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Roku’s ‘lack of profitability’ justifies a discount to its peers, KeyBanc says in downgrade


Roku faces a challenging road to profitability, according to KeyBanc Capital Markets. The firm downgraded shares of the beaten-up streaming stock to sector weight from overweight in a note to clients Monday. Analyst Justin Patterson said Roku’s ability to turn a profit by 2024 looks seems tough and efforts to resolve its issues will put pressure on the company’s enterprise value-to-sales multiple. Patterson noted that Roku’s 2023 and 2024 enterprise value-to-sales multiples of 1.9 times and 1.6 times are well below peer expectations and historic averages of 3.7 times and 3.2 times, respectively. “However, we believe share losses and lack of profitability warrant a discount vs. peers,” he said. Among the reasons for the downgrade, Patterson highlighted Roku’s continued loss of connected TV ad dollars and said current consensus estimates are too high, failing to account for the ongoing challenges the streaming company faces. “Roku appears to be ceding market share, and has greater tech debt in its [advertising technology] stack than we envisioned,” he wrote. “As resolving these issues requires sustained investment, we believe consensus is too optimistic on 2023E/2024E revenue and gross profit growth.” The firm adjusted fourth-quarter estimates and 2022 to 2024 revenue, gross profit and EBIDTA estimates to reflect its sentiment shift. Roku shares have plummeted more than 76% this year as investors rotate out of growth stocks and competition heats up in the streaming space. The stock fell more than 2% during Tuesday’s premarket. — CNBC’s Michael Bloom contributed reporting

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