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ROKU Shares Down 12%, Atlantics Equities Initiates Stock with Underweight Rating

UTC by Steve Muchoki · 3 min read
ROKU Shares Down 12%, Atlantics Equities Initiates Stock with Underweight Rating
Photo: Nasdaq / Twitter

Roku shares have dropped approximately 42%, 13%, and 38% in the past year, YTD, and three months respectively through Wednesday. 

Roku Inc (NASDAQ: ROKU) shares closed January 5, 2022 trading at $196.71, down 11.72% from the day’s opening price. However, ROKU shares had regained approximately 1.16% of the loss registered on Tuesday during the after-hours trading session. Yesterday’s drop has been attributed to the latest rating on Roku shares by Atlantics Equities.

According to Atlantics Equities analyst Hamilton Faber, Roku is on the verge of experiencing a major spillover from the United States market and requires immediate intervention for future growth. However, Faber further details that odds are not in favor of the American entertainment company.

Whereby Faber said that Roku is unlikely to win other markets as major TV manufacturers build their in-house products.

“To date, the majority of Roku’s business has been in the US, a market in which it has clearly been very successful,” Hamilton Faber, an analyst at Atlantic Equities, wrote in a report to clients. “However, we believe the company is now nearing saturation in the US unless it can win over additional major OEMs, and we believe this is unlikely, certainly in the near term.”

Faber through Atlantics Equities initiated coverage of Roku shares with an Underweight rating. Additionally, the analyst set a price target of $136, which is approximately 39% from Tuesday’s close.

Roku Shares and Future Market Outlook

In a note to investors, Faber said that he expects the company to fall short of account addition following low penetration of markets outside the United States. Moreover, Roku’s future growth prospects largely depend on its ability to turn major TV manufacturers like LG and Samsung into close customers.

A move that is less likely to fruition since large TV manufacturers are venturing into their in-house products. Consequently, Faber forecast more challenging times ahead for the American brand.

According to the analyst, approximately 80% of the company’s active accounts are situated in the United States.

However, he concluded that US additions will reduce from pre-pandemic figures.

“We estimate the annual US adds will ease from a pre-pandemic figure of around 8m in 2019 to an average of 2.3m over the next four years. Meanwhile, we expect international to pick up to an average of 3.2m adds from around 2m in 2019. Overall, we see global adds averaging 5.5m for the next four years (with 8m in 2022, declining thereafter), meaningfully below consensus of 10.5m million,” concluded Faber.

According to market data provided by MarketWatch, Roku shares have dropped approximately 42%, 13%, and 38% in the past year, YTD, and three months respectively through Wednesday.

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Steve Muchoki

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