Wall Street continues to turn bearish on Roku (ROKU).
Late Monday, Keybanc analyst Justin Patterson, a long-time Roku bull, downgraded shares to "Sector Weight" from "Overweight" — citing profitability concerns as consensus estimates for 2023 and 2024 appear "too optimistic."
Keybanc did not put a price target on Roku shares; the firm had previously maintained a $72 price target on the stock.
Roku shares dropped as much as 4% in pre-market trading on Tuesday following this news; the stock is down more than 75% year-to-date.
Over the past month, five firms, including KeyBanc, have downgraded Roku shares, with 12-month consensus price targets averaging roughly $59 a share. Overall, analyst recommendations on the stock amount to 13 Buys, 12 Holds, and 6 Sells, according to data from Bloomberg.
In his downgrade, Patterson noted previously bullish expectations — like outsized growth in connected TV advertising, as well as Roku becoming a critical platform for media partners — have not materialized, further dampening the company's outlook.
"In fact, Roku appears to be ceding market share, and has greater tech debt in its AdTech stack than we envisioned," Patterson wrote. Resolving these issues will required sustained investments, thus leaving current revenue and gross profit growth estimates — along with 2024 profitability targets — challenged, in Keybanc's view.
"We believe share losses and lack of profitability warrant a discount vs. peers," Patterson wrote.
Earlier this month, Roku confirmed it would lay off 200 workers amid a wave of layoffs hitting the tech sector. Despite the headcount reduction, however, Patterson argued the streaming giant will not be able to meaningfully pull back from investment areas in North America, International TVs, content, and ad tech.
"In our view, doing so would arguably slow the revenue recovery," he wrote, noting: "Even after headcount reductions, we struggle to achieve EBITDA profitability by 2024E and project a loss of $79M."
"Given the lower revenue and EBITDA growth, we believe ROKU offers limited upside from current levels."
Roku beat estimates in its third quarter report, but warned investors it expects fourth quarter revenue to drop 7.5% on a year-over-year basis to roughly $800 million. The weak guidance triggered a major sell-off in Roku shares, with the stock falling more than 20% on the news.
"As we enter the holiday season, we expect the macro environment to further pressure consumer discretionary spend and degrade advertising budgets, especially in the TV scatter market," the company wrote in its Q3 earnings release. "We expect these conditions to be temporary, but it is difficult to predict when they will stabilize or rebound."
Alexandra is a Senior Entertainment and Media Reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 and email her at firstname.lastname@example.org