The Trade Desk Just Made a Big Move That Has Investors Scrambling to Buy Roku Stock
Being an investor in Roku (NASDAQ: ROKU) could best be described by the opening words of the Charles Dickens novel A Tale of Two Cities: “It was the best of times, it was the worst of times.” Since the company’s IPO in late 2017, the stock soared as much as 1,940% in less than four years. However, the combination of a post-pandemic streaming hangover and economic downturn ravaged advertising budgets and sent Roku plunging. The stock has never really regained its momentum and still sits 82% off its peak.
Over the past few days, however, Roku stock has been on fire, notching 28% gains in less than a week (as of this writing) as investors scramble to buy the stock.
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The rally was sparked by an unlikely catalyst, and if Wall Street is to be believed, there could be much more to come.
Roku has long been the dominant streaming platform worldwide and currently has a 48% market share, according to connected TV (CTV) analytics platform Pixalate. Indeed, Roku served nearly 86 million streaming households in the third quarter, with those viewers racking up 32 billion streaming hours — which amounts to more than four hours of screentime per household per day.
In return for being included on Roku’s dominant platform, streaming channels turn over 30% of the advertising inventory to Roku — which is how the company makes the vast majority of its revenue.
Late last month, The Trade Desk (NASDAQ: TTD) — a longtime advertising partner of Roku’s — launched Ventura, which it describes as “a revolutionary streaming TV operating system.” The Trade Desk developed the system with a focus on advertising, saying it “solves key issues with prevailing market systems today, including frustrating user experiences, inefficient advertising supply chains, and content conflicts of interest.”
The Trade Desk promises a more engaging user experience, more streamlined streaming TV advertising, and fewer — but more relevant — ads.
However, this platform puts The Trade Desk in direct competition with Roku in the streaming platform market and could put a dent in its advertising revenue. So why is Roku stock on fire? Comments by a couple of Wall Street analysts stoked the flames.
In a letter to clients on Monday, Guggenheim analyst Michael Morris noted that while The Trade Desk’s Ventura system could compete with Roku, he hypothesized that both companies would benefit if The Trade Desk acquired Roku, particularly given the long partnership between the companies. He also noted that Roku’s market penetration is large enough that “Ventura would have a long climb to achieve the market penetration necessary to impact the industry.”
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