Seaport analyst David Joyce downgraded Roku Stock from Neutral to Sell, expressing concerns about the company’s heavy reliance on the Roku Channel for ad monetization. The streaming platform, represented by the ticker symbol ROKU, witnessed a decline in early trading on Monday following the rating adjustment.
The advertising sector poses challenges for Roku, with streaming giants Disney+ and Netflix introducing ad tiers. Additionally, a broader spending pullback in the media and entertainment industry has further impacted Roku’s advertising growth, according to Seaport Research Partners.
Joyce, in his downgrade, established a price target of $75, emphasizing that Roku’s growth trajectory might lag behind industry expectations. He noted, “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.”
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The analyst raised concerns about the sustainability of Roku’s reliance on the Roku Channel as a primary ad monetization medium, citing the need for investments in proprietary content. He views this strategy as a “less-economic revenue growth driver” facing headwinds due to evolving content distribution and the emergence of new streamer launch/subscriber revenue-share models.
As of the publication, Roku’s stock price had declined by 2.12% to $93.90. The bearish outlook from Seaport underscores the challenges Roku may encounter as it navigates a changing landscape in the streaming and advertising industry.