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Why Roku Stock Surged 17% in January

By John Ballard - Updated Feb 2, 2021 at 1:40PM

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Recent content deals should fuel more engagement and trigger further growth in advertising spending on the platform.

What happened

Shares of Roku (ROKU -4.68%) gained 17.2% in value last month, according to data provided by S&P Global Market Intelligence.

The leading streaming platform signed a major content deal with Quibi, which will bring exclusive premium content to The Roku Channel. 

A hand holding a remote control pointed at a TV with the words video on demand displayed on the screen.

Image source: Getty Images.

So what

It was a blowout year for the streaming market. Roku reported accelerating growth in active accounts and revenue throughout 2020. This growth is starting to attract traditional TV advertisers that are looking to follow the growing viewership on digital platforms.

To position itself as an attractive place for advertisers to channel investments, Roku is signing deals like Quibi to bring more content to its platform in order to attract more users. In December, Roku made a deal with AT&T to bring WarnerMedia's HBO Max to the Roku channel store. Total subscribers across HBO Max and HBO stood at nearly 61 million worldwide in the fourth quarter, whereas Roku's active accounts just crossed 50 million. There's clearly a lot of streaming users still out there who don't use Roku yet.

Now what

The shift of traditional media to direct-to-consumer services is fueling Roku's momentum heading into 2021. In the fourth quarter, Roku added 14 million new accounts. The company hasn't reported fourth-quarter earnings yet, but management anticipates revenue growing in the mid-40% range year over year for the fourth quarter. 

The next step for management is to continue investing in Roku's advertising and payments capabilities. This is needed to deliver more value to content owners, potentially leading to more exclusive deals and growth in advertising revenue, which is one of the ways Roku makes money. The platform segment, including advertising revenue, grew 78% year over year in the third quarter and comprised more than two-thirds of Roku's total revenue.

Roku is gaining a strong foothold in the streaming ecosystem. It's in a lucrative position by offering value to both viewers and partners with its search and discovery technology, and ad-supported content. This positions Roku for tremendous growth as traditional media shift to direct-to-consumer services.

 

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