Addressing recent concerns regarding Roku’s relationship with smart tv partner TCL, Martin deftly swats them away. Fears that Roku is getting more out of the relationship than its partner have raised the prospect TCL might decide the deal is tilted in Roku’s favor and seek to renegotiate terms or partner a rival streaming platform.
However, Martin argues reports that Roku's first UK TV launch partner Hisence has been “getting more shelf space,” at its two largest retailers, Walmart and Costco are a sign the OTT leader remains firmly in control.
“To us,” Martin said, “This implies that Roku is refusing to rev-share with TCL and is redeploying engineers toward Hisence to shift share away from TCL. We believe that no competitor can generate meaningful US ad revenue until it achieves an installed base of over 20mm US homes (Roku has 40mm), so Roku should NOT share its US ad revenue with any TV maker.”
As for ad spend, Martin notes that most in the industry agree April was the bottom, with ad spend stabilizing in May. Other trends highlighted at the conference are in Roku’s favor, too.
While leading brands are reducing ad spend on linear TV, there is a conscious decision to “shift toward targeted ads.”
“Since all of Roku's connected TV ads are targeted,” Martin notes, “This benefits Roku's total addressable market and near-term growth potential.”
Furthermore, CPM (cost per mille) trends indicated that during COVID-19, Connected TV ads had “been the strongest of all ad categories.” This bodes well for Roku, as the bulk of its ad revenue is derived from US Connected TVs.
Martin, therefore, reiterated a Buy on Roku along with a $150 price target. Investors can expect upside of 37%, should the target be met over the next year. (To watch Martin’s track record, click here)
Among the analyst fraternity, opinions are divided on Roku’s prospects. The bulls have the edge as a Moderate Buy consensus rating is based on 7 Buy ratings, 5 Holds and 2 Sells. The average price target is $126.54 and implies possible upside of 16%. (See ROKU stock analysis on TipRanks)
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