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Week to date, shares of Roku (ROKU -1.98%) were up 15% through Thursday’s close, according to data provided by S&P Global Market Intelligence. The company reached a deal to bring a wealth of content over from Warner Bros. Discovery, sparking enthusiasm around Roku’s advertising growth.
The deal will add Warner Bros. Discovery’s branded free, ad-supported television (FAST) channels to The Roku Channel, in addition to about 2,000 hours of on-demand programming. This includes a wealth of content from the media company’s HBO, HBO Max, Discovery Channel, HGTV, Food Network, Warner Bros. Pictures, and more.
This is part of Roku’s strategy to bring new content to The Roku Channel, which it monetizes with advertising. The service has proven to be a powerful draw for new customers, with streaming hours continuing to grow faster than the rest of the platform, nearly doubling year over year in the third quarter. This outpaces the company’s total streaming hour increase of 21%, reaching 21.9 billion last quarter.
Image source: Roku’s third-quarter shareholder letter. ARPU = Average revenue per user.
This news builds on the announcement of Roku Select and Roku Plus Series TVs launching in the spring of 2023. These are the first TVs made and designed by the company, which will create a perfect integration of software and hardware that could enhance the user experience and drive growth in active accounts over the long term.
Roku’s stock has been beaten down hard over the last year due to weak sales of TVs and uncertainty over the advertising market. Still, Roku has continued to grow its active account base, ending 2022 with 70 million, up from 60 million at the end of 2021.
More people watching The Roku Channel helps Roku land content deals, which in turn attracts advertisers to invest in the platform. Streaming will continue to grow as more people drop cable. Roku has a valuable proposition for all parties with its growing library of free content. This is why the stock could be undervalued right now.
John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Roku and Warner Bros. Discovery. The Motley Fool has a disclosure policy.
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