Roku hits all-time highs after making peace with HBO

Shares of Roku Inc (NASDAQ: ROKU) hit a fresh all-time high of $352.12 Thursday morning after the streaming video company confirmed it reached an agreement with media behemoth HBO.

HBO coming to Roku

Roku along with HBO and its parent company WarnerMedia said in a Wednesday afternoon press release Roku users will be able to stream HBO content from the Roku channel store, effective Thursday.

The two sides were previously unable to reach an agreement on how to split ad space within an ad-supported version of HBO Max, sources told The Wall Street Journal. But these types of disputes are quite common within the media industry, especially within the streaming universe.

Financial terms of the deal were not disclosed although sources told WSJ WarnerMedia didn’t share any content for the Roku Channel.

Roku’s previous disagreement with NBC’s new streaming platform Peacock nearly ended with Roku removing dozens of NBC’s apps from its channel store back in September. But much like with HBO, Roku and NBC reached an agreement.

How Roku benefits

Roku sells hardware streaming devices and hopes to monetize its user base through ads and revenue-sharing deals. In fact, Roku could get a cut of new HBO Max subscribers that sign up directly through its streaming platform.

HBO Max costs $14.99 per month and a basic assumption that Roku collects a 20% cut means the financial benefit to Roku could be in the tens of millions of dollars.

If just 1 million new users sign up for HBO Max on Roku, the company could generate an incremental $36 million. 

Is it too late to buy Roku stock?

Roku’s stock has risen nearly six-fold from its March lows and at least two Wall Street analysts remain bullish. In fact, Benchmark analyst Daniel Kurnos raised his price target on Roku’s stock from $300 to $410 while BofA Securities analyst Ruplu Bhattacharya added $20 to his old $360price target.

The Benchmark analyst noted that Roku’s ability to strike an agreement with both HBO and NBC means the case against the stock that Roku is losing its negotiating leverage has now been debunked.

CNBC “Halftime Report” regular Jon Najarian said he was a seller of Roku’s stock after confirming the HBO agreement. But the decision to sell is strictly based on profit-taking motives.

Najarian said he expects to pick up the stock again at a cheaper price of around $250 to $270 per share. This implies a downside move of up to 25% from current levels. Buying Roku’s stock on the dip has proven to be the right move in 2020, especially after its February earnings report.