Apple TV competitor Roku faced a sharp decline on Friday. Investors perceive that the stock is overvalued.
Roku Stock Drops 19%
This past Friday, Roku stock closed with a 19% loss. Market analyst Jeffrey Wlodarzak lowered the TV device maker’s 12-month price target down to $60, a key factor in the stock’s decline.
This comes after Roku faced a 3 day losing streak, dropping 28% in three trading days. In the big picture, the stock has more than doubled in value this year. Investors may still be weary of further declines.
Roku Has a Fundamentally Strong Business
Despite the recent decline, Roku’s fundamentals are solid. Revenues have been steadily increasing with solid growth. Just last quarter, Roku reported 59% revenue growth. This comes after three quarters of steady growth.
Optimistic Outlook for Roku
Roku’s present is solid, and their future looks bright. The TV device maker’s estimates for total 2019 revenues have been hiked up to $1.075 billion to $1.095 billion.
Like many tech companies, Roku is not profitable. They take a net loss every quarter. Roku’s revised outlook predicts $4 million less in losses for 2019 than previously estimated.
Roku’s Market Capitalization May Be Overvalued
Market capitalization is often difficult to assess. Roku’s market cap is currently valued at $12.6 billion. This figure is perceived as highly speculative by some analysts and investors.
Roku has some justification for this market cap valuation. Gross profits have increased dramatically, doubling in the past two years. Investors are keeping an eye on expenses, however, the company is dedicated to spend revenues on expansion.
Roku is a Formidable Threat to Apple TV
Apple sidelined their TV device for several years, as Roku expanded market share. Apple has only taken their TV device seriously within the past few years. The delay has been advantageous for Roku.
Although Apple TV has gained some ground, its market share is paltry. Compared to Roku, the market share leader, Apple TV is insignificant.
Apple TV+, a new subscription service, is more of a way to transcend Apple TV. The new service can be used on devices other than Apple TV. Apple also plans to roll out the service on other TV platforms, perhaps even Roku. It’s entirely possible that Apple could phase out Apple TV, the device, in favor of Apple TV+, the service.