What happened
Shares of Roku (ROKU 2.11%) were surging today even as there was no major news out on the leading streaming distribution platform. Instead, investors seemed to be reacting to a number of smaller news items, including that Amazon was planning to launch an ad-based tier for Prime Video.
As of 1:52 p.m. ET, Roku stock was up 11.6% as of 1:53 p.m. ET.
NASDAQ: ROKU
Key Data Points
So what
Streaming stocks were up broadly today, possibly in response to rumors that the connected TV ad market was bouncing back in the second quarter, and as Netflix scored a pair of analyst upgrades that cheered the tailwinds from the leading streamer's "paid sharing" rollout and its growing ad business.
With Amazon throwing its hat into the advertising ring, all major U.S. streaming platforms are now offering some kind of ad product, which is great news for Roku as the company makes most of its money from advertising and generally takes 30% of ad inventory from streaming partners on its distribution platform.
The Wall Street Journal reported today that Amazon is planning to launch an ad-supported tier in order to boost revenue from its video service. Amazon is already the third-largest digital advertiser in the U.S. behind Alphabet and Meta Platforms so a move into video makes sense.
It's unclear how Amazon would price the ad tier as it currently gives away Prime Video for free to Prime members as part of a bundle that includes free shipping and returns.
The news also comes as Amazon has been tightening its belt, looking for ways to cut costs and drive profitability.
Now what
Though the Journal said Amazon's discussions about an ad tier were in the early stages, the move would represent the latest domino to fall in the shift to ad-based streaming, following a similar decision by Netflix and Walt Disney.
While it will take time for the ad-based audience to grow, it will add to Roku's long-term growth opportunity. With the stock still down more than 80% from its peak during the pandemic, there's a lot of upside for Roku if the ad market starts to turn around.
