Roku, Inc. (ROKU) shares surged 17.67% Monday after the streaming dongle-maker said it had entered into a carriage deal with Comcast’s subscription video-on-demand streaming service Peacock. The NBCUniversal subsidiary, which has more than 15 million users, offers paid tier services and free ad-supported access that provides Roku opportunities to grow its advertising revenue.
“We’re focused on delivering the kind of high-quality news and entertainment content Roku users want and love, and we’re excited to welcome Peacock’s world-class programming to America’s #1 TV streaming platform and help NBCUniversal build a bigger fan base through our industry-leading, audience development tools,” Roku’s vice president of content acquisition Tedd Cittadine said in a statement cited by Barron’s.
As of Sept. 22, 2020, Roku has a market capitalization of $24.16 billion and trades 41% higher year to date (YTD). Over the past three months alone, the stock has added 47%.
Advertising Revenue Boost
The agreement boosts Roku’s growing advertising revenues, with management saying the deal includes “a meaningful partnership around advertising.” Although the companies didn’t disclose specific details about their ad-sharing arrangement, Roku has previously stated that it receives a 30% cut of ad revenues from the channels its platform carrries.
Wall Street View
Rosenblatt Securities analyst Mark Zgutowicz reiterated his buy rating on the stock and told clients that the deal – as well as providing advertising revenue – gives Roku bargaining power in its negotiations with WarnerMedia to carry its HBO Max service. “We expect an HBO Max deal inked (prior to) the onset of holiday season (TV) sales,” the analyst said.
Other research firms also remain bullish, with the stock receiving 17 ‘Buy’ ratings, and 5 ‘Hold’ ratings. Just two analysts recommend selling the shares. Twelve-month price targets range wildly on the Street from as high as $228 to as low as $65. The shares currently trade 10% above the average price target of $169.38.
Technical Outlook and Trading Tactics
Roku shares broke out of a two-month trading range Monday to set a new all-time high (ATH) after news of the Peacock deal surfaced. Furthermore, the move occurred on huge volume, indicating participating from larger market players. Also, the 50-day simple moving average (SMA) crossed up through the 200-day SMA in late July, a signal that typically marks the start of a new uptrend.
Breakout traders who buy at these levels should consider using the 50-day SMA as a trailing stop to let profits run as far as possible. To use this exit strategy, remain in the stock until price closes below the indicator. This would involve placing an initial stop-loss order just below $160.