Roku Ends Battle with YouTube; Shares Surge 18%

Digital streaming platform Roku, Inc. (ROKU) and YouTube have ended their 8 month-long battle. and signed a multi-year deal to continue streaming YouTube on Roku’s platform, according to Reuters.

Shares of Roku shot up 18.2% on the news to close at $256.08 on December 8. Meanwhile, shares of Alphabet Inc. Class A (GOOGL), the parent company of YouTube, closed at $2,963.73.

End of a Prolonged Battle

Earlier in April, Roku and Google got into disagreements regarding the technical and financial terms of the renewal. The old agreement was due to expire in December, and Roku removed the YouTube TV and app from its streaming platform after the tiff, as both companies could not reach a deal.

According to Roku, Google was applying unfair practices and threatening to remove the YouTube app from several TV devices, which would directly impact the TV’s sales as these built-in apps are an attractive selling point for consumers.

Finally, the two have mended ways and entered into a multi-year partnership to continue streaming YouTube on Roku’s platforms. Both Roku and customers stand to benefit since viewership rises drastically during the holiday season, which is just around the corner.

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On signing the deal, both companies said, “Roku and Google have agreed to a multi-year extension for both YouTube and YouTube TV… This agreement represents a positive development for our shared customers, making both YouTube and YouTube TV available for all streamers on the Roku platform.”

Analysts’ Take

Following the news, Needham analyst Laura Martin maintained a Buy rating on the stock with a price target of $550, which implies a whopping 114.8% upside potential to current levels.

According to the analyst, this is a 3-year deal for both advertising-driven YouTube and YouTube TV. The plus point for Roku was that it involved regulators before the deadline date of December 9, and got a win in its favor.

Commenting on Roku’s valuation, Martin said, “We believe Roku should be valued as a digital video aggregation platform such as YouTube. Winning platform aggregators typically benefit from winner-take-most economics, and Walled Gardens (like Roku) typically maximize value capture. Based on YouTube’s 2022 total revenues of $40B (before content pay-outs) and our valuation of its U.S. business at about $450B (at the current ROKU multiple), we believe Roku has material value upside from its current market cap.”

Overall, the Roku stock has a Moderate Buy consensus rating based on 17 Buys, 2 Holds, and 2 Sells. The average Roku price target of $397.9 implies 55.38% upside potential to current levels. However, shares have lost 16.4% over the past year.

Website Traffic

TipRanks’ Website Traffic tool, which uses data from SEMrush Holdings (SEMR), the world’s biggest website usage monitoring service, offers insight into Roku’s performance.

In November, Roku website traffic recorded a 6.57% year-over-year decrease in monthly visits. However, year-to-date website traffic growth increased 8.11% compared to the same period last year.