Roku Faces Downgrade

Roku (ROKU) faced a significant setback on Friday as MoffettNathanson downgraded the stock from Neutral to Sell, simultaneously raising the price target to $66 from $64 per share.

Analysts initially shifted their recommendation from Sell to Neutral, observing the company's increasing focus on profitability and improving profit margins.

However, in light of Roku's recent surge in stock price, the investment firm now believes that the current market valuation of Roku is excessively high when juxtaposed with the potential revenue risks they anticipate continuing.

"In this context, given the limited financial information the company provides, we believe investors do not fully grasp Roku's challenging revenue comparisons for its fiscal year 2024," noted the analysts.

The firm's analysis indicates Roku's primary revenue growth in 2023 stemmed from content distribution payments, fueled by the acquisition of a significant new client and substantial price hikes for subscription video-on-demand (SVOD) services.

Analysts highlighted data from Antenna revealing that in October 2023, the growth rate of premium SVOD subscriptions in the United States had decelerated to just +12%, "even lower than the 2018 rate before serious streaming service competition began."

"As we move beyond 2023, we anticipate SVOD market sluggishness and a year-mark of price changes and new customer acquisitions will decelerate content distribution revenues," articulated the analysts.

"Consequently, the primary growth driver for 2024 will likely be connected TV (CTV) advertising. While we anticipate a robust CTV advertising market, we expect larger players like Amazon Prime, Netflix, and Disney to capture an increasingly significant share of this market," the analysts concluded.