For Roku, Valuation 'Caught Up With Reality'

Roku Inc (NASDAQ: ROKU)'s earnings report Wednesday sent shares tumbling, which is likely to reinvigorate the bull-bear debate moving forward.

Tigress' Feinseth: Catching Up To Reality

Roku's disappointing guidance was a contributing factor to the stock's decline and after Thursday's sell-off its "valuation finally caught up with reality," Tigress Financial's Ivan Feinseth said in his daily newsletter. The company's guidance implies it will continue to face decelerating adoption rates and competition from "larger and more dominant" streaming video providers.

"I believe further downside risk exists into the low $30s to high $20s in the near-term and would avoid the stock," Feinseth said.

Citi's May: Expectations Not Matching Up

Citi's Mark May said in a note ahead of Roku's print that the company may post a positive surprise in its earnings report but held on to a Sell rating. After the print, the analyst said Roku's revenue fell short of expectations as upside in Platform/Advertising revenue was offset by lower than expected Player revenue.

Roku's revenue guidance for the first quarter did fall short of expectations, but adjusted EBITDA and gross profit was in-line with expectations, said May. Nevertheless, bulls were likely expecting these metrics to come in above consensus estimates which contributed to the selloff.

May increased his price target on Roku's stock from $28 to $33 due to upside to earnings in both the third and fourth quarter print, but the revised target still implies a more than 20 percent decline ahead.

Price Action

Shares of Roku were trading higher by nearly 2 percent at $42.84 Friday afternoon.

Related Links:

William Blair Sticks With Roku After Negative Response To Streaming Service's Q4

Morgan Stanley: After 20% Drop, Roku Still Has Downside

Photo courtesy of Roku.