What happened
Shares of Roku (ROKU -2.39%) were heading higher Friday, jumping as much as 4.7%. As of 11:42 a.m. ET, the stock was still up 2.1%.
The catalyst that pushed shares of the streaming video company up was some positive commentary from a Wall Street analyst.
So what
Oppenheimer analyst Jason Helfstein was moderately more bullish Roku, raising his price target on the stock to $75 from $70, while maintaining his outperform (buy) rating. For context, that represents potential upside of 36% compared to Thursday's closing price.
The reason for the analyst's bullish stance is the ongoing growth of Roku's adtech business. Helfstein believes that Roku will open up its ad inventory to third-party demand-side advertising platforms later in the year, further expanding its connected-TV advertising revenue.
While the company is known primarily for its high-profile platform and namesake streaming devices, Roku makes the lion's share of its revenue from the digital advertising that appears on its platform. The company acquired adtech platform Dataxu in late 2019. Roku leaned further into its digital ad chops in 2021, purchasing Nielsen's TV ad business and partnering with the company to integrate Nielsen's ratings measurement tools into Roku's streaming platform.
Helfstein also notes that Roku's recent earnings preannouncement suggested the company's customer engagement remained strong. Indeed, active accounts surpassed 70 million, up 16% year over year, while streaming hours grew 19%.
Now what
The analyst is likely on to something. Connected TV ad spending in the U.S. has surged in recent years, growing 57% to $14.4 billion in 2021 and climbing 39% to $19.1 billion in 2022. It's estimated that spending will continue to rise -- even in the face of macroeconomic headwinds -- increasing 27% in 2023 and topping $24.2 billion. The recent additions of ad-supported streaming tiers from Netflix and Disney will likely accelerate this trend.
Yet in spite of this impressive growth, a significant opportunity remains. Streaming accounts for 45% of all television viewing, but has thus far attracted just 18% of the ad dollars, although the tide is turning. As the industry-leading streaming aggregation platform, Roku is well positioned to benefit as advertising dollars shift from traditional TV to streaming. That makes Roku stock a buy.
