- Roku stock sank as much as 6% on Friday after Pivotal Research predicted increased competition in the streaming sector will drive device prices "to zero."
- The analyst hit Roku with only its second "sell" rating, assigning a price target of $60. That implies a 55% tumble by the end of 2020.
- Comcast's recent decision to give free Xfinity Flex devices to all data-only customers could drive competitors to also offer free streaming devices and focus on boosting ad revenue.
- Roku's high ad splits with services like Netflix and Hulu would impede efforts to improve its advertising revenue stream, Pivotal's Jeffrey Wlodarczak said.
- Watch Roku trade live here.
Roku tanked as much as 6% on Friday trading after Pivotal Research slapped the company with a rare "sell" rating and predicted increased competition will drive device prices to the floor.
The streaming device company has surged nearly 470% since its September 2017 IPO, and Pivotal's negative rating is only its second bearish call. Though Pivotal praised the company's management "for what they have created," competition from Apple TV, Amazon FireStick, and Google Chromecast will test the smaller media company.
"While Roku management deserves credit for the asset they have created, everyone has realized the living room is too important and the big boys with massive leverage are likely to make Roku growth much more difficult," Pivotal analyst Jeffrey Wlodarczak said in a Friday note.
The emergence of "dramatically more competition" will likely bring streaming device costs down "to zero," he added.
The analyst points to Comcast's recent decision to offer free Xfinity Flex devices to all data-only customers, allowing them to watch free movies and TV shows just as one could with a pricier streaming box. The move to free streaming devices "will inevitably be copied by other distributors" as companies look to grow loyal consumer bases and boost revenue growth in advertising businesses, Wlodarczak said.
Since Roku already splits a relatively high amount of its advertising revenue with its streaming partners like Netflix and Hulu, an introduction of free devices "sets them up to be undercut by competitors," the analyst added.
Pivotal noted that a slower-than-expected rollout of free devices or an acquisition of Roku could keep the company in better shape amid growing competition. Possible weakness in the US "could be offset by strength internationally" as well, but such a development would likely come with international peers following close behind, Wlodarczak said.
Roku closed at $133.76 per share Thursday, up about 336% year-to-date.
Pivotal hit the streaming company with a $60 price target, implying a 55% drop by the end of 2020. The rating is the lowest price target from any analyst covering Roku, with the only other "sell" rating coming from Loop Capital Markets August 8.
Roku has nine "buy" ratings, five "hold" ratings, and two "sell" ratings from Wall Street analysts, with a consensus price target of $129.93, according to Bloomberg data.
Now read more markets coverage from Markets Insider and Business Insider:
