Shares of Roku Inc. slumped 2.7% in premarket trading Tuesday, after KeyBanc Capital's Justin Patterson backed away from his long-time bullish stance on the streaming platform for TV, citing concerns over market share losses and the need to keep making investments at a time it's trying to save money. Patterson said the his reasons for being bullish, such as outsized growth in connected TV advertising and being a critical platform for media partners, "have not manifested." He cut his rating to sector weight, after being at overweight for at least two years. "[R]oku appears to be ceding market share, and has greater tech debt in its AdTech stack than we envisioned," Patterson wrote in a note to clients. "As resolving these issues requires sustained investment, we believe consensus is too optimistic on 2023E/2024E revenue and gross profit (we are 7%/8% and 5%/10% below [Wall] Street, respectively." He believes this makes achieving profitability in 2024E "challenging." The stock has plunged 76.4% year to date through Monday, while the S&P 500 has lost 16.8%.
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