3 Reasons Guggenheim Downgraded Roku

Guggenheim turned incrementally bullish on Roku Inc ROKU in early March but since then the firm identified multiple concerns.

The Analyst

Guggenheim Partners' Michael Morris downgraded Roku from Buy to Neutral with a price target lowered from $77 to $72.

The Thesis

Since early March, the bullish case for Roku's stock has changed from three new developments, Morris said in a note.

• Roku faces a new competitive threat from Apple Inc. AAPL, which introduced its own streaming video platform.
• Amazon.com, Inc. AMZN and Viacom, Inc. VIAB are making a bigger push into advertising video on demand, which represents increasing competition for Roku.
• Roku CFO Steve Louden sold 100,000 shares of Roku's stock in March, which has "shaken our confidence."

Aside from the latest developments, Roku's attractive user base is estimated at 28.6 million active accounts as of the first quarter of 2019. This represents a "valuable asset" that makes the company an attractive acquisition target. The stock's valuation implies an acquirer would be paying $300 per active account, however, which generates an average revenue per user of around $18.

Despite a downgrade, the analyst says Roku remains well positioned to take advantage of the strong streaming and targeted video advertising market. But analysts and investors "lack a truly detailed understanding" of Roku's financials, which minimizes the ability to properly determine its competitive position within the "complicated" digital advertising market.

Price Action

Roku's stock was trading lower by 4 percent at $65.84 per share Thursday morning.

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Photo courtesy of Roku.