- Wednesday, October 16, 2024
Roku Inc. is experiencing a significant decline in its shares, with a potential loss of almost a quarter of their value on Friday. Analyst Michael Nathanson from MoffettNathanson expresses concerns about the future of the media-streaming company, stating that it is "at the precipice of being squeezed by the emergence of challengers on all flanks."
Nathanson's worry stems from the fact that Roku's "first-mover advantage in streaming connectivity" may dwindle due to increasing competition from larger players entering its market. He specifically mentions Amazon and major global equipment makers that are either developing their own streaming devices or seeking a share of the market.
Moreover, Walmart Inc. is reportedly showing interest in acquiring television maker Vizio Holding Corp., which could potentially harm Roku's standing in a crucial retail channel.
While Vizio declined to comment on the possibility of a deal, Walmart has yet to provide a statement.
Nathanson also highlights Amazon's recent decision to make advertisements the default for Prime Video viewers. He believes this shift will have a deflationary impact on overall ad prices in the connected TV advertising landscape.
Given these concerns, Nathanson rates Roku's stock as a sell, with a target price of $66.
Read: Jeff Bezos sells more Amazon stock, bringing total to $6 billion this month
Piper Sandler analyst Matt Farrell, meanwhile, takes a closer look at Roku's latest results and guidance. While Wall Street seems disappointed with the company's outlook, stating that platform revenue growth in the first quarter may be similar to that in the fourth quarter, Farrell believes that comparisons are now easier.
Roku Faces Challenges in Platform Revenue Growth While Embracing New Strategies
Roku's Q1 platform-revenue acceleration fell short of expectations, causing concern for some analysts. Despite this, the company's improved free cash flow and robust cash reserves cannot be overlooked.
Several analysts have weighed in on Roku's performance and future prospects. Jason Farrell of Oppenheimer emphasized the need for greater clarity regarding Roku's platform business before forming a constructive opinion. However, he acknowledged that the company's positive strides in free cash flow and a substantial cash pile of approximately $2 billion are significant points to consider. Currently, Farrell rates the stock as neutral with a target price of $81.
On a similar note, Jason Helfstein from Oppenheimer expressed his cautious stance on Roku's shares. Helfstein believes that the company will face difficulties in gaining momentum until it can consistently grow platform revenue at a high-teens rate. He anticipates that growth will remain at 9% for most of 2024. Helfstein praised Roku's strategy of embracing third-party programmatic demand and data integration for performance-based campaigns. However, he pointed out that a large portion of platform revenue is driven by streaming advertising, price increases, and media & entertainment advertising, which are expected to struggle throughout 2024. Consequently, Helfstein downgraded his rating on Roku shares from outperform to perform.
Contrasting the cautious opinions, Alicia Reese from Wedbush expressed optimism and described Roku's latest results as "almost perfect." Reese emphasized that despite industry-wide challenges such as lower media & entertainment spending, Roku's strategic initiatives are expected to lead to higher revenue growth than previously projected. Paired with improved expense management, this growth is projected to drive consistent EBITDA (adjusted earnings before interest, taxes, depreciation, and amortization) growth.
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