Citi Slashes Roku Price Target, Names 5 Reasons For Staying Neutral

After losing around half of its entire market capitalization since peaking in mid-2017 at $77.57, Roku Inc ROKU should not be bought by investors, according to Citi.

The Analyst

Citi's Mark May maintains a Neutral rating on Roku with a price target lowered from $60 to $44.

The Thesis

Citi is staying neutral on Roku for five reasons, May said in a Monday note:

• The company will likely see heightened competition from larger rivals in the smart TV market, especially Google and Amazon.com, Inc. AMZN. If the competitors introduce retail distribution partnerships, it could result in downside to Roku's account growth and/or prompt higher sales and marketing expenses. 
• The stock's valuation remains elevated despite the recent sell-off at nine times EV/2019 GP and 94 times EV/2019 EBITDA.
• An international push could negatively impact near-term earnings.
• The Street's fourth-quarter revenue and gross profit estimates are "aggressive."
• The sell-side's 2019 adjusted EBITDA forecast of $29 million is ahead of management's own guidance of achieving break-even EBITDA.

Price Action

Roku shares were trading higher by more than 2 percent at $40.40 at the time of publication Monday. 

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Photo courtesy of Roku.