After suffering a record one-day plunge July 29 in the wake of a disappointing earnings report, Roku shares have clawed back, staging a sharp rally across the first five trading days of August to end Friday’s session just 3.4% below where they closed just prior to the report.
“Management ramped expenses dramatically into what we believe will be a ’23recession which is likely to lead to lower than consensus revenue growth and larger losses through ’23 and possibly ’24 depending on the length of what we view as an inevitable recession,” he wrote in a Sunday note to clients as he lowered his rating on the stock to sell from hold and kept a $60 price target.
A source of debate among analysts covering Roku’s stock is whether the company is feeling ad-market challenges more acutely than others in the industry, and Wlodarczak thinks the company is being “hit materially harder.”
Further, he worries about both the health of streaming growth and Roku’s ability to maintain its positioning in the market. In his view, Roku “substantially benefited from a fee bonanza” as companies rushed to launch new streaming services, but he notes that growth for many services seems to be slowing, and some offerings may shut down.
Roku, meanwhile, is trying to keep expense growth in check given the current environment, but Wlodarczak wonders if the moves will impact the company’s long-term positioning.
“[W]e agree that streaming is an important growing market medium/long term and if Roku is back on its heels for the next 9-12 months it gives well capitalized existing and new players an opportunity to take share (potentially through much more aggressive offers),” he wrote. “We believe it is naive to think Roku will not see declining market share over time given the importance of streaming aggregation and the large players attacking the opportunity.”
He called Roku shares “a fundamental short at current share valuation levels.” The stock is down 1.5% in premarket trading Monday.
Roku shares have lost about 79% over the past 12 months as the S&P 500
has fallen 6.6%.