3 reasons to buy Roku stocks now
There is no denying that the adoption of streaming video has accelerated during 2020, and as the main aggregator of streaming options, Roku (NASDAQ: ROKU) was one of the biggest beneficiaries. The company added more than 14 million active accounts during the year, bringing its total to 51.2 million. This, combined with revenues that rose 58%, supercharged the stock, which climbed 148% last year.
During the recent rotation out of technological actions, however, Roku took it on the chin, with stocks down more than 30% from their recent highs – with no company-specific news. At the same time, several positive developments provide insight into the evolution of the company’s strategy and growing evidence that Roku could maintain its growth trajectory in 2021. Let’s look at three reasons why now now is the time to buy Roku shares.
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Growing interest in content acquisition
Just last week, Roku announced it had acquired the rights – and the production studio behind – to the popular home improvement show. This old house. The show and its accompanying program, Ask this old house, have a total of over 1,500 episodes to their credit. Both programs will now air on the company’s ad-supported outlet, The Roku Channel, which will help increase the company’s advertising revenue.
The studio will continue to produce new episodes for PBS and will likely continue to appear on streaming outlets as well, including Amazonis IMDb, Comcast‘s Peacock, ViacomCBSPluto TV, and Foxby Tubi TV. Fees paid by other on-going outlets to authorize the program will give Roku another ongoing revenue stream to fill its coffers.
The move, combined with its recent acquisition of content from the now-closed short video service Quibi, gives Roku a growing content library. In addition, since he will not have to share the advertising revenue of the shows he owns, he will increase the advertising revenue generated on his platform.
Greater advertising capacity
Earlier this month, Roku announced it would acquire Nielsen Holdings‘Advanced video advertising business, which will allow the company to digitally replace advertisements from broadcast TV streams with targeted spots that will appear on programs on its streaming platform.
The companies also announced a multi-year strategic alliance that will integrate Nielsen’s rating measurement tools into Roku’s platform. With over 100 million smart TVs and other streaming devices, this will provide better insight into Roku’s audience while allowing for more precise ad targeting. This will give Roku more leverage with its advertisers, who are always looking for more bang for their buck.
A new advertising brand studio
Just this week, Roku announced the launch of an advertising brand studio that will focus on creating new and creative ad formats specifically designed for streaming services. The move will help marketers expand beyond traditional 30-second television commercials, by developing “short advertiser-commissioned television programs, interactive video ads and other branded content.”
This will give Roku the ability to develop streaming ad campaigns first. The company cited research that showed this type of brand experience, presented alongside traditional video advertising, resulted in a four-fold higher likelihood of consumers making a purchase.
The move will also bring top-tier advertising talent under the Roku umbrella. This will include industry veterans Chris Bruss and Brian Toombs from the comedy videos website. Funny or die and Rachel Daly Helfman of Break, who will join Roku’s Patrick Colletto as the head of the advertising brand’s new studio.
This will augment the already formidable capabilities of DataXu (pronounced “Data Zoo”), the Roku ad technology company acquired in late 2019. The platform provides automated and self-service auction software that helps marketers manage programmatic advertising campaigns on digital platforms.
No more gas in the tank
There is little doubt that streaming services, including Roku, have benefited from the accelerated adoption of streaming video that accompanied the pandemic. Add to this the phenomenon in progress cord cut and it’s clear that Roku has a long way to go.
These steps help expand Roku’s capabilities as the company continues to harness the power of its digital advertising ecosystem. There are plenty of reasons to believe that for long-term investors, Roku’s story is only just beginning, as each of these recent developments suggest.
With stocks selling at a 30% discount from recent highs, investors can get all of this growth potential at a relatively good price.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.