Roku: Latest Data Surprises Even the Staunchest Street Bull


Needham analyst Laura Martin has regularly banged the drum for Roku (ROKU); The 5-star analyst is currently the OTT leader’s most fervent Street bull. While other analysts have raised concerns regarding Roku’s valuation, the company’s increasingly strong quarterly results have vindicated Martin’s stance.

Investors have also felt Roku’s impressive growth justifies the lofty multiples; the share price has gained 124% through 2020.

Roku has also been a prime beneficiary of Covid-19’s impact. Whilst the move from linear TV to CTV (connected TV) was a trend already at play before the pandemic hit, it has only accelerated during the year of the coronavirus.

However, the latest data regarding Roku’s dominance in its field has surprised even Martin. According to Pixalate analytics, in 3Q20, Roku devices accounted for 49% of the total placement of CTV programmatic ads.

Martin estimates Pixalate is “tracking a total of about $2B of programmatic ad revs for 2020.”

Which means that if 49% of programmatic ads are placed on Roku devices, then “$1B of ad spending is on AVOD video apps on Roku’s platform (excluding any ads sold by Roku).” To Martin, “This seems too high.”

Other findings baffled Martin, too.

“There was zero increase in the number of CTV apps across all platforms globally that allow programmatic CTV ad sales between 1Q20 and 3Q20. This conclusion surprises us a lot,” said the analyst.

Yet, despite the lack of growth, Martin notes that “apps on Roku’s platform that could earn money programmatically rose by 11% between 1/1/20 and 9/30/20.”

Surprising figures aside, one conclusion that appears less shocking is Martin’s 2021 outlook for Roku. The analyst counts several reasons why ROKU is set to further benefit from “longterm upside CTV trends.”

These include: “a) political ad spending upside every 2 years from now on; b) accelerated cord-cutting and 33mm streaming-only US homes; c) more CTV devices per home; d) $7B more upfront advertising available to CTV in 2021; and e) superior demographics (ie, young) on CTV that force advertisers to adopt it faster.”

All in all, there’s no change to Martin’s rating which stays a Buy. The $315 price target remains, as well, and suggests a modest upside of 5%. (To watch Martin’s track record, click here)

Roku presents a familiar conundrum to Street analysts. Based on 12 Buys, 6 Holds and 1 Sell, the stock has a Moderate Buy consensus rating. However, given the strong share gains and the $249.89 average price target, a 16% drop could be in the cards. (See ROKU stock analysis on TipRanks)

Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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