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Why Did Roku Stock Fall in the Premarket Session?

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Roku stock is down ~5%

Roku (ROKU) stock fell more than 5% in premarket trading on April 8 after Citi downgraded its rating from a “neutral” to a “sell” and lowered its price target to $50 from $53. Citi analyst Mark May is bearish on Roku, as he believes the stock is close to its all-time high. Roku is currently trading at an 18.3% discount to its 52-week high of $77.57. Apart from Roku’s valuation, heightened competition in the streaming space could also weigh on its stock, according to Citi.

Citi also foresees higher dilution from increased option grants and restricted stock moving forward, as the value of its restricted stock and option grants increased from $60 million in 2017 to $239 million in 2018.

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Roku’s performance

Streaming giant Roku has more than doubled and rallied 106.9% this year to $63.49 as of April 5. It seems that robust revenue and earnings growth have already been priced in to the stock. Roku posted revenue of $742.5 billion in 2018, and it aims to generate $1 billion in revenue in 2019 on the back of core operating metrics such as active accounts, streaming hours, and average revenue per user.

More analyst downgrades

Last week, Guggenheim analyst Michael Morris slashed Roku’s rating and price target, as he was concerned that Apple’s video streaming service would significantly dent Roku’s user base. Last month, Loop Capital and Macquarie downgraded the stock on concerns about its struggle in the advertising business and intensifying competition in the streaming space from players such as Netflix (NFLX), Amazon (AMZN) Prime, AT&T’s (T) HBO, and others.

Amazon and Viacom (VIAB) are growing in popularity in the advertising video-on-demand space and are therefore likely to hurt Roku’s advertising business.

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