Roku’s Wild Ride: Is This Streaming Giant Poised for a Takeover?
Investing in Roku (NASDAQ: ROKU) has been a thrilling experience, with the stock soaring as high as 1,940% in less than four years after its IPO in 2017. However, the post-pandemic streaming hangover and economic downturn sent the stock plummeting, and it still sits 82% off its peak. But recently, Roku stock has been on fire, surging 28% in just a week as investors scramble to buy in.
A Dominant Streaming Platform
Roku is the leading streaming platform worldwide, with a 48% market share, according to connected TV (CTV) analytics platform Pixalate. The company serves nearly 86 million streaming households, with viewers racking up 32 billion streaming hours – that’s over four hours of screentime per household per day. In return for being included on Roku’s dominant platform, streaming channels turn over 30% of the advertising inventory to Roku, which generates the majority of its revenue.
A New Challenger Emerges
Late last month, The Trade Desk (NASDAQ: TTD), a longtime advertising partner of Roku’s, launched Ventura, a revolutionary streaming TV operating system. This platform puts The Trade Desk in direct competition with Roku in the streaming platform market, potentially threatening Roku’s advertising revenue. However, some analysts believe that both companies would benefit if The Trade Desk acquired Roku, given their long partnership.
Wall Street Weighs In
Guggenheim analyst Michael Morris hypothesized that The Trade Desk acquiring Roku would allow the companies to rapidly scale their ambitions, leveraging Roku’s 85 million+ global streaming household footprint and first-party viewer data. Needham analyst Laura Martin cited Walmart’s $2.3 billion acquisition of Vizio, highlighting the value of Roku’s audience and viewer data, and predicting that Roku would be acquired for a “big premium” in 2025.
Roku’s Undervalued Assets
It’s clear that Roku would make an attractive acquisition candidate, with its treasure trove of viewer data on 85 million viewers. Despite the rumors, Roku’s fundamentals remain strong, with revenue rising 16% and the company generating its fifth consecutive quarter of positive adjusted EBITDA and free cash flow.
A Roller-Coaster Ride for Shareholders
Roku shareholders have been on a wild ride in recent years, but the stock has been a big winner for long-term investors, up 261% over the past seven years. With an attractive price of just 3 times sales, Roku offers an intriguing opportunity for investors.
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