Two companies taking advantage of the burgeoning streaming TV
market surged on Friday after reporting better than expected fourth quarter
results on Thursday evening.
Roku (ROKU 66.63, +2.16, +3.35%) surged 25% on Friday after reporting better than expected fourth quarter results. Roku is the leading smart TV operating system in the US. Fourth quarter sales of its streaming devices were up 30% in units, but the company also licenses its operating system to TV manufacturers. As a result, player revenue was up 21%. Importantly, the company is monetizing its strong position via higher-margin platform revenue. Player revenue grew 77% to $151 mln as gross profit for the segment grew 72% to $109 mln.
The company guided first quarter revenue in-line with estimates and fiscal 2019 revenue of at least $1 bln, or 35% growth, just above expectations. In January, the company pre-announced active accounts grew by 3.3 mln to 27.1 mln in the fourth quarter (up 40% yr/yr) while hours streamed surged 69% to 7.3 mln. Roku continues to manage the business for break-even while it focuses on scaling its platform revenue.
Roku has a ~$7 bln valuation and trades at ~7x sales which is comparable to social media stocks with similar targeted advertising businesses.
The Trade Desk (TTD 199.82, +2.09, +1.06%) surged 31% on Friday after reporting better than expected fourth quarter results. The Trade Desk is the leading independent programmatic ad buying platform that enables large advertisers to target consumers across the internet, in most places beyond the walled content gardens of Facebook, Amazon, or YouTube. Fourth quarter revenue growth accelerated to 54% from 50% in the third quarter.
Advertising spend on The Trade Desk continues to surge across channels, but the Connected TV channel is the largest opportunity. Connected TV spending grew 525% in the fourth quarter and 9x for the year off a low base. An explosion in streaming TV resulted in a huge year for The Trade Desk, which had been investing in the space by securing key supply partners. Brands can target consumers watching TV using Roku through The Trade Desk, which is also partnered with direct-to-consumer (DTC) offerings from CBS or Discovery and streaming leaders such as Hulu and Sling.
The company guided first quarter and fiscal 2019 revenue above consensus, calling for sales of at least $637 mln, up more than 33%. The company is squarely focused on the top line for now, but still boasts SaaS industry leading margins. The company is very optimistic about 2019 after taking market share and growing at twice the rate of the programmatic ad industry five straight years.
With a market cap of ~$9 bln, the stock has earned a premium valuation, with a low-teens sales multiple and close to 80x earnings estimates. After successive strong reports with accelerating growth, the market is starting to appreciate the company's long-term potential to disrupt the advertising technology duopoly of Facebook and Google. The company's competitive advantages come from being independent, not owning content, and offering the best omni-channel ad targeting technology. The company will host an Investor Day next Wednesday on March 6.
Both Roku and The Trade Desk are well positioned to benefit from the nascent Connected TV industry, which represents a huge opportunity as TV and the internet continue to converge.
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