Citi Slashes Roku Price Target, Names 5 Reasons For Staying Neutral

After losing around half of its entire market capitalization since peaking in mid-2017 at $77.57, Roku Inc (NASDAQ: ROKU) should not be bought by investors, according to Citi.

The Analyst

Citi's Mark May maintains a Neutral rating on Roku with a price target lowered from $60 to $44.

The Thesis

Citi is staying neutral on Roku for five reasons, May said in a Monday note:

• The company will likely see heightened competition from larger rivals in the smart TV market, especially Google and Amazon.com, Inc. (NASDAQ: AMZN). If the competitors introduce retail distribution partnerships, it could result in downside to Roku's account growth and/or prompt higher sales and marketing expenses. 
• The stock's valuation remains elevated despite the recent sell-off at nine times EV/2019 GP and 94 times EV/2019 EBITDA.
• An international push could negatively impact near-term earnings.
• The Street's fourth-quarter revenue and gross profit estimates are "aggressive."
• The sell-side's 2019 adjusted EBITDA forecast of $29 million is ahead of management's own guidance of achieving break-even EBITDA.

Price Action

Roku shares were trading higher by more than 2 percent at $40.40 at the time of publication Monday. 

Related Links:

Roku's Huge Day

Analysts Stick With Bullish Roku Stances After Concerning Chinese Headline

Photo courtesy of Roku.