$Roku Inc(ROKU)$ announced a partnership with $Shopify(SHOP)$ , resulting in an 11% increase in trading on July 11th.
The market responded positively, seeing the collaboration as providing Roku with new avenues to reach streaming media users through purchasable advertisements. The consecutive two-day rise in Roku's stock was not coincidental; it coincided with the Nasdaq 100 Index (NDX) adjusting the weightings of major tech companies, offering growth stocks an opportunity to increase their influence. The favorable implications of this partnership may also positively impact the company's performance.
Investors are particularly concerned about the market share Roku's CTV advertising business will capture. With the integration of Shopify's merchant advertising, viewers can simply press the OK button on their Roku remote to learn more about a product and make purchases directly from their television. They can complete the transaction using Roku's payment platform, Roku Pay, and seamlessly return to their streaming experience. Once the transaction is finalized, purchasers receive an email confirmation of their order directly from the merchant.
Through the latest integration of Roku Action Ads, advertisements streamed on the platform now offer a seamless checkout experience. Roku Action Ads encompass any downstream funnel operation on Roku streaming devices, such as sending users messages, scanning QR codes, or making purchases. Integrating Shopify purchases into Action Ads represents the first commercial integration for independent Shopify merchants on TV streaming, opening up a brand new advertising channel. Initial partners include the men's clothing brand True Classic, the game-based connected rowing machine Ergatta, and the health brand Olly.
From a valuation perspective, Roku has experienced a significant pullback of 85% since its peak in 2021. Valued based on EV/Sales, Roku's multiple has declined from a high of approximately 35x to a current level of only 3x, ranking lower among similar companies. However, Cathy of $ARK Innovation ETF(ARKK)$ has consistently been optimistic about Roku and previously set a target price as high as $605.
Roku's primary business model currently revolves around digital advertising while also providing payment operations such as checkout. Hardware sales, which mainly serve as a conduit for digital advertising, generate minimal profits. ARK Invest's benchmark prediction states that Roku's revenue will reach $14.4 billion by 2026, primarily driven by growth in video advertising revenue. However, market expectations for 2024 anticipate a modest 15% revenue growth, reaching only $3.8 billion, which falls far short of this target.
After a year of sluggish revenue in the TV advertising market, the monetization of ad inventory is gradually recovering. In the recently concluded Q1 of 2023, Roku's ad engagement increased by 20%, streaming hours grew by 20%, reaching 25.1 billion hours. Even active accounts saw a growth of 17%, reaching 71.6 million accounts.
Comments
Don't you all miss those days when ROKU moved $25-$35 in a day, and repeat for multiple days in a row. Now we take 3 weeks to move a few dollars.
I believe that is still very possible Roku shows a real profit. I like the fact that there are only a little over a 100 million shares outstanding which makes this a real potential premium growth stock.
Market commentators are saying shorts have been caught by the sudden drop in inflation to 3%, strongly suggesting Fed raises are over.The rise in stocks is forcing shorts to cover.The average short interest is 4.99% of the float, and companies with a short interest greater than that will benefit more from the squeeze. ROKU short interest is 9% of the float so we are benefitting.
The ROKU Channel is now available virtually everywhere - all in on ads. Who needs money losing hardware sales anyway?
Slow and steady wins the race!! Good enough for me!!