KeyBanc analyst Justin Patterson upgraded Roku (ROKU) to Overweight as he believes the acquisition of Nielsen's (NLSN) video advertising business expands the company's addressable market and investment differences versus peers should sustain platform advantages and drive monetization. All of this should translate to over 50% Platform revenue growth through 2022, the analyst argues.
BUY ROKU: KeyBanc analyst Justin Patterson upgraded Roku to Overweight from Sector Weight with a $518 price target. The analyst believes the Nielsen acquisition expands the total addressable market and argues that investment differences versus peers should sustain platform advantages and drive monetization, which should translate to over 50% Platform revenue growth through 2022.
The analyst also noted that Roku's competitor Vizio (VZIO) filed an S-1 on Monday. Patterson sees the difference in investment by both companies as "striking." Vizio had 527 U.S. employees, whereas he estimates Roku's headcount in R&D alone is approaching 1,000 employees. The analyst believes that "strong R&D cultures often yield continuous platform improvements that extend leads over competitors." Patterson is now "increasingly less concerned" of competitive disruption.
NIELSEN DEAL: On Monday, Roku announced that it has entered into an agreement to acquire Nielsen's Advanced Video Advertising business, which includes Nielsen's video automatic content recognition and dynamic ad insertion technologies. The acquisition "will accelerate Roku's launch of an end-to-end DAI solution with TV programmers," the company said. In addition, Nielsen and Roku will enter into a strategic partnership to integrate complementary Nielsen ad and content measurement products into the Roku platform and further advance Nielsen ONE, the company's cross-media measurement solution.
Commenting on the deal, Truist analyst Matthew Thornton called the agreement a "win-win" as he sees it as "incrementally positive" for both Nielsen and Roku. For Nielsen, the analyst expects a modest loss of revenue, even more modest loss of EBITDA and expects the company to take-in modest cash proceeds from the sale. More importantly, Nielsen gets Roku data to bolster Nielsen One and gets Nielsen ad and content measurement solutions made available natively/always-on on the Roku platform, Thornton contended. Regarding Roku, the analyst thinks this should enable advertisers to spend more efficiently on linear and enable publishers to garner higher CPMs on linear. While he expects the near-term focus to be integrating DAI into Roku devices, Thornton believes the solutions could ultimately be offered to third party devices as well. The analyst does not expect material near-term revenue as Roku will need time to build the solution and go-to-market.
PRICE ACTION: In Wednesday afternoon trading, shares of Roku have dropped over 3% to $377.45, while Nielsen's stock has slipped more than 1% to $24.57.
Roku
-11.58 (-2.98%)
Now private 10/22
-0.21 (-0.85%)
Vizio
+ (+0.00%)