Roku to see an inflection in H1 2023

By Sam Boughedda

In a note to clients on Wednesday, Oppenheimer analysts said they believe Roku (NASDAQ:) shares will see an inflection in the first half of 2023.

The analysts, who have an Outperform rating and $70 per share price target on the stock, said their view is based on “1) expectation new President of Media, Charlie Collier, ex CEO of FOX Entertainment, will open ad inventory to 3P Demand Side Platforms (DSPs), such as Trade Desk and Google; 2) increasing ad rates through higher biddable demand by giving brands better frequency capping and targeting; and 3) we expect Roku to begin re-selling a very small % of new AVOD services (Netflix/Disney+/HBOmax) as compensation for being supported on the platform.”

“Comments from Roku management indicate an openness to DSP integration. Comparing comments from past earnings calls surrounding DSP integration indicates that the company is shifting its position. Meanwhile, we believe the CTO of Roku’s internal DSP (OneView) has left the company and this has become a source of cost savings,” the analysts wrote.

The analysts added that with streaming platforms highlighting an increased focus on profitability, the non-advertising portion of platform revenue “has been and will continue to be a headwind to growth.”

“We believe the estimated impact will be ~$80M in 2022. These headwinds are causing investors to overestimate Roku video ad weakness vs. the broader ad market,” they continued. “As more platforms launch advertising tiers, Roku could increase its available ad inventory. Currently, we believe ~90% of all hours watched are outside of The Roku Channel and mostly not monetized. If Roku can get access to 5% of this ad inventory through partnership agreements, we see an additional ~35% upside to our current ’23/’24 platform revenue estimates.”

Roku shares are down 2% Wednesday.