Roku set for CTV and international-fuelled bounceback, says Berenberg

Roku is likely to maintain its lead in the streaming devices segment and successfully grow its ad revenues, according to a note from Berenberg’s analysts, giving the company’s stock a ‘buy’ rating as the bank initiates coverage.

Berenberg’s analysts say they “remain confident in Roku maintaining its leadership in the streaming ecosystem and growing ad-revenues”, despite a chain of factors that have led the streaming service provider and device manufacturer’s stock to drop by 40% since its peak in the middle of this year.

These factors, including ongoing supply chain bottlenecks, rising TV prices, new competition, and softness in ad-spend, which Berenberg says has “weighed on the stock’s performance”.

However, the analysts believe “most of these issues are transitory” and expect Roku’s shares to rebound in the medium term.

Berenberg list three main factors that it believes will boost Roku’s growth.

First, smart TV penetration remains low in emerging markets including Brazil, India and Mexico, despite saturation in some mature markets. The analysts argue that the company’s strength in Latin /America will help it target these and other emerging markets.

Second, Roku has “strong technological know-how and experience” from the US market that will help it “drive superior product experience and growth”, with a target of over 200 million households internationally to aim at.

Third, Berenberg believes that Roku is well-placed to benefit from a movement of advertising expenditure to connected TV, where Roku takes a 45% share of US open programmatic ad spend.

On the flipside, Berenberg’s analysts also point to growing risks from competitors, with Amazon Fire TV and Comcast’s new XClass TV likely to challenge Roku’s supremacy in the US market. It also points to the current contract renewal dispute between Roku and YouTube and suggests that this will not be “the last episode of such disputes”.

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