Roku
stock tumbled Friday on the heels of a downgrade from an analyst team concerned that the streaming-media company’s shares rose too quickly too fast.
MoffettNathanson analysts led by Michael Nathanson downgraded
Roku
to Sell from Neutral on Friday and lowered earnings estimates for 2023 and 2024, but lifted their stock price target to $66 from $64.
The stock was down 6.5% to $96.24 in Friday trading, but has soared 136% this year.
Friday’s ratings move reverses the firm’s upgrade to Neutral at the end of October ahead of Roku’s third-quarter earnings report—which included better-than-expected revenue and active accounts.
“We weren’t making a call on a stronger top-line; instead, after a ridiculous, undisciplined surge in expenses in 2021 and 2022, the company had taken meaningful cost actions to rein in expense growth and we saw a path towards achieving profitability,” analysts wrote in a Friday report.
The downgrade, however, doesn’t reflect a change in that view of fundamentals. Rather, it’s all about valuation. Since the company posted third-quarter results on Nov. 1, shares have soared 72% through Thursday’s close, according to Dow Jones Market Data.
“We simply cannot get anywhere near current stock levels in our valuation framework,” Moffett said, even with their fairly upbeat forecast for adjusted earnings before interest, tax, depreciation, and amortization.
According to the firm’s research, the larger portion of Roku’s revenue growth was driven by content distribution sales this year, but streaming subscription growth is slowing and will continue to do so, which will weight on content distribution revenue.
Next year, Connected TV advertising—ads that appear while streaming content—will have to push growth, though “better scaled players” including Amazon Prime,
Netflix,
and
Disney
will likely snap up market share, analysts said.
Write to Emily Dattilo at [email protected]
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