Roku Inc. (NASDAQ: ROKU) shares fell for the second consecutive day after Morgan Stanley had downgraded the media streaming platform from equal weight to underweight, citing the company’s high valuation.
Roku shares fell 8.2 percent on Friday alone and 15 percent since Morgan Stanley downgraded.
Morgan Stanley analyst Benjamin Swinburne lowered his rating, but raised his price target from $25 to $30 for Roku.
Swinburne says that the rapid growth of Roku since its initial public offering shows impressive momentum, but he believes that the market overreacted. He says that the company’s current valuation is difficult to determine.
He also mentions in the note that Roku’s top five channels generate 70 percent of users spending time, but the top channels, Netflix and Youtube, do not generate sales for Roku.
“Two of the content partners generating the greatest engagement and monetization, such as Netflix and YouTube, have historically not generated material revenues for Roku.” Swinburne wrote.
“If market share on consumer time spent increasingly shifts towards these larger scale players (e.g. Netflix, YouTube) and away from the long-tail, we believe Roku's monetization opportunity could be more limited than the stock is pricing in today.” added Swinburne.
Along with Morgan Stanley, Citi analyst Mark May also downgrades Roku from neutral to sell with a raised price target from $27 to $28, based on the same reasoning as Swinburne.