Roku's Long-Term Ad Growth Prospects - With Big Competition Coming?

How is Roku's advertising doing? As with some publicly traded media companies -- especially new-ish upstart businesses -- you might not get a specific answer.

Still, that doesn't stop analysts from making estimates.

Roku is a significant player in the streaming business -- with some 70 million-plus monthly active domestic users on its platform.

Roku puts advertising-revenue results in its "platform" revenue bucket -- which also includes revenue share of publishers' subscription fees, and other businesses.

Advertising revenue itself includes inventory sales on its Roku Channel, direct sales on other apps, ad-revenue share splits with publishers, and its demand-side platform OneView. It also includes promotional publisher and streaming ad-placement spending.

Roku does offer a direction in terms of where advertising is going, but it never discloses its specific ad-revenue details.



No problem, says MoffettNathanson -- it is just a puzzle to solve where gleaning data and directional clues from publicly available quarterly reports can help pin things down.

The puzzle is mostly about determining how those pieces in “platform” perform.

MoffettNathanson estimates advertising revenue to be 85% of all “platform” revenue -- with content/distribution revenues making up the remaining piece. The company said there was a 5% improvement to $1.38 billion in the first half of the year for "platform."

Although ad revenue is improving, Roku now says that overall, there was slightly lower ad revenue for the first half of 2023.

It now estimates that there was a 1.8% decline to $1.1 billion, driven by a 8% drop in the first quarter (to $504 million), followed by a 4% increase in the second quarter (to $603 million).

The growth came from content/distribution/other gains -- up 47% to $271 million.

Roku's advertising line is increasingly important as device sales increasingly take a back seat to its monetization

And Roku is presently benefiting in an overall marketplace due to advertisers' issues in looking for more streaming reach. But what does this mean now that competition for streaming ad dollars keeps intensifying?

Roku is way ahead of some other platforms. But don't expect this lead to be maintained in the long term.  

New advertising options from new powerful premium will make that more difficult, says MoffettNathanson Research. Those bigger streamers with a deeper programming bench will limit what Roku can do down the line.

Writes Michael Nathanson: “We do not foresee a scenario in which Roku has enough negotiating leverage to secure a revenue or inventory share with Netflix, YouTube, and Disney+.... it will limit the runway for Roku to scale into.” 

Still, Roku continues to outperform expectations. Investors presently have this view. Roku's stock price is up 114% since the first of the year, and 33% in the last month.

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