There's no denying that the adoption of streaming video accelerated over the course of 2020, and as the leading aggregator of streaming options, Roku (ROKU -3.05%) was one of the biggest beneficiaries. The company added more than 14 million active accounts during the year, bringing its total to 51.2 million. This, combined with revenue that grew 58%, supercharged the stock, which climbed 148% last year.
During the recent rotation out of technology stocks, however, Roku has taken it on the chin, with shares down more than 30% from their recent highs -- on no company-specific news. At the same time, several positive developments provide insight into the company's evolving strategy and mounting evidence that Roku could maintain its growth trajectory in 2021. Let's look at three reasons that now is the time to buy Roku stock.
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A growing interest in content acquisition
Just last week, Roku announced that it acquired the rights to -- and the production studio behind -- the popular home improvement show This Old House. The show and its companion program, Ask This Old House, have a total of more than 1,500 episodes under their belt. Both programs will now stream on the company's ad-supported outlet The Roku Channel, helping boost the company's advertising revenue.
The studio will continue to produce new episodes for PBS and will likely also continue to appear on streaming outlets including Amazon's IMDb, Comcast's Peacock, ViacomCBS's Pluto TV, and Fox's Tubi TV. The fees paid by other streaming outlets to license the program will give Roku yet another continuing revenue stream to fill its coffers.
This move, combined with its recent acquisition of content from the now-shuttered short-form video service Quibi, gives Roku a growing library of content. Additionally, since it won't have to share ad revenue for shows it owns, it will increase the ad revenue generated on its platform.
Greater advertising capabilities
Earlier this month, Roku announced that it would acquire Nielsen Holdings' Advanced Video Advertising business, which will allow the company to digitally replace ads from broadcast television feeds with targeted spots that will appear on programs on its streaming platform.
The companies also announced a multiyear strategic alliance that will integrate Nielsen's rating measurement tools into Roku's platform. With more than 100 million smart TVs and other streaming devices, this will give greater insight into Roku's audience while providing for more accurate ad targeting. This will give Roku greater leverage with its advertisers, which are always looking for more bang for their buck.
A new advertising brand studio
Just this week, Roku announced the launch of an advertising brand studio that will focus on crafting creative new advertising formats specifically designed for streaming services. The move will help marketers expand beyond the traditional 30-second broadcast television ad spots, developing "advertiser-commissioned short-form TV programs, interactive video ads, and other branded content."
This will give Roku the ability to develop streaming-first ad campaigns. The company cited research that showed that this type of branded experience, presented alongside traditional video advertising, resulted in a four times greater likelihood that consumers will make a purchase.
The move will also bring some top advertising talent under the Roku umbrella. This will include industry veterans Chris Bruss and Brian Toombs from comedy video website Funny or Die and Rachel Daly Helfman from Snap, who will join Roku's Patrick Colletto in heading up the new advertising brand studio.
This will augment the already formidable capabilities of DataXu (pronounced "Data Zoo"), the ad-tech company Roku acquired in late 2019. The platform provides automated bidding and self-serve software that helps marketers manage programmatic ad campaigns across digital platforms.
More gas in the tank
There's little doubt that streaming services, including Roku, benefited from the accelerated adoption of streaming video that accompanied the pandemic. Add in the ongoing phenomenon of cord-cutting and it's clear that Roku has a long runway ahead.
These moves help expand Roku's capabilities, as the company continues to embrace the power of its digital advertising ecosystem. There are plenty of reasons to believe that for long-term investors the Roku story is just getting started, as suggested by each of these recent developments.
With shares selling at a 30% discount to recent highs, investors can get all this growth potential at a relative bargain.
