Roku (ROKU) is a television streaming platform. The company has benefited from the steady migration of audiences, content, and marketers toward connected TV.
However, Roku’s growth rate has slowed over the last 12 months. Though the company has witnessed a rise in its active accounts and average revenue per user (ARPU), the quarter-over-quarter growth rate has slowed.
Roku’s sluggish growth in the U.S. market is a source of concern for Atlantic Equities’ analyst Hamilton Faber. He initiated coverage on Roku with an Underweight (Sell) rating and a target price of $136.00 per share.
As a result, ROKU stock sank about 12% on January 5, closing at $196.71.
Why the Downgrade on Roku?
To begin with, Faber believes Roku’s market share in the United States will likely peak by 2025. As a result, he anticipates yearly additions in the United States to drop to 2.3 million over the following four years, down from about 8 million in 2019.
Second, the analyst feels Roku’s international penetration remains weak. In Europe, he argues, the corporation has been losing market share. Furthermore, according to Faber, rising rivalry from companies such as Samsung Electronics (SMSN) and LG Electronics has made it more difficult for Roku to expand into new markets.
Faber writes, “We believe active account additions will slow as domestic penetration caps out and international performance fails to make up for the slowdown.”
Based on the foregoing argument, Faber forecasts worldwide Roku additions of roughly 5.5 million over the next four years, much below the consensus of 10.5 million.
Roku’s Efforts to Drive Growth
Given the likelihood that the U.S. market may become saturated, Roku has been working hard to extend its company in overseas regions.
To complement its worldwide expansion aspirations, the firm recently launched an office in Amsterdam. Roku currently has offices in Denmark, the United Kingdom and Ukraine, in the European market.
Moreover, Roku is also working with worldwide companies to expand its TV licensing program. Notably, according to the NPD’s Weekly Retail Tracking Service, Roku is still the most popular smart TV operating system in the United States from January 3 to December 4, 2021.
The company’s efforts to expand in other new markets might help Roku to maintain its dominance in the TV streaming space.
Wall Street’s Take
Turning to Wall Street, the analyst consensus is cautiously optimistic on Roku, with a Moderate Buy consensus rating, based on 15 Buys, 2 Holds, and 3 Sells. As for price targets, the average ROKU stock prediction of $350.21 implies 78% upside potential from the current levels.
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Disclosure: At the time of publication, Shalu Saraf did not have a position in any of the securities mentioned in this article.
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