Another analyst has turned bearish on Roku Inc.’s stock in the wake of the company’s latest earnings report, cautioning that the company is in a tough predicament as it formulates its approach to content spending amid a weakening economic environment.
MoffettNathanson’s Michael Nathanson wrote that Roku shares ROKU, +1.52% have “surprisingly bounced back after an incredibly weak 3Q 2022 revenue guide,” despite his view that the company’s “competitive position [is] challenged from all sides with investment spending a necessity to remain competitive.”
Roku shares have rallied in seven of the past eight sessions and were trading near $79 Wednesday. That’s still below Roku’s $85.17 closing price immediately before the company’s last earnings report, but it’s significantly above the stock’s $65.52 close the day after that report came out.
Nathanson downgraded the stock to underperform from market perform Wednesday, highlighting that Roku executives called out adjustments related to revenue-recognition accounting standards for content-distribution deals in discussing the latest results. However, Nathanson’s analysis of the company’s 10-Q filing found “a relatively minor 2Q revenue reversal of just -$10 million” from the changes.
“As such, Roku’s core business outside of these content distribution deals appears to be in an even weaker state than we had anticipated,” he wrote.
Nathanson worries that Roku is in a tough position when it comes to content spending. The company appears to be moderating such investments given the current climate, but he thinks that “cutting back on spending will hamper Roku’s long-term ability to compete against large technology giants” that have more of an ability to spend up through rocky times.
“Roku appears to be between a rock and a hard place, and we do not expect they will become profitable on a GAAP basis anytime soon,” he wrote.
Despite the downgrade at MoffettNathanson, the stock is up 1.3% in Wednesday morning trading, though it’s fallen 79% over the past 12 months as the S&P 500 SPX, +1.77% has lost about 6%.