Analyst: Disney’s New Streaming Service Could Give Roku a Boost

Needham’s Martin sees almost $200M in added revenue
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The Walt Disney Co.’s release last week of details about the upcoming Disney+ subscription streaming service gave Disney stock a boost, and now an analyst said it could give Roku a lift as well.

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Disney said it has reached a deal to give Disney+ prominent display with Roku users. Laura Martin of Needham & Co., in a research note Tuesday, said that Roku will get a share of the revenue generated by people signing up for the new service.

That revenue share plus an increase in advertising could be worth $200 million a year and could boost the market value of Roku by 15% or $1 billion, according to Martin.

Having strong brands like Disney joining the streaming world, with WarnerMedia and NBCUniversal soon to follow, will increase the number of people using Roku and boost its ad revenue, she notes.

Martin calculates that Roku gets between 20% and 30% of subscription revenue when one of its users downloads an app. Disney expects Disney+ to have 20 million to 30 million U.S. subscribers by 2024 at a price of $6.99 a month, or $69 a year.

Roku is in 27 million homes, or about 20% of the U.S. “If Roku holds ‘share’ and signs up 20% of Disney’s projected 20-30 million U.S. subs, it implies Roku would sign up 4 million to 6 million subscribers between 2020 and 2024, which implies added revenue to Roku in 20204 of $87 million," Martin said.

“We also project additional advertising revenue,” Martin added. She estimates Roku’s ad revenue at $275 million in 2018. “By 2024, we expect Disney to be spending $500 million marketing its Disney+ services, of which 20% could go to Roku, representing $100 million of incremental ad revenue upside in 2024.”

Roku stock was up more than 3% in early trading Tuesday.

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