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Has Roku (ROKU) Stock Peaked? Top Analyst Heads to Sidelines

The market has seemingly priced in all of Roku’s (ROKU) success in using its hardware to drive its ad-supported platform, according to Mark Mahaney, a top RBC analyst. Mahaney has downgraded Roku to Sector Perform from an Outperform rating on “less attractive risk-reward” due to his price target of $90 being surpassed by the market price.

We like to give credit when its due. TipRanks analysis – which measures analysts’ and bloggers’ success rate based on how their calls perform – show that Mark Mahaney has a yearly average return of 24.4% and a 68% success rate. Mahaney is ranked #32 out of 5,223 analysts.

Since the start of the new year, Roku shares have shot up ~200% compared to 18% for the S&P 500. The most crucial driver of these incredible returns “has been the acceleration of its high-quality and profitable Platform Revenue segment.” After a 41% correction in 2018, the stock was primed for a run after news of its strong growth went public. Mahaney believes this growth is sustainable, but the market has priced this in. With the incredible rise in Roku’s share price, the reward from current levels compared to the risk is not very compelling.

Mahaney was quick to point out that his “fundamental outlook and thesis on ROKU is unchanged.” With a strong product and a durable platform ecosystem, Mahaney views ROKU “as one of the best plays on ad-supported OTT, with the company being one of the best-positioned to take a share of the very large, underpenetrated $70B TV Ad spend opportunity.” Their financials also are strong for an emerging company, as they have strong revenue growth and their path to profitability seems clear. The metrics Mahaney tracks include Active Accounts, Total Hours Streamed, and Ad Revenue Per User, which are all growing steadily.

There are potential risks that could cause Mahaney’s downgrade rating to be wrong. Both Disney and Apple are launching streaming services in the next few months, and they are partnered with Roku, meaning demand for Roku’s products may rise as customers seek out methods to watch their new subscriptions. Mahaney also notes that “successful execution and penetration in international markets could prove to be strong near-term tailwinds.” It is clear that Mahaney still believes in the company, just not at the current valuation.

TipRanks analytics show Roku’s stock as a Moderate Buy. 6 analysts recommend Buying the stock, 3 Holding, and 2 advise Selling. The average price target on the stock is $92.40, which represents a 1.13% upside on the current stock price. (See ROKU’s price targets and analyst ratings on TipRanks)

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