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Why Roku Stock Climbed 33% Last Month

What happened

Shares of Roku (NASDAQ: ROKU) were moving higher last month as the streaming-device maker gained on a new partnership and flexed its muscles in negotiations with new streaming services.

According to data from S&P Global Market Intelligence, the stock finished July up 33%. As you can see from the chart below, nearly all of those gains came in the early part of the month on the above news items.

^SPX data by YCharts.

So what

Roku stock surged on July 1, opening the month with a 10% gain after the company said the Peloton app would be available on its platform. The move shows its ability to deliver value to users beyond traditional video entertainment, and ties it to the fast-growing, interactive at-home exercise company. The partnership also capitalizes on high demand for health and fitness content during the pandemic.

Image source: Roku.

The following week, Roku shares jumped again, climbing 12% on a report from CNBC that Roku and Comcast's new streaming service, Peacock, were at loggerheads in negotiations as Peacock balked at Roku's standard ad-inventory take rate of 30%, preferring a number closer to 15%. The standstill came after a similar dispute with HBO Max, and that service is also still blocked from Roku.

This shows investors that the company is leveraging its strength against legacy media that would like to make their apps available on Roku because it's the most popular TV streaming platform. Still, a deal would be in Roku's best interest as well as the streaming services'

Now what

Roku shares pulled back on Aug. 6 following its second-quarter earnings report despite mostly strong numbers. Revenue rose 42% to $356.1 million, easily beating estimates at $315.4 million. The company also posted a loss of $0.35 per share on the bottom line, ahead of the consensus for a per-share loss of $0.50.

Despite the solid results, management was still cautious, saying that total TV ad spend wouldn't return to pre-pandemic levels until 2021, and that advertisers hit hard by the crisis have not come back. That outlook, which followed the strong gains in July, may have served as an excuse for investors to take profits, pushing the stock down 7% on Aug. 6.

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Jeremy Bowman owns shares of Roku. The Motley Fool owns shares of and recommends Roku. The Motley Fool has a disclosure policy.


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