On Wednesday, CFRA made a revision to the price target for Roku Inc. (NASDAQ:ROKU), bringing it down to $72 from the previous target of $85, while maintaining a Hold rating on the stock. The adjustment comes amid concerns about the company's competitive position in the rapidly evolving video streaming market.
Roku's efforts to establish its operating system as the go-to platform for users to switch between various streaming channels were noted. The company's move to launch its own branded televisions was initially seen as a strategy to attract new subscribers. However, the recent announcement that Walmart (NYSE:WMT) plans to acquire Vizio for $2.3 billion to enhance its advertising capabilities, similar to Amazon (NASDAQ:AMZN), is perceived as a setback for Roku's television sales through the retail giant.
The company's financial outlook indicates only modest improvements in EBITDA, with projections showing $4 million in 2023, a consensus estimate of $95 million in 2024, and $239 million in 2025. These figures were deemed insufficient for applying a traditional Total Enterprise Value (TEV) to EBITDA valuation method.
CFRA expressed difficulty in employing a long-term Discounted Cash Flow (DCF) model to appraise Roku's value due to uncertainties in driving significant revenue growth, EBITDA, and profits over the next three to five years or longer. Consequently, the firm has reduced its target by $13 to $72. This new target is based on a forward Price/Sales (P/S) ratio of 2.66 times CFRA's $3.89 billion sales estimate for 2024, which equates to $27.05 per share.
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