Roku (ROKU) shares moved lower Tuesday after analysts at KeyBanc Capital Markets lowered their rating on the streaming service hub and connected TV maker, citing ad market weakness and the group's hardware investment plans.
KeyBanc analyst Justin Patterson cut his rating on Roku to 'sector weight', from 'overweight', noting that the group "appears to be ceding market share" in connected TV advertising while not adding enough new media partners to its platform.
Roku is also likely to face challenges to its near-term profit forecasts, even after it cut staff expenses by around 5% with the plans to eliminate 200 jobs earlier this month.
Looking into the final months of this year, Roku had said its expects the "macro environment to further pressure consumer discretionary spend and degrade advertising budgets, especially in the TV scatter market', noting revenues will likely fall 7.5% from last year to $800 million.
"While Roku recently announced a modest headcount reduction, we do not believe the company can meaningfully pull back from investment areas in N. America (increasingly skewed to low-end and mid-range manufacturers, and toward Walmart distribution) and International TVs (very limited retail presence in the U.K.), content (now 9% of 3Q22 Platform revenue), and AdTech," Patterson said. "In our view, doing so would arguably slow the revenue recovery."
Roku shares were marked 0.65% lower in early Tuesday trading to change hands at $53.73 each, a move that would extend the stock's six-month decline to around 43%.
Roku posted a narrower-than-expected third quarter loss of 88 cents per share for the three months ending in September, as revenues rose 12% to $761 million, topping Street forecasts, as the group added 2.3 million active accounts and streaming hours on the Roku Channel rose 90% from last year.
A host of U.S. companies have cautioned on an ad-spending slowdown heading into the final months of the year, following an early warning from messaging app maker Snap SNAP earlier last month.
Google (GOOGL) CFO Ruth Porat, in fact, said revenues from YouTube fell 2% to around $7.07 billion over the three months ending in September amid a "pullback in spend by some advertisers we first noted last quarter" for the world's biggest digital ad market.
