What happened
Shares of Roku (ROKU -10.29%) turned lower Friday, declining as much as 6.8%. As of 2:36 p.m. ET, the stock was still down 3.1%.
The catalyst that sent the streaming pioneer tumbling was mixed coverage by a Wall Street analyst.
So what
Citigroup analyst Jason Bazinet lowered his price target on Roku shares from $250 to $225, but maintained a buy rating on the shares, according to The Fly. To put this change into context, his new estimate still represents potential gains for investors of roughly 77% over the coming year, compared with the stock's closing price on Thursday.
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The analyst updated his financial model based on Roku's fourth-quarter earnings report, reflecting expectations for 35% revenue growth and earnings before interest, taxes, depreciation, and amortization (EBITDA) roughly in line with 2020's. Management cited headwinds the company is facing thus far in 2022, including supply chain disruptions that are impacting the broader consumer electronics space and televisions in particular. Roku expects smart TV unit sales to "remain below pre-COVID levels," which will weigh on its active account growth.
Many viewers find the platform via the Roku operating system (OS), which it licenses to a growing number of smart TV manufacturers. A downturn in television buying, resulting from limited supply, could negatively impact Roku's account growth -- at least over the short term.
Now what
There's little question that Roku's growth trajectory got a boost during the pandemic, driven higher by an increase in streaming adoption and more time for program viewing. Tough comps and the aforementioned supply chain issues have resulted in decelerating growth over the past couple of quarters.
That said, Roku remains the leading provider of streaming solutions to consumers, helping aggregate a growing number of ad-supported and paid subscriptions in one place. The company has more than 60 million active accounts and its average revenue per user (ARPU) grew 49% year over year -- currently outpacing account growth -- as Roku becomes more efficient at monetizing its viewer base.
Long-term investors should view this for what it is -- a bump in the road for a company with a bright future driven by the increasing adoption of streaming.
