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Roku Stock Slides as Bank of America Says Selloff is Overdone

Roku's 'unique position as a neutral player with a large installed base should allow it to continue gaining market share,' Bank of America says.

Roku  (ROKU) - Get Roku, Inc. Class A Report was falling Tuesday, but analysts at Bank of America said the selloff is "overdone" and maintained that the investment positives for the video-streaming device maker remain intact.

Shares of the San Jose, Calif. company were down 3.1% to $311.20 at last check.

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Analyst Ruplu Bhattacharya kept his buy rating and $500 price target, saying in a research note that Roku's competitive threats "are overblown."

"Roku's unique position as a neutral player with a large installed base should allow it to continue gaining market share as streaming services compete for subscribers," Bhattacharya said. 

Roku should continue to benefit from growth of affiliated smart TV vendors that use the Roku TV OS, the analyst said, adding that "Roku continuously gains brand recognition in streaming players, allowing it to effectively compete against larger companies."

Bhattacharya noted that Roku shares are down 35% from late July's peak and 25% from the last earnings call, which he blamed on a combination of multiple news reports on competing TV launches and a general shift in investor focus to stocks benefiting from a return to work and school. 

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The analyst said he sees Roku's relationship with television maker TCL as "strong" even if the company makes some TVs for Amazon  (AMZN) - Get, Inc. Report, or offers some TVs with Alphabet's  (GOOGL) - Get Alphabet Inc. Class A Report TV OS. 

"While no-one should take Amazon’s entry into an end market lightly (launching own-branded TVs in U.S.) we see TV OEMs with lower market share, at higher risk," he said, referring to original equipment makers. 

Bhattacharya said he did not see Disney's  (DIS) - Get Walt Disney Company Report decision to release the rest of its 2021 films exclusively in theaters before sending them to streaming as reflecting less importance of streaming.

Moreover, he said, despite reopenings, Roku’s lead in streaming viewership remained intact in calendar second quarter 2021.

The analyst said that Roku "has significant room to expand internationally" and, also on Tuesday, Roku introduced its streaming player line-up for Germany, including the Roku Express, Roku Express 4K, Roku Streaming Stick 4K and Roku Streambar. 

Separately, video rental company Redbox said it had signed a promotional agreement with Roku to "further attract multi-platform users to the Redbox streaming app."

On Friday, analysts at Wells Fargo downgraded Roku to equal weight from overweight, while cutting their price target to $350 a share from $488. One day earlier, Guggenheim Partners upgraded the streaming platform to buy from neutral.

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