By Emily Bary
Analyst is also concerned about hiring spree, dilution from stock options
Shares of Roku Inc. are down 6.5% in Monday morning trading after Citi Research analyst Mark May turned bearish on the stock and raised concerns about competitive pressures in the industry, including from Apple Inc.
May downgraded the stock from sell to neutral on Monday, writing that developments in the over-the-top landscape could mean that consumers will have less reason to use Roku's (ROKU) products and services. "For instance, Apple's new [Apple TV+] service is not ad-supported (i.e., limited to no revenue opportunity for Roku) and Apple (AAPL) announced several deals to directly integrate and distribute the service on several smart TVs," May said.
He also sees Alphabet Inc.'s (GOOGL) Android TV operating system gaining momentum. May set a 12-month price target of $50 a share, down from $53 previously. Roku shares recently changed hands at just north of $59.
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Other areas of concern for May have to do with the company's hiring efforts, as Roku has more open job positions relative to its total head count than other areas in May's coverage area, according to Citi's analysis. In addition, he saw a big increase in the value of new restricted stock units and option grants in the company's latest annual report, "which increases dilution and could result in greater-than-previously-expected future grants/dilution," in May's view.
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In general, he finds shares to be expensive after nearly doubling in price so far this year. As of the publication of May's note to clients, the stock was trading at a roughly 70% premium to peers and 80% to 90% above its 2018 lows, based on 2020 estimates of enterprise value to gross profit.
Roku was the subject of a downgrade last week at Guggenheim, which also expressed concern (competition from Apple's forthcoming TV service.
Shares have gained 45% over the past three months, while the S&P 500 has risen 12%.
-Emily Bary; 415-439-6400; AskNewswires@dowjones.com
(END) Dow Jones Newswires
April 08, 2019 10:12 ET (14:12 GMT)
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