Over the next few years, more ad money is anticipated to flow over from linear TV to the CTV (connected TV) space. OTT leader Roku (ROKU) is set to benefit from this secular trend. The company’s latest move, says BofA analyst Ruplu Bhattacharya, is indictive of its ambitions to get as big a chunk as possible from this expected windfall.
Last week, Roku announced the acquisition of the “This Old House” business, including all global distribution rights and subsidiary brands. These include the “This Old House” and “Ask This Old House” TV programs, the US’s two top-rated home improvement shows. Roku will also get its hands on a 1500+ episode library, TV production studio, and the brand’s digital assets. The “This Old House” executive team and program makers will also join Roku and continue to produce new episodes.
“While financial terms were not disclosed,” Bhattacharya said, “The acquisition is of the type that can be supported by the Ad supported model of TRC (the Roku Channel) and has content that is broadly distributed across multiple platforms and services. These shows would be ideal for advertisers seeking to reach the home improvement consumer segment.”
Bhattacharya believes the streaming stalwart is increasingly creative with the Roku Channel. By adding more content, viewers will become more engaged with the channel which should “help Roku sell advertising at high CPM (cost per mille).” Roku can then reinvest to bring in more content, all amounting to a “virtuous flywheel effect.”
Moreover, Bhattacharya thinks the deal could also open up “sponsorship opportunities,” as episodes can get the advertisers’ backing. And while the show will initially be aired on TRC, there’s also the possibility that over time, Roku could license the shows to other channels on its platform.
“We see the shift to streaming as a secular trend and advertising budgets should continue to flow into OTT platforms,” the analyst summed up. “We see Roku as a key beneficiary with its leading market share in the U.S. and plans for international expansion.”
Accordingly, Bhattacharya reiterated a Buy on ROKU shares backed by a $500 price target. The implication for investors? Potential upside of 63%. (To watch Bhattacharya’s track record, click here)
Looking at the consensus breakdown, most are backing Roku’s continued success. The stock has a Moderate Buy consensus rating, based on 13 Buys, 6 Holds and 1 Sell. Shares are anticipated to gain ~56% over the coming months, given the average price target currently stands at $480.1. (See Roku stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
