What happened

Shares of Roku (NASDAQ:ROKU) jumped today after the streaming specialist got a positive analyst mention. Also, evidence of breakout growth in the connected TV (CTV) space, or ad-based video streaming, may have contributed to the move higher.

The stock closed up 7.5%.

A Roku streaming stick with headphones attached.

Image source: Roku.

So what

In an analyst note, Cleveland Research said the CTV space was gaining momentum, which favors Roku, the leading streaming device maker. The research firm also said that advertiser adoption of CTV on Roku is outpacing peers. Roku generally collects one-third of ad revenue on its platform, while the content provider keeps the remaining two-thirds. Connected TV has been a major driver of Roku's growth, as platform revenue, which makes up two-thirds of total revenue, increased 78% in the company's third quarter. 

There was another reason for investors to get excited about CTV today: Perion Network, a small-cap ad tech stock, rose 13.6% after the company released a strong fourth-quarter earnings report that included 132% growth in CTV.

Perion's results may have contributed to the gain in Roku's stock as investor enthusiasm continues to build for CTV.

Now what

Roku shares have exploded during the pandemic alongside other digital advertising plays. Ad demand has quickly ramped back up after a lull during the lockdown. The streaming stock is up nearly 300% over the past year. 

Investors will get an update from Roku on Feb. 18 when the company reports fourth-quarter earnings. Analysts see revenue increasing 49% to $613 million, and they expect its loss per share to narrow from $0.13 to $0.07. Considering the elevated demand for video streaming and the strong growth in digital advertising at titans like Facebook and Google in the fourth quarter, Roku could be poised to beat those numbers.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.