that's often cited about tech companies – that their executives and founders are too insulated from the desires of other shareholders.

Allie Garfinkle is a Senior Tech Reporter at Yahoo Finance. Follow her on Twitter at @agarfinks and on LinkedIn.

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