Why Roku Could Still Have 'Significant' Advertising Growth Ahead

Roku Inc ROKU has grown to become the leading TV and video streaming platform in 2020, but JPMorgan says its true driver of revenue growth in advertising has yet to play out.

The Roku Analyst: Cory Carpenter initiated coverage of Roku's stock with an Overweight rating and a $475 price target.

The Roku Thesis: Roku boasts more than 50 million active accounts and users that combined to stream nearly 60 billion hours of content in 2020, Carpenter said. This positions the company to take advantage of a "significant" advertising opportunity as more marketers shift their dollars towards streaming platforms with large users.

Advertisers have been investing around $65 billion annually in Linear TV despite an estimated 24% reduction in PayTV households over the past seven years. Daily average viewing time for linear TV users is also down 16% and these two metrics suggest "times are changing" in the advertising industry, Carpenter wrote in the note.

Related Link: Roku Buys Quibi's Content Distribution Rights

Roku has a lot to offer advertisers aside from tens of millions of potential eyeballs and its customers are highly engaged with active accounts streaming 3.5 hours or more of content per day on average.

As advertisers ramp up their spending on digital platforms, Carpenter said Roku could show best-in-class growth metrics. Specifically, the company could show an advertising revenue growth of 48% from 2020 through 2023 and ultimately $3.7 billion in ad revenue in 2024. By comparison, the company generated just $66 million in ad revenue in 2016.

ROKU Price Action: Shares of Roku were trading higher by nearly 5.5% to $431 at publication time.