Citi Research Analyst Jason Bazinet downgrades Roku shares to neutral, citing potential for top-line acceleration already priced in.
Roku Inc. has been experiencing significant momentum this year, with its stock up 124% so far. However, Citi Research analyst Jason Bazinet believes that investors should exercise caution before buying the stock, as the potential for further revenue growth next year may already be factored into its current valuation.
Bazinet attributes the recent surge in Roku shares to several factors. Firstly, he suspects that bears may have closed short positions in the stock, as short interest accounted for about 10% of the float before Roku delivered impressive results for its latest quarter. Additionally, investors have noticed a trend of conservatism in the company’s outlook, as Roku has consistently surpassed its own forecasts over the past four quarters.
Investors also appear more confident in Roku’s ability to reignite revenue growth next year, as expectations for an economic “soft landing” increase. Bazinet agrees that such momentum is possible, but he remains cautious about the shares.
“While management commentary suggests more modest growth in 2023 (due to a softer ad environment), we see scope for revenues to re-accelerate in 2024,” Bazinet explains. “If Roku can regain its historical share gains, we believe Roku’s total revenue can return to approximately 20% growth. However, given the sharp increase in the shares, we believe this optimism may already be priced into the equity.”
Despite downgrading the stock, Bazinet raised his price target from $75 to $100 in his latest note.
Roku faces potential risks from Hollywood strikes, but Roku City may provide support.
