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Shares of streaming-media firm Roku, already under pressure ahead of the launch of Apple TV+ and Disney+, plunged 19 percent after an analyst initiated coverage of the stock with a “sell” recommendation and $60 price target, while it ended trading Friday at $108.02.
In a Friday note, Pivotal Research Anyalyst Jeffrey Wlodarczak says his problem with Roku is that Comcast is giving some of its subscribers an Xfinity Flex box, an encroachment on Roku’s business that could be copied by others and drive the price of OTT devices to zero. At the top if his note, the analyst asks: “Is Roku Broku?”
“Everyone has realized the living room is too important and the big boys (led by Comcast) with massive leverage are likely to make Roku growth much more difficult,” Wlodarczak says in his note.
Wlodarczak praises Roku management for succeeding against competitors like Amazon, Apple, Google and Facebook, all of which sell devices for turning television sets into Internet streamers, but once the cable companies play hardball by giving such equipment and services away for free in order to keep consumers from cutting their cords, it will make Roku’s high-growth valuation seem absurd.
The company’s market cap at the end of trading Friday was $13 billion on the backs of 31 million households that generate about $3 per month in revenue for Roku, says Wlodarczak. The stock had been up 460 percent in just 10 months, but it has been diving since Sept. 2, down 36 percent since that day.
If the cablers become aggregators of over-the-top services, essentially what Roku already is, it would not only generate profit for them, but also give them “enormous leverage in content renegotiations,” says Wlodarczak.
There is risk, of course, to his analysis, as it assumes cable aggressively rolls out cheap (or free) alternatives to Roku, which isn’t the case just yet. Also, a giant new-media firm like Google or Facebook could acquire Roku for a premium, sending its shares right back into the $170 range, where they were mere weeks ago.
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