After starting off 2018 on the wrong foot, shares of Roku (NASDAQ: ROKU) have recovered somewhat, with the stock bouncing back 6% today. The market is still trying to figure out how to value the pure-play on over-the-top (OTT) streaming service, which is a challenge due to a lack of direct peers.
There were two main reasons why Roku shares popped today: The company announced a new OTT ad analytics service, and an institutional investor disclosed a meaningful stake in Roku.
Better ad analytics and measurement
Roku announced a new Ad Insights offering that will help marketers better measure campaign reach and effectiveness, including on both traditional linear TV as well as on OTT streaming platforms. That will help advertisers plan their budgets more accurately, helping them analyze engagement of TV audiences amid the ongoing shift in consumer viewing habits.
Roku has garnered considerable data directly from its user base -- 16.7 million active accounts streamed 3.8 million hours in the third quarter -- that it can utilize in providing analytics to advertisers. The company points out that cord-cutting continues unabated, with an estimated 1.7 million consumers calling it quits on cable in 2016, a figure that is expected to rise to over 2.6 million through September 2017, citing estimates from boutique investment research firm MoffettNathanson.
It's an important step both for Roku as well as the OTT advertising industry. Roku is aggressively shifting its focus toward its platform business, which is predominantly driven by advertising revenue (about two-thirds of platform revenue in the first half of 2017) instead of getting a cut on subscriptions or other paid transactions. Improving measurement for customers (advertisers) is a core piece of building that business, and Roku grabs nearly 70% of all OTT programmatic advertising, according to Pixalate. OTT advertising is a relatively younger and smaller market, so the market leader improving measurement also bodes well for the industry at large.
Citadel takes a stake
Separately, hedge fund Citadel Securities, led by renowned investor Ken Griffin with $27 billion in assets under management (AUM), filed a 13G with the SEC this morning that disclosed a sizable position of just over 1 million shares, or about a 5.6% passive stake in Roku. These types of regulatory filings don't disclose what price was paid, and Roku shares were especially volatile in the fourth quarter (Roku went public just days before the fourth quarter started).
Griffin doesn't typically seek to become an activist investor with a large position that pushes for corporate changes (in corporate governance or otherwise), so it isn't clear if Citadel intends on adding more to its position going forward. Regardless, it's a meaningful vote of confidence from an acclaimed investor, and that likely boosted the market's confidence in Roku today.
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