In a time when so many content consumers are cutting the cable cord, streaming video platform Roku (NASDAQ:ROKU) stock is absolutely thriving delivering solid returns for long-term shareholders.
Moreover, the onset of the novel coronavirus didn’t seem to hurt the company’s bottom line.
If anything, the Covid-19 pandemic made at-home entertainment and video streaming content more appealing.
On the other hand, ROKU stock has fallen sharply from its peak price. Does this mean that it’s time for the shareholders to abandon ship?
Not necessarily. Some recently reported strategic partnerships in the advertising segment – and a prominent analyst’s price target hike – ought to convince the shareholders to stay the course.
A Closer Look at ROKU Stock
Even when ROKU stock was bottoming out near the $76 level in March of 2020, the long-term shareholders didn’t need to panic.
That’s because the share price was still much higher than it had been just a couple of years ago. Indeed, the stock had been trading near $30 in late 2018.
As it turns out, however, March of 2020 would have been a terrific time to purchase ROKU stock. For nearly a full year, the share price took a steady course upwards, reaching a 52-week high of $486.72 on Feb. 16.
After that, however, a corrective phase ensued. As of April 1, the shares were trading near the $332 level, indicating a significant discount compared to the prior peak price.
Perhaps rising bond yields and the market’s general rotation out of tech stocks were to blame for this. In any case, Roku’s ventures into the advertising business should hopefully catalyze the share price in the near future.
Better Targeting and Measurement
On March 1, 2021, Roku announced that it has agreed to acquire Nielsen’s (NYSE:NLSN) Advanced Video Advertising business. This includes Nielsen’s video automatic content recognition as well as Nielsen’s dynamic ad insertion technologies.
Moreover, the two companies have agreed to “integrate complementary Nielsen ad and content measurement products into the Roku platform” while further advancing Nielsen ONE, which is Nielsen’s cross-media measurement solution.
So, why is all of this important?
Louqman Parampath, VP of Product Management at Roku, explains that the partnership will facilitate “better targeting and measurement for advertisers, creating easy integration and additional revenue opportunities for programmers’ ad sales teams, and improving the TV experience for viewers.”
Subject to customary closing conditions, the Roku-Nielsen transaction is expected to close during 2021’s second quarter.
As I see it, this collaboration signals Roku’s commitment to providing more targeted and value-added advertising.
Further Into the Advertising Space
Just a few weeks later, on March 23, Roku disclosed that it’s planning to launch an advertising brand studio. According to the accompanying press release, the purpose is to “produce new creative ad formats and TV programming tailored for marketers.”
In developing the advertising brand studio, Roku evidently seeks to help marketers go beyond the traditional 30-second advertisement. The idea is to integrate more future-forward branded content. This could include interactive video ads as well as advertiser-commissioned short-form TV programs.
Could Roku become a power player not only in the video streaming market, but also in the next-generation advertising niche? It’s a possibility worth considering.
Another possibility would be for Roku to incorporate e-commerce tie-ins into its streamed content. For instance, Roku could allow customers to purchase items on-demand with stored credit card credentials while watching TV shows or sporting events through the Roku platform.
Truist Securities analyst Matthew Thornton apparently envisioned e-commerce connections as a possibility when he upgraded Roku shares from a “hold” rating to a “buy” rating.
“We think ecommerce is a next-leg opportunity (TV advertising is the current-leg) and do not believe it is on most investors’ radars yet,” Thornton explained.
The Bottom Line
The pullback in ROKU stock doesn’t negate the powerful overall uptrend in the share price. If anything, it’s just an opportunity to accumulate the shares.
But don’t just buy the stock because the price has fallen. You first need to make sure that the company will continue to have consistent revenue streams.
Roku was already a profitable company prior to its recently established advertising market deals. Now, it’s poised to potentially establish itself as a major player in the advertising and e-commerce niches.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.