Shares of Roku Inc ROKU are up more than 110 percent in 2019 alone, which prompted Citi to turn bearish on the stock for a combination of valuation and business concerns.
The Analyst
Citi's Mark May downgraded Roku from Neutral to Sell with a price target lowered from $53 to $50.
The Thesis
Roku's stock is trading near its all-time highs and valued at 11 times estimated EV/2020 gross profit (15 times on 2019 estimates), May said in the note. The valuation implies an approximate 70-percent premium to its comparable peers and 80-90 percent above its 2018 lows.
May says the competitive landscape in the streaming video segment intensified with Apple Inc. AAPL's new Apple+ service and Google's GOOGL continued focus on its Android TV operating system. It may be difficult to quantify the financial impact to Roku but its Platform segment revenue growth will likely come under pressure.
Citi's checks into Roku's internal hiring activity points to the largest number of job openings relative to its headcount among all stocks under the research firm's coverage.
Regulatory filings show a large increase in the value of new RSU and option grants from $60 million in 2017 to $239 million in 2018. This will increase dilution and could result in higher than expected future grants and dilution moving forward.
Price Action
Roku's stock was trading lower by 5 percent at $60.10 per share Monday morning.
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