Morgan Stanley Expresses Caution on Roku
Investing.com – Morgan Stanley remains cautious on Roku (NASDAQ: ROKU), lowering its price target on the stock to $60 from $65 and maintaining an Underweight rating. Analysts believe recent investor optimism is premature.
Shares of Roku have surged about 35% since the company’s Q2 2024 earnings report, driven by expectations of a stronger ad market and accelerating growth.
However, Morgan Stanley warns that rising competition and structural risks pose challenges ahead. The investment bank sees the recent outperformance as reflecting renewed confidence in revenue growth acceleration and operating leverage in 2H24 and 2025.
> "We see that optimism as premature and see strong and rising competition as an underappreciated risk," the analysts added.
Roku’s platform segment, which generates revenue from advertising and distribution fees, faces increasing headwinds, according to Morgan Stanley. Analysts highlighted that competition in the connected TV (CTV) ad market from major players such as Prime Video, Netflix (NASDAQ: NFLX), and Disney is intensifying.
> "Prime Video and Netflix are likely to be more competitive in '25 than '24," they cautioned, noting potential pressures on pricing and limiting Roku’s growth.
Roku’s third-party demand-side platform (DSP) integrations offer long-term potential, but Morgan Stanley believes the impact will remain muted due to similar strategies adopted by competitors. Additionally, the firm warns of risks to Roku’s subscription distribution revenue.
> "Streamers [are] increasingly looking to avoid app store fees," they noted, referencing Disney’s recent decision to discontinue sign-ups for Disney+ and Hulu via Apple's (NASDAQ: AAPL) platform.
The recent outperformance in shares suggests success is starting to be priced in, and analysts caution that rising risk persists if Roku does not deliver on elevated growth expectations.
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