After being up more than 40%, it looks like Roku’s (ROKU) stock will end 2018 deep in the red.
The smart-TV company is among the largest players in the smart-TV segment, but once-excited investors have fled the company over the past two months for factors including higher competition, mixed financial results and worries over the US-China trade war. While CEO Anthony Wood has said in the past that tariffs will have no impact on the company, Needham analyst Laura Martin isn’t buying that. The analyst maintains her Buy recommendation, but has slashed her price target nearly 50%, from $85 to $45.
Before we go into details, as usual, we like to include the analyst’s trackrecord when reporting on new analyst notes. According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, 5-star analyst Laura Martin has a yearly average return of 17.8% and a 61% success rate. Martin is ranked #88 out of 5,108 analysts on Wall Street.
Martin has lowered her “user adds, revenue and earnings estimates for FY19”, as the analyst believes “rising political tensions with China…may negatively impact Chinese-made TV sales in the US”. She estimates that “35-45% of Roku’s total user adds came from Roku-powered, Chinese-made TVs in FY18;” an increase in the price of Chinese-made TVs for US buyers stemming from a tariff of TV components could decrease the sale of these TVs and therefore the number of Roku users.
While Martin has significantly decreased her price target, she is still bullish on the company for several reasons. She reports that “about 10mm of Roku’s users do NOT have a linear TV bundle, which means that advertisers must buy Roku ads to reach them”, which contributes to revenue. Further, she adds that “partnerships with Samsung, OpenAP, Measurement, Upfronts, demonstrate that Roku is being accepted by the largest TV companies as an integral part of the US OTT ecosystem.”
Overall, most analysts on Wall Streets are out rooting the streaming device maker to be a winning stock pick, as TipRanks analytics showcase ROKU as a Strong Buy. Based on 8 analysts polled in the last 3 months, 6 rate a Buy rating on Roku stock while 2 maintain Hold. The 12-month average price target stands at $57.57, marking a nearly 64% upside from where the stock is currently trading. (See Roku’s price targets and analyst ratings on TipRanks)