Roku ‘s disappointing second-quarter results and dismal guidance signal that it’s time to sell shares of the beaten-up streaming stock, Bank of America says. Analyst Ruplu Bhattacharya double downgraded shares of the company to underperform from buy and slashed the bank’s price target to $55 a share from $125, as the company faces a slowdown in ad spending amid a worsening macro picture. “Our underperform thesis is based on headwind from weaker macro which is causing advertisers to pull back spend limiting Roku from fully monetizing the platform,” Bhattacharya wrote. “We see weakness continuing in the scatter ad market in 2H22. Roku is reducing opex and slowing headcount growth which can delay plans for international expansion.” Roku on Thursday reported earnings and revenue that missed analyst expectations for the previous quarter, as its advertising and device sales came under pressure in a tough economy riddled with inflation and supply chain constraints. The stock sank more than 25% Friday on the back of those results. Along with a bleak outlook for its advertising business, Roku may also face headwinds from high inflation inhibiting consumer spending, Bhattacharya said, trimming the bank’s active account estimates for the company. Microsoft’s advertising partnership with Netflix could also pose problems for Roku going forward. Shares of Roku have plummeted more than 72% this year amid a broader market sell-off. The stock could fall another 35% from Thursday’s close price based on Bank of America’s fresh price target. In addition to the downgrade, Bhattacharya slashed their EPS estimates on Roku and more than halved their revenue growth expectations for 2022 and 2023. “The bulls will point to Roku’s larger scale and that valuation is back to pre-pandemic levels; however, we do not see an easy fix to the monetization problem in the near-term,” Bhattacharya wrote. — CNBC’s Michael Bloom contributed reporting
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