Pivotal Research Group began coverage of Roku (NASDAQ:ROKU) with a sell rating on Friday, saying it sees the over-the-top (OTT) streaming company’s stock falling 55% because it looks "overvalued despite the recent pullback."
"We see dramatically more competition emerging that will likely drive the cost of OTT devices to zero and put material pressure on advertising revenue," one Pivotal analyst said in a note to investors.
Roku shares dropped sharply on Wednesday after Comcast announced it would be giving free Xfinity Flex streaming boxes to its internet-only subscribers, a direct competitor to Roku’s devices. Comcast previously charged subscribers $5 a month for Xfinity Flex.
"Everyone has realized the living room is too important and the big boys ... with massive leverage are likely to make ROKU growth much more difficult," the analyst also said.
He also said that Roku “deserves a lot of credit” for building its business and getting its devices into about 31 million households, with the majority in the U.S. The analyst added that Roku did that in spite of facing competition directly from Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), Google-parent Alphabet (NASDAQ:GOOGL) and even Facebook (NASDAQ:FB)
Pivotal has a $60 price target on the stock.
After running up over 330% this year, Roku shares have cooled in September, falling about 11%.Those shares opened Friday’s trading down $12.39, or 9.3%, to $121.36
