What The Disney-Fox Deal Could Mean For Roku

Roku Inc ROKU reported better-than-expected earnings Nov. 8 and has moved sharply higher since then.

The Analyst

Needham's Laura Martin reiterated a Buy on Roku with a $50 price target. 

The Thesis

Walt Disney Co's DIS acquisition of certain Twenty-First Century Fox Inc FOXA assets is positive for Roku, as it implies that two new deep-pocketed over-the-top networks are going to be added to Roku's OTT aggregation platform, Martin said. (See Martin's track record here.)

Walt Disney is going to start spending on marketing — specifically on audience promotions — via full page buyouts of Roku's home page after it launches its new OTT services, according to Needham. 

Traffic is a key indirect benefit from the acquisition for Roku, said Martin. More traffic could lead to new customers and it could also bring existing users back to ROKU's homepage for free trials of each of Disney's new services, the analyst said. Roku makes money by selling ads on a CPM basis, so with more traffic, Disney will profit more, Martin said. 

The Price Action

Roku skyrocketed Friday. It's trading 13.35 percent higher at the time of publication at $52.31.

Related Links: 

Advertisers Now Spend More On Digital Than TV

The Roku Debate: Citron's Andrew Left Vs. Needham's Laura Martin

Photo courtesy of Roku.