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This One Ad Metric Should Make Roku Stockholders Jump for Joy

By Danny Vena – Sep 9, 2021 at 11:27AM

Key Points

  • Premium video advertising is surging.
  • Roku is taking a page from the Netflix playbook to reach more viewers.
  • The streaming technology pioneer is expanding its lead over a much larger rival.

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The streaming video platform continues to dominate its rivals, according to several noteworthy metrics.

Although Roku (ROKU -0.76%) began its journey as a way to access streaming video services, the company has evolved into so much more. Many investors still associate Roku with the boxes and dongles that bear its name, and rightfully so. The company is the leading provider of streaming-video access devices in the U.S., reaching into more homes than any other.

Roku isn't just the leader in streaming access. It is also a large and growing force in digital advertising and the connected-TV (CTV) space. Furthermore, recent research suggests that its unrivaled market penetration plays a significant factor in Roku's dominance of the CTV ad market.

Young family laying on a couch watching TV.

Image source: Getty Images.

Crushing the competition

Premium video ad views surged 50% year over year during the first six months of 2021, according to the U.S. Video Marketplace Report provided by FreeWheel. Perhaps more importantly, roughly 60% of those views were courtesy of CTV viewers. For context, set-top box video-on-demand accounted for 15% of the ad views, while mobile and desktop accounted for 13% and 12%, respectively. 

By far the best news for Roku shareholders is that the company dominated the CTV market with a commanding 43% of ad views, while Amazon's (AMZN -0.77%) Fire TV came in a distant second with a 26% market share. The e-commerce kingpin has earned a reputation for crushing the competition, and the market is littered with companies it has left in its wake. That makes this all the more impressive, then, that this isn't the first time Roku has bested its well-heeled rival.

Who's counting?

The pioneer of streaming devices developed a strategy to let consumers access its platform from almost anywhere, which came straight out of the Netflix (NFLX -2.04%) playbook. Roku created a state-of-the-art operating system (OS) that it licenses directly to CTV manufacturers, significantly expanding its reach beyond its own devices. Investors may recall how Netflix made access to its streaming video service a snap with the red "Netflix" button that was ubiquitous on television, DVD, and Blu-ray player remotes.

Roku built its OS from scratch, rather than simply using a repurposed mobile OS. The extra work paid off. Roku's platform is the No. 1 selling smart-TV OS in North America, powering 38% of televisions sold in the U.S. and 31% in Canada, as of Dec. 31, 2020. 

Sick person laying on sofa holding a television remote with tissues strewn about.

Image source: Getty Images.

As a result, Roku dethroned Amazon's Fire TV in terms of viewer numbers, and its growth was accelerating just as Amazon's was slowing. Roku closed out 2020 with 51.2 million active accounts after accelerating 39% year over year. At the same time, Amazon reported monthly active users of 50 million, up 25%. We don't know exactly how many users Fire TV has now, as Amazon only updates the number at the end of each year. That said, Roku has added millions of new users, with its active accounts climbing to 55.1 million to close out the second quarter of 2021.

There aren't many rivals that have gone head-to-head with Amazon and came away the winner. Roku's recent triumph in terms of ad views gives the company another win over Amazon.

Advantage: Roku

Being service-agnostic is one of the key differentiators for Roku. The company boasts one of the largest collections of streaming services available in one place, with more than 10,000 paid and ad-supported apps available for viewers to choose from. 

Whether users access the platform using one of Roku's namesake set-top boxes or dongles, or one of the growing number of CTVs powered by its operating system, viewers are sure to find the streaming service they're searching for. 

This killer combination of a large and growing viewer base, deeper penetration in the CTV market, and a clear dominance in ad views is a trifecta that should have Roku investors jumping for joy.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Danny Vena owns shares of Amazon, Netflix, and Roku. The Motley Fool owns shares of and recommends Amazon, Netflix, and Roku. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.

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Roku Stock Quote
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