By Ben Levisohn

Shares of Roku and Trade Desk were rising Monday after an analyst suggested the two companies should merge.

In a note Monday, Guggenheim analyst Michael Morris keyed in on Trade Desk's announcement of a new operating system for connected TVs, to be called Ventura. While he acknowledges that Ventura, on its own, could be a new competitor to Roku, he thinks a hookup of the two companies would benefit both.

For one, launching a new operating system is extremely difficult, even one that promises to make advertising on smart TVs better. It's a market that includes Roku, but also Alphabet, Amazon, Apple, Comcast, and Charter Communications. "[We] believe that Ventura would face a long climb to achieve the market penetration necessary to impact the industry, " Morris writes.

Roku, though, has " consistently grown both its streaming household install base and platform revenue," Morris explains, despite the competition. It would also help them fend off their larger competitors, particularly Amazon and Alphabet.

"[We] believe TTD could rapidly scale its OS ambitions via ROKU's 85mm+ global streaming household footprint, while ROKU could quickly leverage its first-party viewer data and expanding CTV inventory to match with growing advertiser demand," Morris writes. "We believe that the positives of a vertical integration between TTD and Roku outweigh the incremental challenges and would best position each entity most effectively compete in the CTV market for the long term and to maximize entity value."

Morris appends a note to his report, calling "the transaction mentioned here is strictly hypothetical," and stating that he and his team have "no knowledge of any strategic discussions currently underway, nor are we assigning any probability to it being consummated." Still, the market seems to be responding. Trade Desk stock has gained 3.6% to $133.17, while Roku shares have risen 7.3% to $ 74.10.

Write to Ben Levisohn at ben.levisohn@barrons.com

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December 02, 2024 13:51 ET (18:51 GMT)

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