Roku slips as KeyBanc downgrades on worries over market share decline, loss of importance
Justin Sullivan
Roku (NASDAQ:ROKU) shares slipped early on Tuesday as KeyBanc Capital Markets downgraded the connected streaming company, citing several worries, including a decline in market share and a loss of importance for its partners.
Analyst Justin Patterson lowered his rating on Roku (ROKU) to sector weight from overweight, noting that the ideas of "outsized growth" in connected TV advertising and becoming a critical platform for its media partners have not occurred. Roku (ROKU) also looks to be losing market share and there are concerns that its advertising technology stack has "greater" debt than first believed.
"As resolving these issues requires sustained investment, we believe consensus is too optimistic on [estimated 2023 and 2024] revenue and gross profit growth," Patterson wrote in a note to clients, adding that it's likely that profitability in 2024 will be "challenging" as a result.
Roku (ROKU) shares fell nearly 2.7% to $52.48 in premarket trading.
Delving deeper, Patterson noted that the media revenue growth for companies with video exposure is expected to be 16% year-over-year in the fourth-quarter, while Roku (ROKU) is expected to see a 13% decline year-over-year in gross profit growth, putting it "between a rock and a hard place on investment."
Roku (ROKU) recently announced that it would cut 5% of the company's headcount, but Patterson said it's likely the company is unable to "meaningfully pull back" in investment areas such as North America and international TV, as well as advertising technology.
"In our view, doing so would arguably slow the revenue recovery," Patterson explained.
As a result, the analyst lowered his revenue estimates for 2022, 2023 and 2024 by 1%, 16%, and 20%, respectively. He estimates revenue will grow 11% year-over-year in 2022, be flat in 2023 and rebound in 2024 to 17% growth, but the company will still show a loss of $79M.
Roku (ROKU) recently announced that QVC and HSN would join the Roku Channel and that it would add channels dedicated to celebrities Emeril Lagasse and Martha Stewart.
Analysts are mostly positive on Roku (ROKU). It has a BUY rating from Seeking Alpha authors, while Wall Street analysts also rate it a BUY. On the other hand, Seeking Alpha's quant system, which consistently beats the market, rates ROKU a HOLD.