Roku stock is a ‘fundamental short’ at current valuation: Analyst

The recent rally in Roku Inc (NASDAQ: ROKU) is not backed by “fundamentals” and, therefore, not very likely to be sustainable, says a senior Pivotal Research Group analyst.  

Roku stock has downside to $60

On Monday, Jeff Wlodarczak downgraded Roku stock to “sell” and announced a price target of $60 that represents about a 30% downside from here. Calling it a “fundamental short” ahead of a looming recession, the analyst said in his note to clients:

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Management ramped expenses into what we believe will be a 23 recession, which is likely to lead to lower than consensus revenue growth and larger loss through 23 and possibly 24 depending on the length of the inevitable recession.

A slowdown in advertising in the face of a recession is hitting all ad-facing companies but Roku, in particular, seems to be taking the brunt of it, he added.

Roku stock has now given back all of its pandemic gain.

Roku will lose share over time

Late last month, Roku published its Q2 report, the only bright spot in which was that it added 1.8 million active accounts versus 0.8 million expected. Other than that, pretty much everything, including future guidance, came in shy of estimates.

Wlodarczak is convinced the Nasdaq-listed firm will lose share over time as the streaming space continues to get more competitive.

Streaming is an important growing market (medium/long term) and if Roku is back on its heels for the next 9-12 months, it gives well capitalised existing and new players an opportunity to take share.

He’s concerned that Roku might not have any room left to expand its market share in the U.S. and Canada.