KeyBanc Downgrades Roku, Recommends Netflix Instead

Roku Inc ROKU shares dropped 3% on Thursday after one Wall Street analyst downgraded the stock.

The Roku Analyst: KeyBanc analyst Justin Patterson downgraded Roku from Overweight to Sector Weight and dropped his previous $228 price target.

The Roku Thesis: Patterson said Roku has run out of near-term catalysts and the stock has limited additional upside after gaining 112.9% in the past six months. Patterson said international markets will provide the next source of long-term growth for Roku, but tapping into that market may take a while.

“Roku is still in the early stages of expansion, and coming from behind in markets where Android (Europe) and TV OEMs (Asia) have large installed bases,” Patterson wrote in the note.

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In the meantime, Patterson expects Roku to continue to put up impressive growth numbers, but much of that growth is already priced into the stock at current prices. KeyBanc is forecasting 55% platform revenue growth in the third quarter, ahead of consensus estimates for 55% growth. Patterson said consensus 2021 revenue estimates are likely 10% too low as well.

Instead of Roku, Patterson recommends investors buy Netflix Inc NFLX instead. Patterson said Netflix’s pricing power, favorable competitive positioning and content catalysts are a winning recipe for investors.

Benzinga’s Take: As far as downgrades go, this one is about as benign as it gets. Roku shares may simply need a breather while its fundamental growth numbers catch back up to its soaring stock price.