Roku surprised analysts last month with a fourth-quarter profit.
Seanlockephotography/DreamstimeRoku’s deal for Nielsen’s advertising video business boosts the size of its potential market and makes it more valuable to programmers going directly after consumers, an analyst at KeyBanc Capital Markets said.
Earlier this week, streaming platform Roku (ticker: ROKU) said it was buying Nielsen’s Advanced Video Advertising unit, which includes technology that makes it easier for advertisers to target specific audiences.
Roku has more than 51 million accounts using its platform to stream everything from live television to on-demand content from subscription services such as Netflix (NFLX).
The Nielsen (NLSN) deal means Roku can make money off people who watch TV the traditional way—tuning into a scheduled program on its original channel, according to KeyBanc Capital Markets analyst Justin Patterson.
“This increases value to programmers who can now leverage Roku to grow both their direct-to-consumer (D2C) and linear TV revenue streams,” Patterson said in a note. “We believe this represents a material positive.”
He estimates average revenue per user will increase 50% this year, compared with 2020.
Roku also has a deal to acquire the content library of defunct Quibi, adding 75 shows and documentaries and other content.
Patterson raised his rating on Roku stock to Overweight from Sector Weight with a $518 price target.
Shares of Roku fell 4.7% Wednesday, but are up 245% over one year, compared with the 28% one-year gain in the S&P 500.
The company reported stronger-than-expected earnings last month and set positive expectations for the first quarter.
Roku also plows more money and brainpower into research and development, which should support its growth against rivals like Vizio, Patterson added. Roku made its debut in September 2017. Vizio filed its regulatory papers to go public earlier this week.
Vizio has 527 employees, Patterson noted, while Roku has 1,000 just in R & D. “We believe this meticulous focus toward continuous product improvement is why Roku has consistently fended off competition,” the analyst said.
“While we were concerned about competition in the past, we are increasingly comfortable Roku can build—and monetize—its active account base for years to come.”
Write to liz.moyer@barrons.com
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With Nielsen Deal, Roku Can Make Money Off Traditional TV Viewers - Barron's
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