Roku Stock (NASDAQ:ROKU)
Roku (NASDAQ:ROKU) stock fell early on Tuesday after KeyBanc Capital Markets downgraded the connected streaming firm. The analyst cited various concerns, including a reduction in market share and a loss of value for its partners.
Analyst Justin Patterson lowered his rating on Roku stock, moving it from overweight to sector weight, noting that the ideas of “outsized growth” in connected TV advertising and becoming a critical platform for Roku’s media partners have not transpired. Patterson’s reasoning was that Roku has yet to become a critical platform for Roku’s media partners. Roku stock, which also seems to be losing market share, is raising some worries because its advertising technology stack may have “higher” debt than was first anticipated.
In a note to clients, Patterson wrote that “we believe consensus is too optimistic on [estimated 2023 and 2024] revenue and gross profit growth.” He added that it’s likely that profitability in 2024 will be “challenging” due to this. “As resolving these issues requires sustained investment,” Patterson explained, “we believe consensus is too optimistic on [estimated 2023 and 2024] revenue and gross profit growth.”
In premarket trade, ROKU dropped to $52.48, down almost 2.7% from its previous price.
When Patterson dug deeper, he found that the expected growth in media revenue for companies that have video exposure in the fourth quarter is expected to be 16% year over year. In contrast, the expected decline in gross profit growth for Roku is expected to be 13% year over year, putting the company “between a rock and a hard place on investment.”
Patterson said it’s likely the company cannot “meaningfully pull back” in investment areas such as North America and international TV, as well as advertising technology. Roku recently announced that it would cut 5% of the company’s headcount. Patterson said it’s likely the company cannot “meaningfully pull back” in these areas.
According to the information provided by Patterson, doing so would likely impede income recovery.
As a direct consequence, the analyst reduced his projections for revenue for the years 2022, 2023, and 2024 by 1%, 16%, and 20%, respectively. According to his projections, the business would report a loss of $79 million in 2022 even though sales will have increased by 11% year-over-year in 2022, will have remained unchanged in 2023, and will have rebounded to 17% growth in 2024.
Roku has recently announced that QVC and HSN will be joining the Roku Channel, in addition to the fact that it will be adding channels devoted to celebrities, Emeril Lagasse and Martha Stewart.
Featured Image: Megapixl @ Wolterk
Author Shariq Khan 
