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Why Roku Stock Popped on Tuesday

By Danny Vena – Dec 28, 2021 at 1:18PM

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The streaming video leader got some much deserved recognition from Wall Street.

What happened

Shares of Roku (ROKU 6.82%) surged higher on Tuesday, adding as much as 5.7%. As of 12:33 p.m. ET, the stock was still up 3.7%.

An analyst added the video streaming specialist to a "best of" list for 2022, saying one of its most important financial metrics is underappreciated.

So what

Evercore ISI analyst Mark Mahaney named Roku as one of the firm's top internet stocks to buy for 2022. The investment bank cited several factors in naming the streaming champ its best large-cap tech stock heading into the New Year. 

A young couple with two children sitting on the couch eating popcorn and watching television.

Image source: Getty Images.

Roku was hit with a one-two punch of slowing growth in both users and streaming hours last quarter, as pandemic-related restrictions eased and many viewers put down the remote and got out of the house. Investors were also concerned about a short supply of Roku streaming devices headed into the holidays due to supply chain headwinds.

Mahaney called those issues "transitory and largely priced-in" to the stock at current levels. Further, the analyst believes that investors should take a closer look at Roku's average revenue per user (ARPU), which he calls "underappreciated." 

Now what

A look at Roku's recent results show that the analyst is on to something. Roku's ARPU grew 49% year over year in the third quarter, and has increased every single quarter going back five years. This shows that an increasing number of marketers are willing to pay top dollar to place their digital ads on Roku's platform, which has proven successful at targeting the viewers most likely to act on those ads.

This isn't surprising, given Roku's treasure trove of user data. With 56.4 million active accounts, the company has fine-tuned the digital advertising it shows on its platform.

It's also worth mentioning that Roku has a huge secular tailwind at its back. A study from last year revealed that while streaming services account for 29% of television viewing, just 3% of TV ad budgets are currently spent there. Those ad dollars have begun the transition to streaming and Roku is well-positioned to benefit from the trend.

Danny Vena owns Roku. The Motley Fool owns and recommends Roku. The Motley Fool has a disclosure policy.

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