Roku's Stock Plummets 22%: Here's Why Some See A Buying Opportunity

Streaming platform and original content company Roku Inc ROKU reported fourth-quarter earnings after market close last Thursday. Here's how analysts are reacting and why some are lowering their price targets on the stock. 

The Roku Analysts: Bank of America analyst Ruplu Bhattacharya has a Buy rating and lowers the price target from $290 to $235 on Roku.

KeyBanc analyst Justin Patterson has an Overweight rating on Roku and lowers the price target from $325 to $165.

Needham analyst Laura Martin has a Buy rating and a $205 price target on Roku.

Benchmark analyst Daniel Kurnos has a Buy rating on Roku and lowers the price target from $325 to $305.

Related Link: Roku Q4 Earnings Highlights: Revenue Up 33%, Roku Channel Hits 80M Households, Q1 Guidance

The Analyst Takeaways: Supply chain issues were cited by Roku in its fourth-quarter earnings call, something that could cause challenges over the next few quarters, Bhattacharya notes.

One positive was a shift from costly operating systems from television OEMS towards a licensing model.

“While we do not expect this to happen in 2022, in the medium-term, if Roku can become the OS partner for large competitor TV OEM, then that could significantly enhance account growth,” Bhattacharya said.

The Bank of America analyst remains bullish on Roku with a continued shift of advertising dollars going from linear TV to connected TV, international growth, original content and strong brand recognition.

KeyBanc, which trimmed the price target on Roku shares significantly, posed the question, “if Roku invests, will the revenue come?” with an appropriately titled note called “Field of Streams.”

“We expect Roku shares will be pressured as investors debate investment spend and if 2022 revenue guidance for mid-30% growth in 1Q is achievable,” Patterson said.

The analyst sees advertising upfronts and a reacceleration in the second half of 2022 as potential catalysts for Roku.

Three things about Roku are highlighted as key catalysts for Roku and why Needham is encouraging investors to “buy on weakness.” The analyst points to strong U.S. economics, full funnel connected TV and acting as an arms dealer for its advertising network.

“Like iOS, Roku takes a share of every dollar spent on its platform, with targeted ads benefiting from $140 billion of content spending by SVOD services in 2022,” Martin said.

With shares of Roku hit hard on the earnings report, Benchmark sees the stock as oversold.

“We see no structural impairment to long term margins, and with expectations reset, Roku looks extremely oversold relative to a still nascent monetization and growth opportunity,” Kurnos said.

The analyst sees a “false narrative” driving Roku shares down on competition and content spend. International growth opportunities are also highlighted by the analyst in the updated note.

Price Action: ROKU shares closed at $112.46 on Friday, down 22.3%, setting a new 52-week intraday low of $102.60.

Photo: Courtesy of Mike Mozart on Flickr