Roku (NASDAQ:ROKU) shares were cut to Sell from Neutral at MoffettNathanson on Friday, with analysts lifting the firm's price target for the stock by $2 to $66 per share.
Analysts said in a note to clients that the firm previously took its Sell view off the table as it believed the company was becoming more focused on efficiency and margin expansion.
However, with Roku shares rallying lately, the investment firm now thinks Roku's valuation is stretched relative to the top-line risks they continue to
envision.
"To that point, given the limited disclosures by the company, we think that investors are not truly understanding the challenging compares facing Roku's 2024 revenue base," said analysts.
Furthermore, the firm's research suggests the majority of Roku’s revenue growth in 2023 was fueled by content distribution revenues from the emergence of a new large client and from massive price increases in SVOD services.
According to analysts, Antenna data shows that through October 2023, U.S. premium SVOD subscription growth had decelerated to only +12%, "lower than even in 2018 before the streaming wars officially began."
"As 2023 is lapped, we expect the continued sluggish SVOD market and the anniversary of price actions/new client sign-ups will slow content distribution revenues," the analysts stated.
"As such, the 2024 growth driver will have to be CTV advertising. While we expect a continued buoyant end-market, we believe that the entrance of better-scaled players like Amazon Prime, Netflix and Disney will take increasing share of this market," they added.