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

Shares of Roku Inc ROKU were trending lower in early trading on Monday.

The company has been facing headwinds in advertising growth, with streaming giants Disney+ DIS and Netflix 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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