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Pivotal Research Explains Roku Bear Thesis

Jayson Derrick

Roku Inc (NASDAQ: ROKU) will have a tough time competing in the streaming video landscape, as growing competition will push the cost of devices to "zero," according to Pivotal Research.  

The Analyst

Pivotal Research analyst Jeffrey Wlodarczak initiated coverage of Roku with a Sell rating and $60 price target.

The Thesis

Competition in the streaming video market is heating up, especially after Comcast Corporation (NASDAQ: CMCSA) announced a free over-the-top streaming box to its internet customers.

Rival streaming video providers like Apple Inc. (NASDAQ: AAPL) and Amazon.com, Inc. (NASDAQ: AMZN) offer their customers a streaming video platform at no added cost through promotions or as part of a broader membership bundle.

Tech giants and Roku competitors are the "big boys" that boast "massive leverage" in their ambitions to dominate the living room, Wlodarczak said in an initiation note, according to CNBC

This could put "material pressure" on Roku, which sells hardware devices and generates advertising revenue, the analyst said. 

"The problem going forward, however, is that while the large internet players have realized the importance of control of the mostly video pipe into the living room, now the players that actually control the dominant data pipe into the household in the U.S. (Comcast, Charter, Altice) have as well," CNBC quoted Wlodarczak as saying in the note.

Roku's stock remains overvalued despite recent weakness, including a 15% weekly decline ahead of Friday's market open.

The stock's valuation remains at a premium at 11.5 times 2020 revenue, according to CNBC.

Benzinga's Take: The research firm's thesis, if correct, poses a bigger problem for Netflix Inc (NASDAQ: NFLX), whose streaming membership is among the furthest away from zero at $9 a month, or $108 a year.

By comparison, Roku devices were as low as $20 during 2018's Black Friday.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

Related Links:

Analyst Defends Roku After Comcast Product Launch

How Facebook, Comcast Just Shook Up The Streaming Video Wars

Photo courtesy of Roku. 

Latest Ratings for ROKU

Date Firm Action From To
Sep 2019 Maintains Outperform
Sep 2019 Initiates Coverage On Sell
Sep 2019 Maintains Buy

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