While Roku (ROKU) made a name for itself as a hardware provider for streaming services, monetizing that reputation hasn’t always proven effective. And although Roku’s advertising director has a big new plan, investors aren’t holding out hope for it. In fact, Roku is down over 10% in the closing minutes of Wednesday’s trading session.
Basically, Roku is working on the concept of shoppable ads, which isn’t exactly a new concept but one that perhaps isn’t seeing action the way many had hoped. With a shoppable ad, the lag time between contact with a product and purchasing has been reduced to its near-theoretical minimum. Users can order a product directly from the ad itself with their television interface and then receive the product at some point thereafter.
That’s what Roku is going after, which could be quite a deal; showing a movie where one character wears an outfit you like would make you instantly able to order a similar outfit. It’s potentially even possible you’d be able to order that exact outfit, if you’re looking for screen collectibles. At that point, the impact of 30-second commercials plummets; any show that just runs product placement with shoppable ads can basically air a program from start to finish with no “commercial interruptions.” The commercials are effectively built right into the show.
Cash Burning
There’s one major problem for Roku right now – its cash burn rate. While Roku’s growth rate is coming back, it’s not likely to continue to accelerate. In fact, some look for Roku’s growth to basically plateau for the remainder of the year. Its efficiency levels don’t look to improve either, as Roku is still shelling out big for sales and marketing.
That means Roku needs to either hike its revenue or cut its costs, otherwise, it will be going nowhere fast for the foreseeable future. While the new ad scheme may do the job—imagine being able to offer the equivalent of an ad-free tier without actually sitting through ads—there’s no sign of when it will be ready for prime time, so to speak.
Is Roku a Buy, Hold, or Sell?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on ROKU stock based on eight Buys, five Holds, and two Sells assigned in the past three months, as indicated by the graphic below. After a 19.84% loss in its share price over the past year, the average ROKU price target of $76.14 per share implies 36.93% upside potential.
