What Roku’s Stock Price Surge Means for the Streaming Platform

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Thursday’s spike comes a few days after Roku reported its customers spent 49% more time watching content during Q1 than same period last year

Roku
Roku

Add Roku to the list of companies benefiting from mass quarantining, with the streaming device maker’s stock price rocketing 15% on Thursday morning to $130 per share. Will Roku’s big run continue? Thursday’s stock spike follows an already strong run from Roku, which has seen its share price increase more than 45% since the beginning of the month. It has been a wild ride for Roku of late, just as it has been for most other publicly traded companies. The Los Gatos, California-based company was trading near $130 per share in February but was initially hit hard when the pandemic came to the U.S, with the company’s share price dipping to about $63 by mid-March. Needham analyst Laura Martin, in a note to clients this week, acknowledged the company’s customer and viewing growth. But Martin also warned the company, which now makes more revenue off its advertisements than its device sales, could be hindered by a downturn in the ad market. Roku made $260 million in ad revenue during Q4, which was up 71% year-over-year and easily topped the $152 million its devices sales brought in. “We lower our forecasts because our channel checks imply U.S. ad weakness for the next 1-2 quarters,” Martin said. “Comparing Roku Channel’s ad loads over the past 5 weeks has shown falling ad loads and a narrower group of advertisers. This observation is consistent with other ad-driven businesses.” Despite the potential ad revenue issue, Martin still projects Roku to hit up to $176.55 per share within the next year. Oppenheimer Managing Director Jason Helfstein acknowledged ad concerns in his note to clients this week, as well. Helfstein said that since Roku sells most of its ad inventory at least a month in advance, it should be better-suited to handle an industry downturn in advertising, at least in the short term. He added that “we would expect some advertisers to negotiate cancellations,” though, due to the global economic downturn. This should be offset, at least a bit, by advertisers continuing to gravitate towards over-the-top platforms instead of traditional TV advertising, Helfstein added. “We believe Roku can leverage its advantages in pricing and merchandising to remain the market leader in consumer-facing connected television solutions,” Helfstein said. “Roku should benefit from the secular trend of advertising dollars leaving linear TV in favor of OTT platforms. Roku is leveraging its [first party] content channel, The Roku Channel, to drive favorable economics, as well as a large pool of OTT advertising spend occurring outside of the Roku platform.” Thursday’s stock surge comes only a few days after Roku reported its customers spent 49% more time watching content during Q1 than they did during the same time last year. That viewing spike is due, at least in part, to millions of people suddenly finding themselves living under stay-at-home orders due to the coronavirus. Overall, Roku said its viewers watched 13.2 billion hours of content during Q1 — up about 1.5 million from the previous quarter. Roku also said it had added 3 million active accounts, putting it near 40 million active accounts in total. On average, Roku’s active members watched 3.75 hours of content per day during Q1, which is about 15 minutes more per day on average than the previous quarter. Roku is expected to share its Q1 earnings on May 13.

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