On Thursday, Jefferies resumed coverage of Roku (NASDAQ:ROKU), assigning an Underperform rating and setting a price target of $50 per share. The investment firm expressed a cautious stance towards the company, citing several headwinds that could affect Roku's performance in the second half of 2024 and into 2025.
Jefferies highlighted the challenging comparisons Roku faces due to streaming service price increases in the latter half of the year. Additionally, the firm pointed to increased competition from new market entrants such as Amazon Prime Video, which could further pressure Roku's market share and growth prospects.
"2024 revenue estimates are likely too high as they don't factor in the tough 2H comp, particularly in the Streaming Services Distribution portion of Platform revenue," wrote analysts at Jefferies.
The firm also noted the ongoing weakness in the Media & Entertainment (M&E) advertising spend, which is likely to impact Roku's revenue streams. According to analysts at Jefferies, these factors contribute to a forecast that is less optimistic than consensus estimates, with revenue projections for fiscal years 2024 and 2025 being 1% and 4% below the street's expectations, respectively.
Roku's current trading at 3.1 times its forecasted FY25 gross profit suggests a slight discount compared to its industry peers when adjusted for growth. However, analysts at Jefferies see limited potential for improvement in the stock's valuation due to the anticipation of negative revisions in the company's financial forecasts.
The price target of $50 is based on a discounted cash flow (DCF) analysis and equates to approximately three times the expected FY25 gross profit. This valuation reflects the investment firm's conservative outlook on Roku's future earnings and market position amidst a competitive and changing landscape.