Roku Analyst Turns Bearish, Believes This Revenue Growth Driver Is 'Less Economic'

Shares of Roku Inc (NASDAQ: ROKU) were trending lower in early trading on Monday.

The company has been facing headwinds in advertising growth, with streaming giants Disney+ (NYSE: DIS) and Netflix (NASDAQ: NFLX) launching ad tiers and from a broader spending pullback in media and entertainment, according to Seaport Research Partners.

The Roku Analyst: David Joyce downgraded the rating for Roku from Neutral to Sell, while establishing a price target of $75.

The Roku Thesis: With some improvement in industry digital ad growth expectations for the fourth quarter of 2023 and full-year 2024, this is higher than “our estimates for Roku, implying that the company could be losing share,” Joyce said in the downgrade note.

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“While Roku still has ~$2.0B of cash on hand, which is plenty of cushion to handle our expectation of 4Q23E cash burn of $216MM and another $53MM next year, we think the business model is entering a more mature growth phase,” the analyst wrote.

“While Roku still benefits from its active user base scale of ~76MM accounts, including an entrée into roughly half of the broadband homes in the US, our concern is that a reliance on the Roku Channel as a key ad monetization medium, which is requiring an investment in proprietary content, is a less-economic revenue growth driver that faces headwinds as well from the maturing content distribution and new streamer launch/subscriber revenue-share models,” he further wrote.

ROKU Price Action: Shares of Roku had declined by 2.12% to $93.90 at the time of publication on Monday.

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Image: Pixabay, Roku