Shares of Roku (ROKU -3.29%) turned sharply lower Wednesday, continuing their downward trajectory for the week, falling as much as 6.9%. As of 11:43 a.m. ET today, the stock was still down 5%.
The catalyst that sent the streaming pioneer crashing was lowered expectations from a Wall Street analyst.
Bank of America analyst Ruplu Bhattacharya lowered his price target on Roku shares from $235 to $145, though he did maintain a buy rating, according to TheFly. To give this change some context, his new estimate would still represent a potential gain for investors of roughly 58% over the coming year, compared with the stock's closing price on Tuesday, so the news isn't all bad.
The analyst revised his financial models based on the lower multiples assigned to Roku's peers in the streaming video and digital advertising space. He also cited the ongoing supply chain constraints and weakness in ad spending, which could weigh on Roku's growth.
Management detailed several headwinds it faces in 2022, including supply chain disruptions that are limiting the availability of consumer electronics in general and smart TVs in particular. The company expects unit sales of connected TVs to "remain below pre-COVID levels" which could hamper its active account growth.
While many viewers use the company's set-top boxes and dongles, many more gain access to the platform using smart TVs featuring the Roku operating system, which provides easy access to its streaming platform and ecosystem. An ongoing shortage of connected TVs could continue to weigh on Roku's account growth in the early part of this year. And Roku makes the lion's share of its revenue from digital advertising on its platform, so fewer ad dollars could result in slower revenue growth.
In the wake of Netflix's (NFLX -1.13%) high-profile fall from grace, Roku stock has also taken a beating. Investors should keep in mind that while Netflix relies on subscriber growth for its fortunes, Roku actually benefits from viewers trying new ad-supported streaming services, due to the targeted advertising shown on its platform.
Investors will gain renewed insight into Roku's prospects when the streaming pioneer reports its financial results after the market close on Thursday.