Roku, which sells hardware and advertising, is poised to take a large chunk of the $70 billion U.S. television ad market while Netflix struggles with increased competition for subscriptions, analysts Laura Martin and Dan Medina said in a client note Monday.
"Roku is the dominant internet aggregator for streamed TV & movie content, like YouTube is for user generated content, at about 1/20th the valuation," the analysts wrote.
Needham, which has a buy rating on the stock, estimated that Roku reaches 80 million Americans. The firm raised its price target on Roku to $150 per share from $120. Shares rose 7.2% on Monday.
Roku provides a menu of streaming video services on a platform that allows for targeted advertising. It does not charge subscriptions or spend large amounts of money on content, like Netflix and Hulu, but it does negotiate revenue sharing agreements with the streaming services it offers.
Disney, Apple, AT&T's Warner Media and Comcast's NBCUniversal have all upcoming streaming video platforms that will require subscriptions. Disney will offer a bundle of its new service Disney+ with Hulu and ESPN+ for a price similar to a standard Netflix plan.
Netflix "has the most to lose unless you believe that US homes will add 3, 4 or 5 new [streaming video] services," the Needham analysts said.
The new competition could be a boon to Roku, however. Calling the company an "arms dealer," the analysts said, "It would be impossible (our word) to launch ... without access to Roku's 36% of connected TV homes."
The streaming video company beat expectations on the top and bottom lines in its most recent earnings report, with revenues of $250 million in a quarter.
Roku is up more than 300% year to date, while Netflix has risen roughly 15%.
Disclosure: Comcast owns NBCUniversal, the parent company of NBC and CNBC.