Roku (ROKU) Surges as Needham & Company Highlights Benefits of Disney/Fox Deal

Roku Inc. (NASDAQ: ROKU) is surging 8.9% Friday after Needham & Company analyst Laura Martin earlier highlighted positive implications for the company via the Disney/Fox asset deal.

Martin views the deal as positive for ROKU because it implies "two new deep-pocketed OTT networks will be added to ROKU’s OTT aggregation platform, more traffic coming to the ROKU platform, and DIS spending marketing dollars with ROKU and giving ROKU a rev share for the first time ever." Only two services pay ROKU almost nothing, Netflix and YouTube, because they were first, she notes.

"We expect ROKU to successfully negotiate its normal 20% rev share with any new DIS OTT channels," Martin commented. "Therefore, the more subs that DIS’s sports or entertainment services take away from Netflix, or viewership away from YouTube, the more ROKU benefits economically from that mix shift. Also, those services might buy more advertising on ROKU to slow defections."

Other positive implications for ROKU investors of the DIS/FOXA deal include:

• The direct payments to ROKU from DIS OTT channels to be supplemented by marketing spending by DIS for the first time, we believe, in addition to indirect benefits.
• Ad Revenue. We believe DIS’s marketing skills are world class, which implies DIS’s new OTT services will spend dollars and time marketing their new OTT services after launch. ROKU makes no money from DIS today, but we would expect heavy DIS marketing spending on audience promotions via full page buy outs of ROKU’s home page after DIS launches each of its new OTT services.
• A key indirect benefit of having DIS’s new OTT channels on ROKU is traffic. If DIS is promoting its service on DIS’s other owned services like ABC etc, this may convince new consumers to buy a ROKU stick or TV and/or bring existing users back to ROKU’s home page to get a free trial of each of DIS’s new services as they launch them. Like a shopping mall, ROKU is adding a really big anchor tenant or two as DIS launches its own OTT Networks. ROKU’s primary revenue stream is selling ads on a CPM basis, so the more traffic (ie, people) it has coming to the ROKU platform the more money it makes.

The analyst maintained a Buy rating and price target of $50.00

For an analyst ratings summary and ratings history on Roku Inc. click here. For more ratings news on Roku Inc. click here.

Shares of Roku Inc. closed at $46.15 yesterday.

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