We recently published a list of 11 Best AdTech Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where Roku, Inc. (NASDAQ:ROKU) stands against the other best Adtech stocks to buy.
As per Dimension Market Research, the Global AdTech market size touched US$1,066.8 billion in 2023 and should reach US$3,528.4 billion by 2032. The market is expected to compound at ~14.2% from 2024 to 2032. Some of the critical trends include a strong emphasis on privacy-centric advertising, growth fueled by AI-driven personalization, and dominance of video and mobile advertising.
Key Trends Defining the AdTech Market
Artificial Intelligence and Machine Learning continue to drive sophisticated audience segmentation and personalized ad experiences. As per Geomotiv, a software development company, these technologies can quickly analyze vast amounts of data, predict user behavior, and tailor ads in real time. Collectively, these features help to improve engagement and conversion rates. The benefits of personalization and the opportunities provided should drive the demand for these solutions and the growth of AI-oriented AdTech companies.
Market experts believe that advertisers continue to target Programmatic advertising. This space continues to expand beyond traditional digital channels. Adnimation, a software company, highlighted that CTV ad spending is expected to grow to $42.4 billion by 2027 in the US. Publishers that have video content should prioritize CTV and find for best supply-side platform (SSP) to tap into a rapidly growing market.
Advertisers have been leveraging programmatic to reach the audiences with targeted ads. Furthermore, programmatic continues to make inroads into the audio format, such as podcasts and music streaming services. Next, AdTech SaaS companies have been providing customizable solutions, which enable advertisers to tailor the tools and features as per the specific needs. The popularity of these products continues to grow among advertisers and publishers.
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Blockchain and Influencer Marketing Should Drive Growth
As per Adnimation, data-driven influencer marketing is expected to dominate the broader AdTech market. Furthermore, the publishers and their AdTech counterparts continue collaborating with micro-influencers to fuel engagement and conversions. Blockchain technology should also be key in ensuring transparency in digital ad transactions. By decentralizing ad transactions, blockchain can help reduce ad fraud, improve trust between publishers and advertisers, and enable accurate tracking of ad performance. This will result in more reliable revenue streams. Adnimation also believes that, by 2025, video is expected to dominate digital ad formats, making up 82% of all internet traffic.
Our Methodology
To list the 11 Best AdTech Stocks to Buy According to Hedge Funds, we scanned through online rankings and AdTech-focused ETFs. After getting the initial list of 20-25 stocks, we shortlisted the ones having high hedge fund holdings. Finally, the shortlisted stocks were arranged in ascending order of their hedge fund sentiment, as of Q3 2024.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A large movie theatre filled with people enjoying a film streaming on a smart TV.
Roku, Inc. (NASDAQ:ROKU)
Number of Hedge Fund Holders: 40
Roku, Inc. (NASDAQ:ROKU) mainly operates as a television streaming platform. Apart from connecting consumers to streamlining content, the company also allows advertisers to engage customers and content publishers to build and monetize large audiences.
The shares of Roku, Inc. (NASDAQ:ROKU) saw the impact of the media report stating that the digital advertising firm, The Trade Desk, Inc. (NASDAQ:TTD), plans to launch a connected TV operating system by H2 2025. The system, Ventura, will enter a domain that is currently being led by platforms such as Roku, Inc. (NASDAQ:ROKU), Amazon Fire TV, and Google TV. Therefore, market fears emerged that Ventura might impact the dominance of Roku and other players by providing manufacturers and advertisers a neutral alternative to current existing systems.
However, market players believe that the tides are now turning, and Roku, Inc. (NASDAQ:ROKU) is well-placed to revive over the upcoming quarters. First off, the current Q4 is expected to benefit the company from generous political ad spending. Also, the fresh ad-buying partnership with The Trade Desk, Inc. (NASDAQ:TTD) and marketing push for Roku’s own products and services should drive growth for Roku, Inc. (NASDAQ:ROKU).
The collaboration with The Trade Desk, Inc. (NASDAQ:TTD) to enhance the TV streaming advertising experience focuses on providing advertisers with improved tools for planning, purchasing, and measuring ad campaigns. This partnership will leverage Roku’s data capabilities, such as automatic content recognition.
O’keefe Stevens Advisory, an investment advisory firm, released its Q1 2024 investor letter. Here is what the fund said:
“Roku, Inc. (NASDAQ:ROKU) – An idea that would have seemed unthinkable just a few years back when low P/E or low multiple meant the stock was cheap. Roku is free-cash-flow positive, EBITDA breakeven, and GAAP Net Income unprofitable. Historically, investors tend to shy away from unprofitable businesses. Deeming them too risky. Roku has a $2B net cash position and is reinvesting in the business, grabbing Connected TV market share. Geographic expansion takes time and capital. They have a dominant share and have many tailwinds. Walmart’s acquisition of Vizio adds to the already heightened uncertainty. We can’t remember seeing a company with such “negative” sell-side coverage. 9 buys, 10 holds, and 4 sells. Nearly all reports discuss weighting for clarity, which is why the opportunity exists. Wells Fargo has the lowest price target at $45, or 26% downside. We see a reasonable case for a $100 stock in the near term and long term, owning a compounder with an attractive business model, secular tailwinds, and dominant market share that can translate into a desirable return over the next several years.”
Overall, ROKU ranks 2nd on our list of best AdTech stocks to buy according to hedge funds. While we acknowledge the potential of ROKU as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued AI stock that is more promising than ROKU but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.