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Streaming pioneer Roku, Inc. (NASDAQ: ROKU) manufactures numerous types of digital media players for video streaming. Additionally, the company has an advertising business and licensing arrangements with other companies for its hardware and software.
Streamers have benefitted from pandemic-induced restrictions that drove people indoors. This resulted in elevated viewership and new subscribers. eMarketer projects digital advertising in the U.S. to be growing by more than $5 billion annually. Notably, connected TVs (CTV) provides Roku with ad inventory, and the fastest-growing segment of digital advertising is ads served to CTV. Shares of Roku have skyrocketed almost 165% over the past year.
According to eMarketer, CTV advertising revenue in the U.S. came in at $9 billion in 2020 and is likely to escalate about 50% in 2021 and triple to $27 billion by 2023.
In 2019, Roku acquired Boston-based DataXu, a demand-side platform (DSP) enabling marketers to plan and buy video ad campaigns. The acquisition of DataXu’s platform complemented Roku’s industry-leading over-the-top (OTT) advertising platform. Additionally, it aided Roku in serving marketers with a single, data-driven software solution to plan, buy, and optimize their spending on ads across TV and OTT providers.
Needham analyst Laura Martin believes that the acquisition of DataXu could turn out to be a hidden value driver for Roku, which has been undervalued by investors.
According to the analyst, Roku being a Walled Garden has best-in-class data about its viewers, enhancing DataXu pricing power. A Walled Garden is referred to as an enclosed environment, which controls the end user’s access to certain websites and services. Martin states that the three largest Walled Gardens that sell advertising are Google (GOOGL), Facebook (FB), and Amazon (AMZN).
The analyst considers Roku to be a valuable investment to cash in on the growth of the U.S. OTT and CTV ecosystems. Per eMarketer, the company has a U.S. advertising addressable market (TAM) of approximately $60 billion of U.S. traditional linear TV advertising revenue recorded in 2020. Furthermore, mounting CTV advertising reach could be a tailwind for advertisers to shift profits to AVOD (Advertising-Based Video on Demand) streaming platforms from linear TV, she added.
The 5-star analyst believes “Roku should be valued as a digital aggregation platform, similar to Facebook, Google Search or YouTube.” (See Roku stock charts on TipRanks)
As a result, Martin reiterated a Buy rating and a price target of $550 (35.5% upside potential) on the stock.
On TipRanks, Roku has a Strong Buy analyst consensus rating based on 14 Buy, 2 Hold, and 1 Sell ratings. The average Roku price target is $466.71, indicating 15% upside potential from current levels.
Bloggers Weigh In
TipRanks data shows that financial blogger opinions are 96% Bullish on ROKU, compared to a sector average of 73%.
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 decisions.