Roku stock was down 11.7% in recent trading.
DreamstimeShares of Roku were dropping almost 12% Wednesday after the stock received an Underweight rating from Atlantic Equities.
Analyst Hamilton Faber initiated coverage of Roku (ticker: ROKU ) with a bearish take, saying that while the company—which makes digital-media players—has become one of the largest streaming platforms globally, its growth is set to slow down by 2025.
“We believe active account adds will slow as domestic penetration caps out and international performance fails to make up for the slowdown,” Faber wrote in a Wednesday note,
The analyst foresees Roku’s U.S. home penetration will top out at 40% in 2025 from 33% currently as television manufacturers seek to launch their own operating systems on new models. Faber predicts annual U.S. adds will ease from about 8 million in 2019 to an average of 2.3 million over the next four years.
Approximately 80% of Roku’s active accounts are located in the U.S., Faber estimates, placing pressure on the company to accelerate its international expansion to offset any slowdown in the U.S. market.
But Roku’s international traction is still shaky, with the company losing market share in Europe that was only barely offset by modest gains in Latin American and Oceania, Faber wrote. Competitors Samsung Electronics (005930.Korea) and LG Electronics (066570.Korea) have a stronger presence abroad, which will make it harder for Roku to break into the new markets. He estimates the company’s global adds could average around 5.5 million for the next four years, significantly below the consensus of 10.5 million.
Roku will also struggle to maintain its current advertising market share, which accounts for a significant share of the company’s revenue, Faber said.
“Losing share is realistic as established media companies more aggressively enter the ad-supported streaming space,” he wrote.
Roku stock was down 11.7%, at $196.76, in recent trading, while the S&P 500 was down 1.4%. Like other stay-at-home bids that struggled as the economy reopened, the shares had a rough 2021, losing about 41%.
Write to Sabrina Escobar at sabrina.escobar@barrons.com
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January 06, 2022 at 03:27AM
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Roku's U.S. Market Share Could Top Out by 2025. The Stock Is Tumbling. - Barron's
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