What happened
Week to date, shares of Roku (ROKU -8.80%) were down 13% as of 11:30 a.m ET on Friday, according to data provided by S&P Global Market Intelligence. The stock sold off on more concerns about the economy, since the company makes most of its money from advertising.
Several analysts downgraded the stock in November, but earlier this week, one analyst weighed in with a bullish note that lifted the stock.
So what
Many analysts are cutting their long-term growth estimates for Roku. While the company is still growing revenue at double-digit rates, it doesn't seem to be keeping up with the overall spending across connected-TV advertising platforms. The connected-TV ad market is expected to grow 33% this year, but Roku's third-quarter platform revenue grew only 15% over the year-ago quarter.
One analyst weighed in this week with a bullish outlook for the company. Oppenheimer analyst Jason Helfstein said the company could see improvement in the first half of 2023. Helfstein expects Roku to open up its ad inventory to third-party demand-side platforms like The Trade Desk and Alphabet's Google. Another opportunity the analyst noted is the potential for new ad-supported launches from other streaming services that could provide a small amount of revenue over the next few years.
Now what
Despite the negative sentiment around the stock, 79% of analysts still rate it as a buy. The company still has advantages driving solid growth in active accounts. On top of its partnerships with content owners, it is a very accessible TV operating system. TV manufacturers like TCL and Hisense, which include Roku TV in their models, sell at affordable prices relative to other smart TVs and have received very high review scores by consumers.
The best thing that Roku can do to boost the stock in the near term is to grow profits. The company has been reporting losses, but it is slowing the rate of hiring right now, which could lead to positive earnings surprises in the new year.
