Merging streaming technology and connected television (CTV) leader Roku Inc. NASDAQ: ROKU and advertising technology leader Trade Desk Inc. NASDAQ: TTD was suggested by a Guggenheim analyst, causing both stocks to rise. Roku shares are up more than 20% following the Dec. 2, 2024, announcement, and The Trade Desk shares are up 10%. The market reaction was noticeable because the merger was just a “what if” scenario, not based on any reality or interaction between the companies. The stock reacted as if active negotiations were underway. This has many analysts and investors wondering about synergies if they ever materialize. Let’s take a look at what each company offers and whether a merger between these two leaders in the computer and technology sector makes sense.
Roku: Biggest TV Streaming Platform Launches Its Own AdTech Platform
Roku today
(As of 12/18/2024 5:45 PM ET)
- 52 week range
- $48.33
▼
$99.80
- Target price
- $83.81
Early adopters of connected television (CTV) may have been familiar with streaming video content and movies using a Roku device or streaming service. Roku originally made devices that connected your TV to streaming networks, thus creating CTV. Roku has created its own operating system (OS), Roku Smart TV, which allows smart TVs to access streaming networks. Initially licensing Roku OS to smart TV manufacturers, Roku began producing its smart TVs with Roku OS installed. Roku OS is a consumer-oriented OS that aggregates and delivers streaming content.
Roku is the largest TV streaming platform with more than 80 million active users and 120 million viewers in the United States. It has the most streaming apps of any streaming platform. Roku competes with Alphabet Inc. NASDAQ: GOOGLEGoogle TV OS, Walmart Inc. New York Stock Exchange: WMT, VIZIO and SmartCast OS.
While Roku currently partners with The Trade Desk, they have also launched their own self-service programmatic advertising platform, Roku Ads Manager (RAM). RAM allows advertisers to buy and manage data-driven advertising campaigns directly on the Roku platform, which includes Roku TVs, Roku devices and the Roku Channel. The Trade Desk offers advertisers its software platform to manage advertising campaigns across thousands of services and channels, including Roku.
The Trade Desk: World’s Largest Independent DSP Creates TV Operating System (OS)
Trading department today
(As of 12/18/2024 5:45 PM ET)
- 52 week range
- $61.47
▼
$141.53
- P/E ratio
- 209.72
- Target price
- $127.07
When advertisers want to buy ad space for their marketing campaigns, they can use The Trade Desk’s AI-powered Kokai platform. Kokai has access to thousands of channels, platforms and networks. It is a programmatic media buying platform with real-time bidding (RTB) that allows you to automatically purchase advertising space. Trade Desk is the world’s largest independent DSP, which means it has no inventory of its own to sell and therefore has no preferences or biases, unlike competing DSPs such as Google. Meta Platforms Inc. NASDAQ: META, And Amazon.com Inc. NASDAQ: AMZN who have their own stocks for sale.
The Trade Desk is working on its Ventura OS operating system. It is an advertiser-focused platform that combines Kokai’s RTB and automated media buying with AI-powered campaign management, data integration, optimization with AI-powered insights, and streamlined workflows.
Merger Pros: Data-Driven Dominance
The merger of Roku and The Trade Desk will integrate Roku’s self-service advertising platform into Kokai’s much larger software DSP, and Roku OS will be integrated with Ventura OS. Combining the nation’s largest consumer-facing streaming platform with the world’s largest independent advertiser-facing platform will bring together oceans of data and a more vertically integrated advertising ecosystem.
The depth of data from consumers and advertisers can be unprecedented, providing insight into consumer and advertiser trends, metrics and personas. More data means better targeting for advertisers, which can support their business. It will also mean greater revenue diversification as Roku collects revenue from its Roku Channel, Roku TVs, devices and streaming subscriptions across its network.
Cons of a merger: too many eggs in one basket
The downside of the merger would be over-reliance on the advertising market. If there is a downturn in digital advertising, much of the combined company’s revenue will be impacted. The combined market share of the two giants will also trigger regulatory scrutiny for potential antitrust violations. Integrating different business models and cultures between two companies can be challenging.
Trade Desk will no longer be an independent DSP as it will also be Roku’s advertising inventory. Even if they kept the two platforms separate, the optics suggest otherwise. This may discourage some advertisers who want to stick with an unbiased, independent DSP.
Financially, Roku has been operating at a loss for years, but recently posted a profitable quarter. In contrast, The Trade Desk remained profitable even during the advertising downturn. However, a new downturn could put pressure on Roku’s balance sheet.
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