By Emily Dattilo
The competitive landscape is changing, and that presents problems for Roku, Wells Fargo says.
Analysts led by Steven Cahall downgraded shares of the media-streaming company to Underweight from Equal Weight and slashed their target for the stock price to $51 from $77. They lowered their forecasts for net additions of subscribers, revenue, gross profit, and other metrics in a Tuesday report.
In morning trading, Roku shares were down 1.4% to $63.46, while the S&P 500 was flat.
The core of the issue is that earlier this month, when Walmart filed its fourth-quarter earnings, the retailer confirmed reports it was buying the smart TV manufacturer Vizio for about $2.3 billion, or $11.50 a share. The acquisition will help Walmart make gains with its advertising business, Walmart Connect, Barron’s reported. Owning a TV maker allows a company to snap up dollars from advertising, which is quickly becoming a profit booster.
Walmart is responsible for about a third of Roku’s device sales and net subscriber additions, Wells Fargo wrote, saying the Vizio acquisition will probably weigh on Roku’s net adds by 2025 to 2026. It also means Walmart will likely move away from advertising collaborations with Roku in favor of Walmart Connect.
“ROKU is going to need to reposition given this major shift in the competitive landscape,” the analysts wrote, saying the Vizio deal “creates substantial risk” for Roku.
The company didn’t immediately respond to a request for comment.
The company’s three largest channel partners, or sellers of its hardware, are Walmart, Best Buy, and Amazon.com, the analysts continued, citing Roku’s financial filings. They said they don’t see any of the trio stepping up to purchase the company.
“Walmart has a Connected TV operating system now,” the team wrote. “Best Buy is not a media/ad company. AMZN could potentially have interest, but we think it has the necessary assets already between Prime Video for content/ads, FireTV operating system and a device supply chain.”
“This leaves ROKU to a fundamental valuation, and we think the story needs to improve for investors to justify a substantial long-term premium to the WMT/VZIO deal,” Wells added.
Earlier this month, Roku posted a fourth-quarter per-share loss that was in line with what Wall Street had expected. Sales were higher than anticipated.
Write to Emily Dattilo at emily.dattilo@dowjones.com