Ad Trends Are Shifting In Roku's Favor, Says Bullish Wells Fargo

The bullish case for Roku Inc ROKU is based on scale and advertising technology that should result in better-than-expected average revenue per user growth, according to Wells Fargo.

The Roku Analyst: Steven Cahall initiated coverage of Roku with an Overweight rating and $215 price target.

The Roku Thesis: Roku offers one of the better connected TV platforms in the market, as its neutral approach to streaming video platforms makes it easy for marketers to deploy ads, Cahall said in a Tuesday initiation note.

Marketers are mostly "impressed" with the ease of Roku's OneView analytics, the analyst said. 

The COVID-19 pandemic forced a shift in ad trends that works to Roku's benefit, he said, adding that marketers are now paying around 50% more per household reach today compared to 2010. 

Encouragingly, Roku has seen strong subscriber growth in the first half of 2020, and this puts the company in a position to command higher prices from advertisers, Cahall said. 

Roku's large scale for ad targeting and extremely valuable content are a game changer, the analyst said.

This should help Roku close the ARPU/month gap with rival Hulu, which generates around $8 in ARPU per month versus Roku's less than $2 a month, he said. 

If Roku shows a 15% compounded annual growth in ARPU/month, it will reach $3.60 by 2025, according to Wells Fargo. 

ROKU Price Action: Shares of Roku were trading higher by 5.51% at $168.72 at the time of publication Tuesday. 

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Photo courtesy of Roku.