There has been lots of talk this year of the COVID-19 benefits reaped by streaming services. As a result of the stay-at-home culture, OTT leader Roku (ROKU) has been a prime beneficiary, experiencing large account growth.
But according to Rosenblatt analyst Mark Zgutowicz, Roku is particularly well placed to benefit from another trend: the move from linear to connected TV (CTV).
Following discussions within OTT/CTV programmatic venues, the 5-star analyst notes there is clear indication “the demand picture for Roku will soon climb to new heights.” Zgutowicz believes the big 5 Ad agencies are “making a concerted effort to negotiate volume commitments for OTT/CTV inventory.”
Importantly, Zgutowicz adds, the budgets for these advertising needs will come from “long-standing linear spend.”
In other words, the agencies are realizing the untapped potential of CTV, as consumers move from the “decades old model” of linear TV to more flexible CTV services. This is great for CTV services as a whole, but Zgutowicz highlights why it is particularly promising for Roku.
“Roku is a well-positioned beneficiary with its leading 40M+ CTV household reach, tightening gatekeeper status, and enhanced ad stack, while a reshuffle of linear to digital suggests more tangible Roku economics,” the analyst explained.
Furthermore, Zgutowicz believes Roku’s “gatekeeper status is underappreciated.” While there are now multiple “homogeneous OTT services,” it is worth remembering they are all available on Roku, with Roku usually the “preferred access point.”
Additionally, the pandemic has only cemented Roku’s leading status as its “ad monetization continues to well over-index the other primary gatekeeper, Amazon’s Fire TV.” While the two combined cater to an estimated 70% of US broadband households, Roku is nearly 18 months ahead of Amazon, where its video ad IP and sales strategy is concerned.
So, this is excellent news for Roku, but what does it mean for investors? Zgutowicz keeps to his Buy rating and $195 price target, indicating potential upside of 15% from current levels. (To watch Zgutowicz’ track record, click here)
Ratings wise, the majority of Wall Street agrees. Based on 13 Buys, 5 Holds and 2 Sells, the stock has a Moderate Buy consensus rating. However, in contrast to Zgutowicz’ forecast, the $167.21 average price target implies share will remain range bound for the foreseeable future. (See Roku stock analysis on TipRanks)
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