The new trading week is kicking off with another Wall Street pro slashing a price target on Roku (ROKU +2.26%). Matthew Thornton at Truist is lowering his near-term price goal on shares of the streaming video pioneer from $80 to $70. He was at $80 early last month, but that also follows going from $65 to $80 back in July.
Thornton isn't necessarily bearish on Roku. He is sticking to his hold rating on the company behind North America's leading video streaming operating system. He feels that consensus estimates for the third quarter that Roku will report next week are reasonable as market sentiment turns cautious. He appears to be reacting to the share price, just as he did over the summer when his targets were moving higher as Roku was rallying.
He's not alone at $70. A week ago Steven Cahall at Wells Fargo slashed his price target from $84 to $70. The analyst is also keeping a neutral equal-weight rating on the stock, but he struck a more concerned tone. Cahall warns that Roku could soften in the new quarter with weakening ad trends.
NASDAQ: ROKU
Key Data Points
Bears are hibernating
There are far worse places for Roku to be than $70. It represents 15% of upside from current levels, and it's a hearty 72% higher than where the stock was when the year began. However, it's still well below this summertime's peak when the shares approached $100 or the all-time high just north of $490 it hit two years ago.
The bearish knocks on Roku are real. After a short-lived breakthrough into profitability, its financial update a week from Wednesday should be Roku's seventh consecutive quarterly deficit. The connected TV video advertising market hasn't been robust lately, leading to Roku's revenue failing to keep up with user growth and engagement levels.
Image source: Getty Images.
The good news is that the user count and usage itself are rising, up 16% and 21% respectively over the past year. Roku's audience of 73.5 million active accounts remains well ahead of the competition, making it a top draw for marketers wanting to reach viewers on streaming services that advertisers can no longer reach through legacy networks. When TV ads bounce back Roku should be a major beneficiary.
Roku itself is also starting to move in the right direction. A return to actual profitability is still years away, but revenue is starting to grow again. The midpoint of its revenue growth guidance issued this summer for the third quarter is a modest 12%, but it would be the third straight report of accelerating year-over-year gains on the top line.
It hasn't been exclusively a parade of analysts slashing their profit targets heading into next week's telltale report. Shweta Khajuria at Evercore added Roku to her firm's "Tactical Outperform" list. It's a near-term trading call, but it's encouraging to see a bullish move just before Roku's third-quarter results. Khajuria feels that the stock is attractively priced at $60 given the stock's recent underperformance despite consensus 2023 financial performance estimates inching higher.
You will also see the naysayers thinning out where it matters the most. Short interest is now at a 52-week low for Roku. Analysts and the market itself may have turned on Roku since its early August peak, but the folks putting their money to work by betting against the stock have eased up on Roku with fresh financials now just a handful of trading days away. Roku remains a promising leader among the digital streaming service stocks.
