Connected television and streaming company Roku Inc ROKU has been a favorite stock pick of Cathie Wood and the Ark Invest team. Benzinga heard more on the thesis of Roku being a leading player in the space from Ark portfolio manager Nick Grous in an exclusive interview.
What Happened: Ark Invest has laid out a price target of $605 on Roku for the year 2026, offering a significant upside from where shares trade today.
Roku is a large holding in several Ark ETFs, which can be explained by one of the key factors that Ark looks for when it invests in companies.
“When we’re looking at all of the spaces I cover, we’re looking at platform operators,” Grous, who covers the Digital Consumer sectors, said.
Grous said the streaming market is an example of how owning the streaming players can be less prognosticative.
“You see it when you look at HBO Max and Netflix, subscriber numbers fluctuate. A lot of that business is similar to video game publishers, where its less predictive.”
Grous said Ark has always tried to focus on platform opportunities, shying away from streaming companies. The portfolio manager said Ark wouldn’t rule out owning shares of Netflix Inc NFLX in the future, but prefers platform companies like Roku right now.
“You’re able to size the market when it comes to that.”
Grous said consumers have shifted from linear television to connected television, but the advertising market for content is still catching up.
“Only a fraction of advertising in linear has made it to connected TV.”
When asked why this lag in advertising dollars may be happening, Grous offers up a reason.
“Sports have been the linchpin and really the gatekeeper.”
Grous said sporting events still get a “significant portion” of all the advertising dollars spent on television content. The Ark portfolio manager used Super Bowl LVII as an example, with Fox Corporation FOXFOXA expected to see around $500 million in advertising revenue from the game.
“You’re not talking about a full day event, just three, three and a half hours.”
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Why Investing in ROKU: Grous shares that one of the key reasons Ark is investing in Roku is its vertical integration.
“Vertical integration is extremely important,” Grous said. “Look at prior companies in any space, one of those edge factors that allow companies to be more nimble, move quicker.”
Grous said Roku is the opportunity that Ark identified.
Instead of building off of existing platforms like Google did with Android used for connected TVs, Grous said Roku went out and built their own operating system for television.
Grous also added that Roku has announced it is going to build its own television, which he thinks could be a significant development due to the importance of consumer pricing around televisions.
The Ark Invest portfolio manager said Roku has been acquiring companies in the advertising data space, which will be essential down the road.
“We think that this is owning the experience for advertisers and going to be extremely important as the market grows.”
Grous also told Benzinga that Roku has an advantage with the number of homes in which they are already established and the math that comes from the life cycles of television.
“The typical life cycle is 7 years for televisions, 70 million households plus 7-year cycle for television, that gives you a really enormous opportunity.”
Grous told Benzinga this was an undervalued stat.
Roku is the fourth-largest holding in the Ark Next Generation ETF ARKK, the flagship fund from Ark Invest. Roku represents $489.7 million in assets in the fund and is 6.7% of the fund’s holdings.
The Ark Next Generation Internet ETF ARKW has Roku as the third-largest holding. In the ETF, Roku makes up 6.9% of holdings, representing around $82.4 million in assets.
ROKU Price Action: Roku shares trade at $54.30 at the time of writing, versus a 52-week trading range of $38.26 to $168.60.
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© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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