(Adds background on valuation, updates stock price)
SAN FRANCISCO, Oct 3 (Reuters) - Traders on Tuesday were "clamoring" to borrow shares of Roku in order to sell them short following the video-streaming company's initial public offer last week, according to S3 Partners.
Shares of the Los Gatos, California company dropped 10.5 percent to $21.08 on Tuesday, bringing their decline to 20 percent in the past two sessions.
"With short sellers clamoring for short locates, stock borrow rates have increased from the 20-percent fee level to over 65-percent fee for some trades we've seen done today," Ihor Dusaniwsky, S3 Partners head of research, said in an email.
So far, about 2 million shares of Roku have been sold short, according to the financial analytics firm.
Riding a wave of consumers abandoning cable TV and switching to online content while facing competition from larger rivals, Roku remained up 51 percent from the $14 price set in its initial public offer on Wednesday.
Based on its 2016 growth rate, Rokus annual revenue could reach $623 million in 2018, putting its current stock price at about 3.2 times revenue, a level that appears expensive compared to other Silicon Valley consumer electronics makers.
Roku's shareholders include Menlo Ventures, Fidelity and Rupert Murdochs Twenty-First Century Fox. (Reporting by Noel Randewich; Editing by James Dalgleish)