An analyst at Needham explained some of the reasons she believes Roku ROKU +8.08 percent may profit from Netflix NFLX –2.62 percent’s planned advertising blitz on Tuesday.
When the Nasdaq CompositeCOMP +2.51 percent and the S&P 500 indexSPX +2.45 percent both rose by 3.2 percent in recent trade, Roku stock (NASDAQ: ROKU) rose by 7.3 percent to $88.40. During the last year, Roku stock has plunged 77%, as investors lowered their expectations for growth and profitability as the pandemic limitations passed and customers returned to their normal travel habits.
However, despite the decline, Needham analyst Laura Martin maintained her Buy rating and a $205 price objective for the company. Roku offers streaming media players, but the company’s development is driven by the platform it sits on. Additionally, it has its free app that provides access to ad-supported content like movies and TV series in exchange for advertising revenue.
Netflix (NFLX) has announced intentions to provide a lower membership price in exchange for advertising, and Martin feels that the firm may gain from this even if Netflix does not wish to buy the company. Insider reported earlier this month that Roku staff had speculated that Netflix would seek to purchase the company, causing the stock of Roku to rise.
There are 61 million Roku devices in use worldwide, and she argues that advertising income is dependent on the number of individuals who may be reached by a certain ad. To get its ad option on Roku, Martin thinks Netflix might make a deal with Roku to split advertising income in exchange for showing its ads.
Martin says that Netflix’s move will need a public relations effort aimed at educating customers. Advertising on the front page of a streaming device like Roku makes sense since every viewer is a streaming customer. However, Martin points out that Walt Disney DIS –1.11 percent (DIS) often sponsors Roku’s main page to boost awareness of its new series and movies, despite Netflix letting its content drive new subscriptions.
It is essential for NFLX to increase its Roku ad spending to reach the widest possible audience of streaming consumers with information about NFLX’s upcoming content and the benefits of doing so, argues Martin.
When it comes to ad income, she thinks Roku has an advantage.
Roku’s tiny presence in the TV ecosystem, surrounded by many bigger enterprises, implies that a buyout of Roku is a possible exit plan,” Martin concludes.