Yahoo Finance’s Alexis Christoforous and Jason Helfstein, Media and internet analyst at Oppenheimer & Co. discuss Roku’s latest earnings.
Video Transcript
ALEXIS CHRISTOFOROUS: We continue to turn to streaming services for entertainment during the pandemic. Just take a look at Roku, third quarter results blew past Wall Street’s estimates. The streaming video platform swung to a surprise profit of $0.09 a share on sales of nearly $452 million. Active accounts popped 43% to 46 million.
Joining me now is Jason Helfstein, Media and Internet Analyst at Oppenheimer & Co. Jason, thanks for being here. So you increased your price target from $185 to $260. You maintained your outperform rating on the stock. What stood out to you in this report from Roku?
JASON HELFSTEIN: So this is one of these what we call kind of a second derivative COVID play. So we had some companies, like an Etsy, like a Wayfair, who kind of immediately, as we went into lockdown, work-from-home saw their business benefit directly to the sales, to the bottom line. Roku was more of their active accounts increased. The amount of hours streamed increased.
But because advertisers pulled back, they didn’t see that benefit in the top line. Now, come the third quarter, platform revenue, which is where they capture advertising, was up to 78%. If we back out an acquisition they did, it was probably up about 60%, and would actually then be faster than they grew in the first quarter. So basically, it looks like the business is now back to pre-COVID levels.
ALEXIS CHRISTOFOROUS: Do you think we’re seeing a sea change in how companies are spending or allocating their advertising dollars, even when we come out the other side of this pandemic?
JASON HELFSTEIN: 100%. I mean, we’ve always seen kind of with digital adoption, you know, you can’t put the genie back in the bottle. You know, once you experience, you know, Amazon Prime, you know, any other kind of shopping, online shopping experience just doesn’t seem good enough. So look, you’ve had a few things.
Number one, you’ve had kind of consumers may have turned off certain pay TV services because there was nothing to watch. They may have given back cable boxes. They’re probably not going back to cable. And so while they will go back to programming services as you have kind of, hopefully at some point, a normalized television slate, the idea of how they’ll view it will be different.
And then advertisers, advertisers couldn’t spend money the way they historically did on linear television. There’s been a lot reported about how advertisers were trying to get out of upfront deals back in March and kind of could they get out, could they not. And they had to figure out where to spend that money. And to the extent that that money has gone into platforms like Roku or other OTT streaming services and was effective at driving sales, why would that money to go back if it’s more expensive than the new alternative?
ALEXIS CHRISTOFOROUS: How do you think Roku is trading relative to its peers? I mean, is it still a good value at this level?
JASON HELFSTEIN: Yeah, I mean, so you have a group of stocks that I would say are– you know, are kind of leading the market and transforming. And you know, I think no one would call these value stocks. You know, they’re super growth stocks is maybe the way to put them at. We call them against companies like Netflix, the Trade Desk, Snap, Match, Spotify, Pinterest.
I mean, you know, Trade Desk, which is another company that reported earnings last night and is seeing 100% growth in its kind of connected TV ODD business, is still trading at a pretty significant premium to Roku, probably about a 35% premium still. So we think, relative to the growth– and we looked at a broad group of peers, we think Roku is growing at a faster rate. We’re forecasting platform revenue over the next two years at about 48%, peers growing 30. If you paint in-line multiple with that, that gives you $260 a share.
