Roku (ROKU) is expanding its reach. The streaming technology company announced it will allow users to subscribe to channels like Showtime, Starz and EPIX. So now, viewers will not only be able to watch movies and shows on TV, but also these premium subscription-based channels as well. Roku currently powers 25% of the smart TVs in the U.S. and management from the company has expressed ad growth is consistent, despite the volatility in the overall Platform segment results. After speaking with Steve Louden (the CFO of Roku) at the CES conference, RBC Capital’s top analyst Mark Mahaney calls Roku “one of the best plays on ad-supported OTT.”
Louden handed over the numbers, saying the Platform revenue grew 74% in the third quarter of 2018, which is down from 96% year-over-year growth in the second quarter of 2018. Management expects a similar rate of growth for Q418. Ad revenue accounts for about 67% of Platform revenue. In this department, Video Ads grew 100% YOY for the second consecutive quarter.
“While it seems that content distribution revenue would be fairly predictable and consistent (and not lumpy), driven primarily by SVOD revenue, Steve noted that accounting 606 rule requirements around recording this revenue continues to drive lumpiness. As such, ROKU expects similar trends seen in Q3 to continue into Q4, and hence their guide for Platform revenue growth to be about in-line with Q3 levels,” the analyst said.
“Outside of Samsung, LG, and Vizio, there is a long tail (likely 25 – 30% of the market) that Roku could penetrate & benefit from as those TV brands shift towards licensed OS,” Mahaney explains.
There are three areas of focus for Roku and those include TV OEM partnerships, Video Ad business and an opportunity in the international market. Roku continues to create partnerships, and just days ago on January 7th, announced a new one with Westinghouse Electronics. Roku believes its best opportunity is in benefiting from the shift away from linear TV Ad dollars to OTT. and while Roku is focused on being the digital TV leader in the U.S., it also has a global customer base.
For the fourth quarter of 2018, ROKU announced about 27 million active accounts (up 40% YOY). Total streaming hours beat Street expectations with 7.3 billion hours and Street estimates of 6.6 billion (up 68%YOY). After the release of the numbers, the stock got bumped 25%.
Analysts who are following ROKU are mostly bullish, according to TipRanks. The TV stock has 7 bulls and 3 who are outright on the sidelines. The consensus price target of $54.63 shows a potential upside of just around 34%. (See ROKU’s price targets and analyst ratings on TipRanks)