Roku Shares Pull Back From Record High After Analyst Downgrade

Streaming device maker Roku has been one of the hottest stocks in the last two years, soaring to over $200 a share this year.

The stock has been falling however after a record close this week after analyst Justin Patterson of KeyBanc Capital cut his rating to “sector weight” from “overweight” on the company. Patterson had the latter rating since April fo 2018.

According to the analyst, recent data suggests at least 2% upside to third-quarter revenue expectations, and a potential acceleration in the fourth quarter, given Peacock ad strength.

Given the inevitable launch of HBO Max on Roku, Patterson believes revenue expectations for 2020 and 2021 is “too low.”

He cited his downgrade due to positive fundamentals already being reflected in the stock price given the recent rally, and the risk-versus-reward scenario is now balanced.

“We believe this signals that investors have priced in positive news, and that Roku needs new catalysts to outperform,” Patterson wrote in a note to clients.

Patterson’s downgrade on the stock came shortly after Roku announced the availability of The Roku Channel on Amazon.com, Inc.’s (AMZN) Amazon Fire TV.

According to KeyBanc, the surprise move broadened Roku’s audience and could drive ad revenue but acknowledged that there may be lower average revenue per user on Fire TV than on Roku’s own platform.

While Patterson downgraded the stock, other analysts are still optimistic about Roku’s future including Needham’s Laura Martin who says that rapid user growth during the COVID-19 pandemic is a catalyst for installed base growth and that its growing market share has made The Roku Channel a must-have streaming service. She maintains a $255 price target shares.

Roku closed at a record $238.57 on Tuesday, and has run up 51.1% over the past three months through Wednesday.

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