Will 100 New Channels Light Up Roku Stock?

Roku (NASDAQ: ROKU) has added 100 new channels to a new Live TV section. The service is designed to bring in more customers and advertisers.

Shares of San Jose, California-based Roku have rebounded since the pandemic economic slump, and are up 44% in the last three months.

However, the producer of digital media players and its own streaming platform hasn’t kept pace with the overall stock market. Year to date, shares of Roku are down 15%, while the S&P 500 is down 1.3%.

Roku Channel Expansion

In the competitive streaming entertainment field, Roku is both fish and fowl. Unlike some competitors, it provides both a digital media device and the content that streams on it. Roku also comes built in with many of today’s smart TV models.

In the media player space, Roku competes with Apple TV (NASDAQ: AAPL), Amazon Fire TV (NASDAQ: AMZN), Google Chromecast (NASDAQ: GOOG) and others.

But Roku also offers its own streaming service, which includes a library of movies and TV shows. So in that space, Roku is competing for market share in the crowded field that includes Netflix (NASDAQ: NFLX), Amazon Prime, Disney+ (NYSE: DIS) and so many others.

Roku’s latest move is adding 100 channels to its own Roku Channel. The free lineup includes news, entertainment and lifestyle channels, such as ABC News, Kidz Bop, Outside TV and Reuters.

While the expanded Roku Channel might appeal to cable cutters, the offering doesn’t exactly replicate a typical cable television package. Instead, it’s more similar to ad-supported services such as Pluto TV.

Roku is aggressively courting advertisers. The Roku Channel is the fastest-growing ad-supported channel on its platform, according to Alison Levin, vice president of ad sales. “Usage is spiking, and that is exclusively sold by us,” she said in an interview with AdExchanger.

Levin said Roku is responding to the pandemic by offering new options to advertisers. The company has also decreased the cost of 15-second ads, to entice advertisers who are being very careful with their budgets.

In the free TV space, Roku is competing with Pluto TV and NBCUniversal’s new streaming service, Peacock. Launching July 15, Peacock will offer popular NBC shows and a library of free movies.

Another competitor is Tubi, which Fox purchased earlier this year. It also offers thousands of free TV shows and movies, all ad-supported. Fox previously owned a stake in Roku.

New Targeted Advertising

Roku also launched a new shopper data program this week. Partnering with Kroger Precision Marketing (KPM), Roku’s program aims to make TV advertising more precise and measurable for consumer packaged goods (CPG) marketers.

Once integration is complete, marketers will have access to Kroger data science for targeting and closed-loop attribution to measure campaign performance across the Roku platform. At the same time, the marketers will have tools available from Roku to measure the effectiveness of linear TV built on the largest licensed TV operating system in North America.

The appeal here is that CPG marketers are looking to make TV advertising more relevant and performance driven. By using targeted advertising CPG marketers can increase effectiveness and minimize ad waste while achieving the scale required.

In a recent note, Zachs Equity Research approved of Roku’s ad strategies. “We believe that Roku’s growing efforts to attract advertisers to its platform will drive top-line growth in the near term,” the analysts said.

What the Analysts Say

Fourteen analysts give Roku a Buy rating, five say Hold and two recommend Sell. The average price target sits at $131.95; the stock closed at $113.80 on Wednesday. That puts it in the middle of its 52-week range.

On Thursday, Oppenheimer boosted its Roku price target from $135 to $140. The firm ranks the stock an Outperform.

Last week, Rosenblatt Securities reiterated its Buy rating for Roku. The firm set a price target of $145. Analyst Mark Zgutowicz expects earnings per share (EPS) of -$0.45 for the second quarter.

But analysts at Stephens reiterated a Hold rating, with a much lower price target, $105.

During the first quarter, Roku trounced Wall Street expectations, beating its own forecasts for both revenue and earnings before interest, taxes, depreciation and amortization (EBITDA). Active users reached 39.8 million, which was up 37% from the year earlier. Streaming hours, an indication of subscriber engagement, shot up 49% to 13.2 billion.

Revenue for the period reached $321 million. The Roku platform produced revenue of $233 million, and the Roku streaming media service had revenue of $88 million.

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