BofA Likes Roku's Deal To Acquire Nielsen's AVA Business

Roku Inc (NASDAQ: ROKU) announced Monday its intention to acquire Nielsen Holdings PLC's (NYSE: NLSN) Advanced Video Advertising (AVA) business. This will allow the streaming company to dynamically insert customized ads on a one-to-many linear broadcast feed, according to BofA Securities.

The Roku Analyst: Ruplu Bhattacharya maintains a Buy rating on Roku's stock with an unchanged $500 price target.

The Roku Thesis: Roku has been licensing Nielsen's Automatic Content Recognition (ACR) technology from Nielsen, but the acquisition would give it full ownership of Nielsen's portfolio of ACR and Dynamic Ad Insertion (DAI) patents, Bhattacharya wrote in a note. Roku will also make use of Nielsen One, the company's cross-media measurement solution.

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The result of the acquisition will allow Roku to identify what a user is watching and substitute a relevant ad on the back-end for each particular consumer, the analyst wrote. The financial advantages from the acquisition won't be apparent in the near-term, but it will create long-term benefits.

Specifically, Roku will be in a much better position to sell its ad inventory at a higher cost given superior targeting capabilities, the analyst wrote. The consumer will also react better to more targeted and relevant ads.

"We reiterate Buy as we see the shift to OTT as a secular trend and advertising budgets should continue to flow into OTT platforms, and we see Roku as a key beneficiary with its leading market share in the U.S., and plans for international expansion," Bhattacharya wrote in a note.

ROKU Price Action: Shares of Roku were trading lower by more than 3% Tuesday afternoon at $407.53.

(Photo: Roku)