Analyst Michael Nathanson downgraded Roku stock to “sell” on Wednesday and the company's shares dropped.
Roku has been riding the growth of streaming and a high-flying connected TV advertising market, but Nathanson expected third-party SVOD revenue to slow for Roku at the same time it faces increasing pressure from competitive smart TV set makers and operating systems.
Nathanson, who had been neutral on Roku stock previously, cut his target price for Roku share from $330 to $220. The new price is about 20% below Tuesday’s closing price of $276.46 a share.
n early trading, Roku stock dropped nearly 9% to about $252 a share. It stayed at that level for most of Wednesday. Roku closed at $245.11, down 11%
Looking ahead to 2025, Nathanson said he is lowering his estimate for Roku revenues by 17% because he sees lower video advertising revenue.
“Using a series of comparable data points and third party research, it appears that Roku will need to monetize an absurdly high portion of long-tail AVOD impressions to come even close to Street numbers,” Nathanson said.
He said that Roku makes it difficult to separate revenue from The Roku Channel the company runs from the revenue it gets for selling ads on third party channels.
“We believe viewership, and ad spending, will consolidate among the leading streaming services. As such, we are lowering our 2025 total video advertising estimate by 24% reflecting slower anticipated ad growth from the long tail of third party services on Roku. Despite these lower expected revenue, we believe Roku will need to keep on investing in content and engineering resources to compete against other streaming services, smart TV OS providers and TV OEMs,” Nathanson said.■
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