It's hard to frame a new strategic alliance between Roku (ROKU 2.85%) and Nielsen (NLSN 1.64%) as anything other than a win-win arrangement. It's easy to see what Roku will be getting out of the deal. The streaming video pioneer will be buying Nielsen's Advanced Video Advertising business, a transaction that include's Nielsen's video automatic content recognition and dynamic ad insertion technologies. Ad revenue is the lifeblood of free-to-use Roku, and this move will speed up the launch of Roku's end-to-end dynamic ad insertion platform for TV programmers.
Nielsen is also coming out ahead here, and not just because it will be coming into an undisclosed sum of dough in the asset sale. The strategic alliance finds Roku integrating Nielsen's ad and content measurement products into its fast-growing platform. The move will help make Nielsen ONE -- its cross-media measurement solution -- that much more ubiquitous. Nielsen has been top dog in viewer tracking for decades, but it's had to learn new tricks in the digital revolution. After posting slight declines in revenue for three consecutive years it can use a little fresh thinking to get its top line moving in the right direction again. Roku and Nielsen have been partners before, but the new strategic alliance takes things up a notch.
There's always something good on TV
There's a lot riding on Roku's ability to improve its monetization. It's having no problem drawing a crowd. It begins 2021 with 51.2 million active users, 39% more than it had on the couch a year earlier. Roku gadgetry sold briskly over the holidays, and even for folks not springing for a dongle it's the default operating system on a whopping 38% of smart TVs sold in this country.
Revenue growth has accelerated for four years in a row, but as a free platform Roku needs ad revenue to make its platform hum. Roku's average revenue per user is clocking in at $28.76 -- up 24% over the past year -- but that's a trailing 12-month figure. Its viewers are averaging a hearty 3.6 hours of TV time on Roku daily, but that's good for less than $0.10 a day in ad revenue.
Nielsen's toys in Roku's arsenal won't change that overnight, but the ceiling is high. FuboTV -- not a hub like Roku, but a live TV streaming service with accounts viewing an average of roughly four hours a day -- is generating three times the ad revenue per subscriber. FuboTV also thinks it can go from $7.50 a month in ad revenue per user now to $20 a month in a few years.
Roku investors don't mind for now. It's chiming in with spectacular growth, and expanding its user base is more important than what it's doing to cash in on its booming popularity. Eventually it's going to have to pull that growth lever, and that makes this deal with Nielsen interesting even if it only proves to be marginally incremental.
Roku has been a market thumper as a growth stock. Nielsen will enjoy riding the coattails to the extent that it can with the expanded alliance. It's a win-win deal. It will just take some time before they both cross the finish line.