Insights

Why Roku Stock Popped on Thursday

What happened

Shares of Roku (NASDAQ: ROKU) gained ground on Thursday, jumping as much as 7.7%. As of the market close, the stock was still up 2.9%.

There were positive developments for the streaming pioneer, but the catalyst that seemed to fuel the move higher was news that it’s gaining a high-profile streaming service.

So what

Roku announced that media-giant Paramount Global (NASDAQ: PARA) will be bringing Paramount+ — its namesake streaming service — to the Roku platform, launching later this month. Viewers will be able to subscribe to Paramount+’s ad-supported Essential Plan, at $4.99 monthly, or its ad-free Premium Plan, at $9.99 monthly, directly from within The Roku Channel, according to the press release.

The companies also noted that a host of marquee sports programming would be debuting just in time for the fall sports season. Viewers will be able to watch The NFL on CBS, as well as live programming from the CBS News Network and entertainment programming, including Entertainment Tonight.

All the live programming will be supported by a dedicated real-time TV guide, “marking the first time a dedicated programming guide for a premium subscription partner has been created.”

In other news, Citi analyst Jason Bazinet lowered his price target on Roku stock to $125, down from $165, while maintaining a buy rating on the shares. This represents 58% upside for investors, compared to Wednesday’s closing price.

On another bullish note, the analyst believes that Roku’s recent revenue weakness is the result of macro conditions and not the result of poor execution, suggesting that Roku’s stock will rebound once the broader economic issues subside. 

Now what

Roku makes money in a variety of ways, including taking a cut of every subscription that’s initiated within its service, as well as 30% of the advertising shown on the channels on its platform. The deal with Paramount+ — which includes both a fully paid subscription and a lower-cost, ad-supported option, helps Roku win both ways. The deal also shows that Roku is operating from a position of strength, buoyed by more than 63 million active accounts, giving it leverage at the negotiating table. 

Roku’s unrivaled scale and the reach of its platform show it’s well-positioned for the future, making Roku stock a buy.

Danny Vena has positions in Roku. The Motley Fool has positions in and recommends Roku. The Motley Fool has a disclosure policy.

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