Roku's Stay-at-Home Tailwinds Are Already Priced In, Guggenheim Says

Roku is downgraded to neutral with an unchanged $120 price target at Guggenheim.
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Television streaming platform Roku  (ROKU) - Get Report dropped Tuesday after analysts at Guggenheim downgraded the stock to neutral from buy but maintained a price target of $120 a share. 

The price target still represents a nearly 7% upside for the stock, which has the benefits of the "stay-at-home" orders from the coronavirus pandemic issued around the nation already baked into the stock.

Guggenheim analyst Michael Morris noted that Roku is currently trading at 53 times 2023 revenue estimates, which would give it the highest valuation multiple in the firm's coverage universe. 

Netflix  (NFLX) - Get Report trades at five timed 2023 revenue expectations.

Roku also trades at $414 per active account, or 16.6 times annual platform average revenue per user. 

Meanwhile, Netflix trades at $1,094 per active account, but on a much lower per sales basis at 8.4 times ARPU. 

"Our view of the company’s high utility for consumers and advertisers and secular growth opportunity remain unchanged. However, we also need to account for likely challenges, including intensifying competition from products," Morris wrote. 

That competition includes the new Flex streaming service from Comcast  (CMCSA) - Get Report, which Guggenheim said presents challenges to long-term account growth for Roku, as well as ad-supported services like Hulu, PlutoTV, Tubi, Xumo and Peacock.

While Peacock, which is also owned by Comcast, actually partners with Roku distribution, it still is a competitor to the Roku Channel.

Despite these headwinds, Guggenheim remains bullish overall on the company. 

"We expect advertisers and investors will view CTV as a secular growth business for an extended period as linear television ratings continue to erode, and more ad-supported content is made available via streaming. Morris said. "Given Roku’s significant, direct exposure to this business, we expect investors to view the company as a secular winner."