Roku Shares Collapse as Analyst Lays Out Bearish Remarks on the Company

This week, shares of streaming device maker Roku were falling to their lowest price since October 2020.

The drop came after Wall Street learned that an analyst said competition from Amazon, Google is stunting the company’s user growth.

Atlantic Equities wrote in a note that user growth appears poised to slow, especially outside the U.S. The firm initiated coverage with the equivalent of a “sell” rating.

“To date, the majority of Roku’s business has been in the US, a market in which it has clearly been very successful,” Hamilton Faber, an analyst at Atlantic Equities, wrote in a report to clients. “However, we believe the company is now nearing saturation in the US unless it can win over additional major OEMs, and we believe this is unlikely, certainly in the near term.”

Atlantics initiated its coverage of Roku at a price target of $136. This is about 39% below Tuesday’s closing price.

It was this week that Amazon said the company sold more than 150 million Fire TV devices.

Atlantic predicts that Roku’s U.S. market share will be capped at around 40%. In addition to Amazon and Google, Faber also believes Samsung is a stiff competitor, because it’s building out its own smart TV platform. TV manufacturer LG is doing the same thing.

“As such, we struggle to envisage a near-term situation where Samsung or LG would look to outsource to Roku,” wrote Faber.

“We estimate that 80% of Roku’s active accounts are located in the U.S., implying 34% penetration in that market and just 6% in the other markets in which it operates,” analyst Hamilton Faber wrote in a note to investors. The streaming device company’s international markets include Canada, Mexico, Brazil, the UK, France, and several other Latin American countries.

The analyst expects U.S. annual additions to ease with overall global adds for the next four years “meaningfully below consensus of 10.5m million.”

Disclaimer: We have no position in any of the companies mentioned and have not been compensated for this article.