Roku tumbles as stiff competition from heavyweights dents outlook

A sign is posted in front of the Roku headquarters on February 18, 2022 in San Jose, California.

Justin Sullivan | Getty Images

Roku dropped nearly 17% on Friday after the streaming service provider forecast a steeper-than-expected first-quarter loss, as it struggles to compete with heavyweights such as Netflix and Amazon for advertising dollars.

The entry of streaming giants into an already competitive ad space has weighed on Roku’s business, with the shift from smart devices to smart televisions also denting demand for its devices.

“Roku is at the precipice of being squeezed by the emergence of challengers on all flanks,” said Michael Nathanson, analyst at MoffettNathanson.

If premarket losses hold, Roku’s shares, which more than doubled last year, are on course to lose more than $2 billion in market value, based on its latest trading price of $78.76.

Adding to the streaming service provider’s concerns, Walmart has shown interest in acquiring rival Vizio, which would create another well-scaled entrant to compete with Roku in their most important retail channel.

Roku has an exclusive deal with Walmart to sell products fulfilled by the retailer on its devices.

“If indeed Walmart is successful in acquiring Vizio, we would expect that their unrivaled relationship with the world’s largest brands and their treasure trove of shopping data will also present a significant challenge to Roku’s incumbency,” Nathanson said.

Roku’s expectations of a first-quarter loss of 90 cents per share were larger than analysts expectations of a loss of 69 cents, per LSEG data.

The company is also facing slow spending on media and entertainment (M&E) promotions due to limited releases as a result of the Hollywood strike last year, with management noting they expect it “to continue to be challenged this year”.

The average rating of 33 brokerages covering the stock is “hold”, with a median price target of $83.43, according to LSEG data.

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