Roku (NASDAQ: ROKU) saw its revenue increase 73% year-over-year in the third quarter of 2020, a sharp acceleration from the second quarter when the COVID-19 pandemic hurt advertising sales for its platform business. Roku’s platform business accounted for over 70% of its revenue in the third quarter, and it will account for the bulk of Roku’s revenue growth going forward.

Investors should expect the acceleration in revenue from its platform business to continue due to three factors: ad spend moving to streaming, Roku’s growing ad inventory, and the progress of its plans. international expansion.

TV advertising budgets aren’t what they used to be

After delaying the initial TV event – where marketers commit to spending on prime-time TV ads – the industry saw a significant drop in ad sales during the big event. Commitments have fallen 15-20%, which would result in a shortfall of around $ 3-4 billion compared to last year’s advances.

It should be noted that advertisers had already started to reduce TV ad spending, reducing their previous initial commitments this summer thanks to a rarely used clause. Taking this previous reduction into account, initial sales are roughly stable. That said, advertisers could further reduce their initial commitments if conditions of the COVID-19 pandemic do not improve as expected.

For the most part, these ad budgets don’t just disappear into thin air, they move to digital platforms like Roku. Roku and other digital platforms offer better targeting and audience measurement, which is extremely valuable in an era of limited visibility into market conditions. And Roku management notes that when advertisers shift their ad budgets to streaming, they typically don’t switch back to traditional TV. (The same goes for viewers.)

A growing advertising inventory

Several factors provide Roku with more ads to sell to marketers.

First, the overall growth in audience engagement. Streaming hours increased 54% year-over-year in the third quarter. Average user engagement has steadily increased quarter over quarter. Increases cord cut and one growing number of streaming options will only serve to continue this trend for years to come.

Second, a greater percentage of viewing is on The Roku Channel. Roku says the view time of its ad-supported service has grown more than twice as fast as its overall platform. In addition, there is still plenty of room for The Roku Channel to grow its audience because it still hasn’t penetrated half of Roku’s user base.

Finally, Roku has a strengthening position in negotiations with media companies to take a larger share of ad inventory in ad-supported streaming services. It has the largest and most engaged connected TV platform user base in the United States, which makes it increasingly valuable as a distribution partner. Roku recently exercised its position in recent negotiations for some notable streaming services, and it appears to be winning concessions it hasn’t been able to make in the past. For example, his negotiations with Comcast Peacock’s handout included a provision to add NBC News to The Roku Channel.

Roku is in the early stages of its international expansion

Roku’s international strategy follows the same three phases that made it successful in America: grow scale, increase engagement, then monetize. Roku is currently in its early stages in most markets, but is making progress in some of its early international markets including Canada and the UK. Both of these markets promise significant ad revenue as Roku ramps up its engagement.

In Canada, Roku already claims to hold the number one spot in smart TV sales. It also increases visibility in the UK, launch of the Roku channel in the country earlier this year. As Roku progresses on its roadmap in these countries, it is expected to see a sharp increase in revenue growth, supporting continued growth in its largest home market.

Meanwhile, Roku continues to expand into new markets. He progresses to Brazil, where he launched in january. He also made several agreements in continental Europe about a year ago which are very promising.

The platform is still small

The above three factors are expected to lead to a continued acceleration in platform revenue, which makes up the vast majority of Roku’s total. In the past 12 months, Roku’s platform business generated $ 1.06 billion in revenue. This is only a tiny fraction of the global streaming market, which itself is growing rapidly and is expected to reach around $ 150 billion by 2026. As trends continue to favor Roku, it should be able to generate strong growth for investors.