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Roku Inc (NASDAQ: ROKU) sold off Tuesday after TechNode reported that TCL, the company's Chinese supplier of Roku-equipped TVs, is shifting its focus toward semiconductors and displays. Investors assumed the report is a sign Roku will lose a major partner.
At least two Street analysts stuck with their bullish stances on Roku stock after the report, albeit with one substantial price target cut.
Guggenheim Partners' Michael Morris maintains a Buy rating on Roku.
Needham: Risks From China
Ongoing political tensions between the U.S. and China could negatively impact sales of Roku's Chinese-made TV in the U.S., Martin said in a note.
Estimates suggests 35-45 percent of Roku's total user adds are directly attributable to Roku-powered Chinese made TVs, of which TCL supplies around half.
Needham revised its expectations to the downside for fiscal 2019, which warrants a reduction in the price target, Martin said. The firm made the following estimate changes:
New user adds lowered from 6 million to 5 million.
First half 2019 revenue growth lowered from $185 million to $169 million.
Weighted average cost of capital from 7.5 percent to 8.5 percent.
Equity risk premium from 4.5 percent to 5.5 percent.
Lower EBITDA margin expectations due to Roku's guidance for breakeven EBITDA rather than the positive momentum seen in fiscal 2018.
Guggenheim's Positive Stance
Roku's TV supplier TCL said in a press release it is "America's fastest-growing TV brand" and plans to "raise the bar even higher" in the coming year, Morris said in a note.
Roku appears to remain well-positioned to take advantage of two major tailwinds, including the growth of streaming video over the internet and the corresponding advertising opportunity, the analyst said.
Roku is expected to end the year with around 26.5 million active accounts, mostly in the U.S., and $292 million in advertising revenue for the full year, the analyst said.
Roku shares were trading up 0.11 percent at $35.85 at the time of publication Wednesday.
Roku Gets An Upgrade To Buy, DA Davidson Says US-China Truce Bodes Well For The Company
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Photo courtesy of Roku.
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