Roku Inc. is currently grappling with a notable downturn in its shares, potentially facing a loss of nearly 25% of their value by Friday.
Analyst Michael Nathanson from MoffettNathanson voices apprehension regarding Roku’s position, suggesting that the media-streaming giant is teetering on the brink of formidable competition from various fronts.
Nathanson has long been wary of Roku’s initial advantage in streaming connectivity, foreseeing its erosion as bigger players encroach upon its market share.
He observes that as the market pivots from smart devices to smart televisions, Roku finds it challenging to sustain its market share amidst intensifying competition, including formidable contenders like Amazon and global equipment manufacturers vying for a slice of the market pie.
Compounding the hurdles, there are murmurs that Walmart is mulling over the acquisition of television manufacturer Vizio Holding Corp. Such a move could potentially jeopardize Roku’s foothold in a critical retail channel.
Although Vizio has refrained from commenting on the matter, Walmart has yet to respond to inquiries.
Nathanson also raises concerns about Amazon’s recent decision to default advertisements for Prime Video viewers, a move he perceives as a significant shift in the connected TV advertising domain.
He anticipates this shift to exert a “deflationary” effect on overall ad prices. Consequently, he advises selling Roku’s stock with a target price of $66.
Piper Sandler analyst Matt Farrell, evaluating Roku’s latest performance and guidance, highlights Wall Street’s disappointment over the company’s suggestion that platform revenue growth in the first quarter might mirror that of the fourth quarter.
Despite facing easier comparisons, the absence of an uptick in platform revenue in Q1 and the anticipated deceleration in growth through 2024 deviates from the trend witnessed in most of 2023.
The potential ramifications of Amazon Prime Video Ads and the speculated Walmart/Vizio deal further complicate the narrative. While Farrell acknowledges Roku’s strides in free cash flow and its substantial cash reserves of around $2 billion, he maintains a cautious stance, rating the stock as neutral with an $81 target.
Oppenheimer’s Jason Helfstein adopts a more conservative stance on Roku shares, suggesting that the stock might grapple with momentum until the company can consistently achieve high-teens growth in platform revenue.
He anticipates a 9% growth rate for much of 2024 and downgrades Roku shares from outperform to perform.
On a brighter note, Wedbush’s Alicia Reese views Roku’s recent performance as “almost perfect” despite industry-wide challenges such as reduced media and entertainment expenditures.
She believes Roku’s initiatives will yield higher revenue growth than projected, accompanied by enhanced expense management, driving sustained EBITDA growth (adjusted earnings before interest, taxes, depreciation, and amortization).
