In this artice, we will look at the 8 Worst AdTech Stocks To Buy Now. Let’s look at where Roku, Inc. (ROKU) stands against other worst adtech stocks.
Overview of the AdTech Industry
The adtech industry includes an array of products and companies, including supply-side platforms (SSPs), demand-side platforms (DSPs), data management platforms (DMPs), ad exchanges, and more. According to data by Allied Market Research, the global adtech market stood at $748.2 billion in 2021, and is anticipated to reach $2.9 trillion by 2031. This translates to a compound annual growth rate of 14.7% between 2022 and 2031. Experts believe that the industry is well-poised for growth, with the global supply-side platform segment (SS) reaching a market size of $117.32 billion by 2033. Technological advancements, supportive government policies, and higher consumer demand are all factors expected to drive this growth.
In addition, changing trends such as the exponentially growing use of advanced technology like artificial intelligence and machine learning, growing Internet and digital penetration, growth of social media platforms and better prospects for the gaming industry, are all responsible for this growth. In-app advertising, interactive ads, and higher use of connected TV (CTV) have become the dominant trends in the AdTech industry, driving growth and change.
Trends in programmatic advertising are also expected to improve, allowing the demand-side platform software market size to reach $120.1 billion by 2033. The demand for improved targeting and measurement capabilities for online ads is also an important factor to consider in this growth. While the AdTech industry seems promising on its own, the increasing use of artificial intelligence across all platforms is making it even more appealing.
Recent Happenings in the AdTech Sector
Despite its positive trends, the AdTech industry in the US is experiencing certain headwinds, the most prominent being Google’s highly profitable AdTech business going to trial. The Department of Justice and a coalition of states filed a lawsuit against the company in 2023, claiming that the company is illegally dominating the digital ad marketplace, leveraging its market power to suppress competition and innovation. A trial began this month, and the Department of Justice rested its case against its parent company for operating a monopoly in the AdTech market. The tech giant earned more than $200 billion through the placing and selling of ads in 2023, arguing that the reason behind this success is the “effectiveness” of its services. Prosecutors, however, claim that the company has used its dominance to shun rivals.
In addition, smaller AdTech firms are raising concerns over Google’s cookies alternative, Privacy Sandbox. While its ad business is under global scrutiny, the company is making adapting to Privacy Sandbox a critical necessity. However, regulators in the US and UK are of the opinion that the Privacy Sandbox would give Google the lion’s share of control over the digital advertising market, which might negatively affect competition.
Potential technology development delays seem to be negatively affecting smaller AdTech firms, changing the course of the industry. While conclusive results aren’t out, such changes are highly likely to alter AdTech industry trends.
Our Methodology
To list the 8 Worst AdTech Stocks To Buy Now, we used the Finviz screener, ETFs, and rankings to first identify 15 AdTech stocks. Next, we narrowed our list by selecting the 8 stocks that have high short interest but also a high number of hedge fund investors. Finally, these stocks were ranked in ascending order of their short interest. We have also added the number of hedge funds holding each stock as a secondary metric.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
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Roku Inc. (NASDAQ:ROKU)
Short Interest: 6.94%
Number of Hedge Fund Holders: 35
Roku (NASDAQ:ROKU) primarily operates a television streaming platform. Apart from connecting consumers to streamlining content of their choice, it also allows advertisers to engage customers and content publishers to build and monetize large audiences. The company’s segments are divided into devices and platforms. The devices segment covers licensing arrangements with TV brands and service operators in addition to the sales of audio products, smart home services and products, and streamlining players.
In contrast, the platform segment includes selling digital advertising and distributing streaming services. The company’s digital advertising sales include media and entertainment promotional spending, direct and programmatic video advertising, and similar services. The streaming services distribution, however, includes the sale of premium subscriptions, subscription and transaction revenue shares, and the sale of branded app buttons fixed on remote controls. Roku TV models are available in the United States and certain select countries through the licensing arrangements made with TV OEM brands.
More than 120 million people in the US use the Roku Home Screen, one of the company’s biggest assets that gives it a competitive market advantage. The company’s Q2 fiscal 2024 results recorded around 83.6 million streaming households, undergoing a 14% year over year growth with a sequential net addition of 2 million. This growth was driven by both streaming players and TV. Roku (NASDAQ:ROKU) is also experiencing a positive growth in consumer engagement, with streaming hours increasing by 20% year over year. Its engagement per account across the globe is increasing as well. Streaming hours per streaming household went from 3.8 hours in Q2 2023 to 4.0 hours in Q2 2024.
Apart from the increasing popularity of Roku Home Screen, the company’s investments in development and operations pipeline make it well poised for continued profitability. In fact, these positive factors allowed it to expect an acceleration in platform revenue in 2025. Total net revenue in Q2 fiscal 2024 grew by 14% year over year, touching $968 million. Platform revenue also increased to $824 million, with an 11% year-over-year growth.
These trends were driven by advertising activities and the distribution of streaming services. Streaming services distribution activities increased even faster than the overall platform revenue, primarily because of an increase in subscription prices. In addition, device revenue experienced a 39% year over year growth in Q2, primarily driven by the retail distribution expansion of Roku-branded TVs.
In the US, Roku (NASDAQ:ROKU) holds considerable market advantage and popularity. It stands as the top TV OS by streamed TV units and sales, with each share more than double the next largest operating system. These trends show that the company is on the path to building the lead-in to TV. Roku (NASDAQ:ROKU) is anticipating a strong net revenue of $1.01 billion in the third quarter, with an expected 11% year-over-year growth. It also expects platform revenue to grow by 9% year over year. The company is poised to maintain its strong execution record. It is focusing on its monetization initiatives, leveraging the Roku Home Screen as the TV lead-in, increasing Roku-billed subscriptions, and maximizing ad demand for the platform.
On September 12, Benchmark Co. gave Roku (NASDAQ:ROKU) a Buy rating. Wells Fargo also upgraded Roku (NASDAQ:ROKU) to Equal Weight from Under Weight due to Roku channel growth. As of Q2 2024, 35 hedge funds held the stock, with ARK Investment Management holding the highest stakes, worth $762.09 million.
Overall, ROKU ranks first among the worst adtech stocks to buy now. While we acknowledge the potential of adtech companies, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ROKU but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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