Jon Hadad

About the Author Jon Hadad

Jon Hadad graduated from the University of Delaware with a degree in political science. Prior to joining the Smarter Analyst team, he was an industry analyst at a New York research firm.

Roku Stock Feels the Impact of Competition, But This Analyst Remains Bullish

Don’t wake a sleeping giant — or else face the repercussions. 

Roku (ROKU) is learning that lesson the hard way right now. While the maker of popular streaming players is considered a giant in its own industry, it’s still a relatively small company and is competing with some of the largest in the world, including Amazon, Google and Apple. And now, with Facebook and Comcast announcing their answer to the streaming business Wednesday, Roku’s stock plummeted nearly 14%.

4-star Rosenblatt analyst Mark Zgutowicz believes the selloff was an “overreaction,” as he reiterates a Buy rating and $134 price target on Roku stock. (To watch Zgutowicz’s track record, click here)

A major reason for Roku’s drop Wednesday came after Comcast announced it would give Internet-only customers a free Xfinity Flex streaming box. The streaming box works similar to that of a Roku, allowing users to access HBO, Netflix and other streaming services, as well as over 10,000 free movies, and was previously offered to customers at $5 per month. 

But while Comcast’s device works similar to that of a Roku and is free (compared to Roku, which starts at $29.99), Żgutowicz says “the potential impact to Roku looks modest.” The analyst explains, “We estimate Comcast has ~8M broadband-only homes in the US growing at 1.5M annually. If we assume Roku’s estimated 35% US broadband household penetration is representative in Comcast broadband households (or ~3M), that leaves only ~5M homes open to consider a Comcast or Roku streaming service (or any other) today.” Furthermore, the analyst believes that “Roku has a significant customer acquisition advantage to Comcast via…Roku TV,” while the company’s “top streaming brand status carries significant clout in streaming TV purchase decisions.”

Aside from Comcast, competition is rising with Facebook coming into the mix. While not viewed as a major threat, Facebook’s new streaming device also closely resembles Roku’s. Called Portal TV, the new device will allow users to video call others via Whatsapp or Messenger, while also providing access to Amazon Prime Video, Showtime and other video channels. But Facebook’s device is more similar to a tablet as it is a 10-inch screen. 

Consensus Verdict

All in all, despite recent weakness in Roku stock, the Street largely seems to echo Żgutowicz’s positive sentiment, considering TipRanks analytics showcase ROKU as a Buy. Out of 14 analysts polled by TipRanks in the last 3 months, 8 are bullish on ROKU stock, 5 remain sidelined, and only one is bearish on the stock. With a loss potential of 4%, the stock’s consensus target price stands at $126.62. (See ROKU’s price targets and analyst ratings on TipRanks)

Crowd Insights

ROKU’s big ambitions have clearly struck a chord with investors. This streaming-video device maker boasts a “Very Positive” investor sentiment on TipRanks. Over the last 30 days, the best-performing investors have increased their ROKU exposure by 6.6%.

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