Why Analysts Are Tuning Out on Roku

Chris Lange

Roku Inc. (NASDAQ: ROKU) shares took a dive on Wednesday after a few analysts came out against the video streaming firm. While Roku has seen an incredible run in just the past couple of months alone, it seems that the firm may be slowing down, at least according to these analysts.

Excluding Wednesday’s move, Roku had vastly outperformed the broad markets, with its stock up about 131% year to date. Over the past 52 weeks, the stock was up only 84%.

Macquarie Research’s Tim Nollen downgraded Roku to Sell from Hold with a $45 price target, implying downside of 36% from the most recent closing price of $70.72.

Macquarie noted that Roku has exponentially outperformed the market and peers. The firm also noted that the market is looking for growth and Roku exhibits some of the highest unit and revenue growth of any of the high growth internet/media stocks. Also with the potential for more competition on the way — especially from Apple and Disney — it’s hard to justify the current valuation.

On the other hand, some analysts believe a number of new streaming video services on the way could give Roku a lift because they’ll need hardware and software to deliver them to consumers. However, as more companies look to make their services attractive, writes Nollen, they might also look to distinguish themselves by withholding content from services like Roku’s free Roku Channel.

The addition of scaled streaming video on demand services from Disney, WarnerMedia and NBCUniversal could limit the amount of library content made available to Roku Channel over time. Not to mention, Apple’s March 25 announcement could prove detrimental.

Separately, SunTrust Robinson Humphrey maintained a Hold rating for Roku with a $63 price target, while Loop Capital downgraded it to Sell from Hold with a $45 price target.

Shares of Roku were last seen down about 14% at $60.87 on Wednesday, in a 52-week range of $26.30 to $77.57. The stock has a consensus price target of $63.84.