Why this firm is "incrementally more bullish on Roku’s ad revenue prospects"

On Tuesday, Rosenblatt internet & media analyst Mark Zgutowicz raised his price target on shares on shares of Roku, a day before the manufacturer of streaming devices reports quarterly results. Zgutowicz notes that the firm is "incrementally more bullish on Roku’s ad revenue prospects NTM as [it] believes the pandemic has (at last) become a tipping point to more meaningful transfer of linear TV ad dollars to CTV." The Final Round pane discusses the bullish call.

Video Transcript

MYLES UDLAND: Time now for our Call of the Day. Today, we are talking about Rosenblatt's latest note on shares of Roku, reiterating a buy rating on the stock, raising the price target to $190 per share. Dan Roberts, I think this-- this call from Rosenblatt fits into the classic bucket of, well, all this change is happening 10 years-- they don't use the phrase, but they're implying 10 years of change in one year.

And so this is a benefit to the companies that want to be on the other side of that. Certainly, the market had appreciated Roku's opportunity over the last year. But Rosenblatt making the case that adoption will be accelerated and appreciated more quickly here for investors, given everything we've seen happen.

DAN ROBERTS: Yeah, Rosenblatt sounds very bullish on the ad sales prospects for Roku, which is interesting. I mean, the ad sales have been humming along. And I always say anecdotally, you know, as someone who owns a Roku, I don't often notice or see those ads. But our colleague gadget guy Dan Howley has said differently.

And you know, when you're on the home page, if you're spending well on that Roku welcome page, you're seeing those ads. And then of course, there's promoted channels that are on that home page. In fact, sometimes it takes me longer to find the actual app I want I think because some of the paid promoted channels are now taking over.

But it's funny. I mean, to me the latest bit of Roku news that's maybe being under-covered, and I know we've discussed it back when Peacock launched, but the two most recently launched, I guess maybe not counting Quibi which has not gone well, but the two most recently launched primo streaming apps, HBO Max and Peacock, launched not available on Roku or on Amazon Fire TV. And you would think that would be a big problem for the devices.

But the case I make is that most consumers, if they've noticed that and are annoyed by that, they don't care to make themselves aware of who is to blame. And it's sort of like when suddenly a carrier doesn't have a certain sports channel and each side is saying, no, it's their fault because their terms suck or they're not being fair. Well, the consumer doesn't care whose fault it is.

I'm sure that Peacock would say that, you know, Roku's asking for too much, Amazon's asking for too much. The consumer just cares that, well, I'm interested in Peacock, but it's not on Roku, so forget it. Shame on you, Peacock. They don't care if it's Roku's fault, and they're not about to go and switch devices and buy a new device just to get that app they're interested in.

So suffice to say, obviously, Roku chugging along just fine without two of the most recently launched, much hyped TV apps. And then of course, side note, Peacock came out and said we had 10 million subscribers in the first three months. Pretty decent, and that's without being on Roku and on Amazon Fire TV.

But suffice to say, it's like you said, this note, no big surprise here, because it's pretty good to be in the business of providing the device. You know, it's almost like the rails, so to speak. Roku doesn't have to worry about, you know, its own Roku TV app, Roku original series. For now, they can just continue to be the house that has everything you need, although, as I mentioned, not everything right now.

MELODY HAHM: Yeah, Dan, the house, the pipes, the rails. I think that's a really good sort of visualization here. And you mentioned sports. The note aptly points out that sports buyers are actively in pursuit of programmatic alternatives compared to their traditional linear TV, so that's a huge win for Roku, right?

For so long we were talking about all the entertainment plays, as you were mentioning. But I think the fact that there is this active aggressive pursuit just shows that Roku could be a big benefactor here. And then just on a macro level, as we've noted, Roku, there have been quite a few bullish calls over the last couple of years.

But I think it hasn't been the sexy stock to cover, right? Specifically because from the content side of things, to your point, Dan, it's not like you can rattle off a list of names that are so consumer facing, but as this continuous move to a permanent cord cutting, permanent ways to figure out how to reach the over-the-top consumer has sort of solidified. It's not a fringe idea anymore. That's even more of a bullish case for Roku.

DAN ROBERTS: Well, and even if it hasn't been such a sexy story to discuss, I agree with you, boy, the stock has done very well, hasn't it? I mean, it's sort of been a quiet high flyer, even as other big names get more attention because they have the flashy apps that they launch.