5-star Needham analyst Laura Martin has been banging the drum for Roku (ROKU) for a while and points out the “top 4 upside valuation drivers that most investors underestimate for Roku.”
These are: 1) Data Advantages; 2) Roku Channel Upside; 3) DataXu Execution; and 4) COVID-related Trend Accelerations.
Let’s take a deeper look, then, at Martin’s “hidden upside value drivers.”
As for 1, Roku is “the largest CTV Walled Garden with 1st party viewership data across about 3,000 streaming apps on its platform.”
Martin believes that eventually Roku will “package and sell its data to other companies and/or create multiple revenue streams from its person-based viewing information.”
What’s more, Roku stands to benefit from stricter privacy regulations “because 100% of its data is 1st party data,” which leads Martin to claim that “Roku’s 1st-party data advantage is its most valuable ‘hidden’ asset.”
Looking at 2, the slashing of ad budgets due to the economic downturn has resulted in many of the 3,000 AVOD apps on Roku’s platform losing money and facing the prospect of bankruptcy. The solution? The Roku Channel.
Martin believes TRC, “encourages AVOD apps to put 100% of their content onto TRC and allow Roku to sell 100% of the ads with a rev/share of 50% to the content owner.”
What about hidden value upside driver number 3? Here Roku’s acquisition of Boston-based demand-side platform DataXu enters the frame. DataXu has “added retargeting capabilities, direct response ad units, demand management software, better CTV tools, and the OneView product.”
Lastly, as has been widely reported, COVID-19 has accelerated a trend already in action prior to the viral outbreak – the move from linear to Connected TV. Roku has already benefited from Covid in the shape of a growing userbase. The numbers speak for themselves; By the end of June Roku had 43 million active accounts, 41% higher than the same period last year. Furthermore, ad budgets’ increased focus on the CTV segment meant that the last quarter represented the first time Roku’s ad clients grew by 40% year-over-year.
Accordingly, Martin rates ROKU shares a Buy along with a $190 price target. Investors could be looking at a 14% gain, should Martin’s target be met in the following months. (To watch Martin’s track record, click here)
Roku is receiving mixed signals from the rest of the analyst community. ROKU’s Moderate Buy consensus rating is based on 11 Buys, 6 Holds and 2 Sells. However, going by the $163.83 average price target, the analysts expect shares to remain range bound for the foreseeable future. (See Roku stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
