(Reuters) -Shares of big media firms including Paramount Global and Warner Bros Discovery surged more than 9% on Thursday after streaming device maker Roku signaled a rebound in the advertising market.
Roku, whose shares rallied about 30%, delivered a surprise core profit in the third quarter and forecast quarterly revenue above Wall Street estimates on Wednesday.
The results bode well for streamers as they all have ad-supported tiers that will benefit from increased spending by marketers. Walt Disney and Netflix gained about 2.5% and 1.2%, respectively.
“We continue to believe there is an acceleration in the secular shift of linear TV advertising dollars moving to over-the-top,” D.A. Davidson analysts said.
The improving ad trends are in line with signs of a rebound in the advertising businesses signaled by results from Alphabet, Meta and Snap in recent days.
Worries over the fallout from Hollywood strikes by writers and actors have weighed this year on the shares of the studios, whose ad revenues have also come under pressure because of an uncertain economy.
Roku President Charlie Collie said there was “a continued rebound in video advertising from second quarter into third quarter.”
A beneficiary of the pandemic-driven shift toward streaming-based content consumption, Roku has also been lifted by its push to more original content on its own streaming channel to attract subscribers and advertisers.
“What really stood out to us was the profit upside, with adjusted EBITDA turning positive two quarters earlier than expected – critical in our view to building long-only interest and valuation support,” J.P. Morgan analyst Cory Carpenter said.
Excluding items, Roku reported a core profit of $43.4 million in the third quarter, compared with analysts’ estimates of $31.4 million core loss, according to LSEG data.
The average rating of 35 brokerages covering the stock is “hold”, with a median price target of $83.50, according to LSEG data.
(Reporting by Medha Singh in Bengaluru; Editing by Sriraj Kalluvila, Savio D’Souza and Anil D’Silva)