Roku (NASDAQ: ROKU) has had a rough week.
The stock has been hammered over the past week and shares are down nearly -23%, denting Roku’s jaw-dropping 200%+ surge so far this year.
Roku began its downward slide after Comcast (NASDAQ: CMCSA) made a move that undercuts the streaming-media device maker.
The media giant announced that it would be giving away its Xfinity Flex box for free to subscribers to its internet-only plans. With the Flex box, users will be able to watch streaming services like Netflix (NASDAQ: NFLX), Amazon (NASDAQ: AMZN) Prime Video, Google’s (NASDAQ: GOOGL, GOOG) YouTube, and AT&T’s (NYSE: T) HBO through a curated interface that highlights live and new programming.
Just days later, Pivotal Research analyst Jeffrey Wlodarczak issued a Sell rating for Roku shares and issued a $60 price target, the lowest on Wall Street.
“We see dramatically more competition emerging that will likely drive the cost of over-the-transom devices to zero and put material pressure on advertising revenue splits,” Wlodarczak wrote, while also noting Comcast’s move to offer its Flex box free of charge.
The Pivotal Research analyst wrote that other distributors are likely to follow in Comcast’s footsteps, which will damage Roku, as “it is a great retention tool for consumers exiting Pay TV; a possible significant revenue generator (advertising and other products); [it] allows distributors to still have some control of a material percentage of a consumer’s time; and in the case of Comcast it appears to be the most robust product in the market (and it is free),” Wlodarczak said.
As Roku shares have continued to fall, Piper Jaffray market technician Craig Johnson said this week that things are going to get even worse before they get better.
According to Johnson, Roku has “violated the uptrend support line off those April lows of this year. You’ve got some support that comes in at $113. But purely based upon the charts, your best support comes in all the way back down at the 200-day moving average. So you can see the stock trade back down to $81, maybe even $75.”
A fall to $75 would mean another -27% downside for Roku shares.
“The risk/reward isn’t favorable,” Johnson said. “I’d be selling into this move.”
As for Comcast, the stock is up nearly 32% so far this year and one analyst says it’s going to continue to climb higher as promising trends in broadband internet services, a cheap valuation compared to peers, and growth opportunities from its new direct-to-consumer and advanced-advertising initiatives make the stock a Buy.
That’s according to Benchmark analyst Matthew Harrigan, who initiated coverage of Comcast on Wednesday with a price target of $64 – 42% higher than Thursday’s closing price.
Harrigan believes Comcast’s broadband strength will continue as customers move to faster and more expensive data speeds. The Benchmark analyst expects Comcast’s broadband sales to grow more than 8% per year through 2023, from 2018’s $17.1 billion.
While Harrigan notes that Comcast’s video revenues will fall slightly each year through 2023, he argues that while video customers are valuable, the company’s broadband customers are much more profitable for Comcast.
Harrigan also sees growth opportunities for Comcast with its upcoming Peacock streaming service from its NBCUniversal business. The service is expected to debut in spring 2020, and will have a deep library to start and Comcast has committed a budget of $24 billion for new original content.
“The new largely advanced advertising driven Peacock direct-to-consumer offering will require some cash burn investments, but our sense is that it likely will not approach the cash burn at Disney’s (NYSE: DIS) direct-to-consumer offering, which disdains advertising and requires heavier upfront investment,” Harrigan wrote.
Image courtesy of www.quotecatalog.com.