Roku could accelerate revenue growth next year but its stock price may already reflect this potential, says an analyst
Roku Inc. is poised to drive accelerating revenue growth -- but that may not be reason enough to buy its stock.
Citi Research analyst Jason Bazinet downgraded Roku shares (ROKU) to neutral from buy Thursday, cautioning that the stock, up 124% so far this year, already prices in the potential for top-line acceleration next year.
Bazinet thinks several factors have driven the recent momentum in Roku shares. For one, he suspects bears may have closed some short positions in the name, as short interest was about 10% of the float before Roku delivered "solid" results for its latest quarter. Additionally, investors seem to sense a pattern of conservatism in the company's outlook, as Roku has beaten its own forecasts in each of the past four quarters.
"[W]e believe the buy side may be starting to price in outperformance relative to the company's commentary," Bazinet said.
Plus, investors seem more confident in Roku's ability to reignite revenue growth next year given growing expectations for an economic "soft landing." Bazinet sees that sort of momentum in the cards as well, but he's still cautious on the shares.
"While management commentary suggests more modest growth in 2023 (due to a softer ad environment), we see scope for revenues to re-accelerate in 2024," he wrote Thursday. "If Roku can revert to historical share gains, we believe Roku's total revenue can return to 20% growth. However, given the run-up in the shares, we believe this may be largely priced into the equity."
Though Bazinet downgraded the stock, he lifted his price target to $100 from $75 in his most recent note.
Stocks fell over 3% on Thursday.
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