Roku plunges the most in over a year on concern of competitive threat from Disney, AT&T and others

  • Roku slumped after Macquarie analysts said they fear the company will struggle in the ad market against bigger media companies.
  • Apple is expected to introduce a streaming service later this month.
  • Roku shares have more than doubled this year.
Anthony Wood
Stephen Desaulniers | CNBC
Anthony Wood

Roku shares had their worst day in over a year Wednesday after analysts at Macquarie Research said the stock's 2019 rally isn't justified given the threat of competition from a host of larger media companies.

Roku plunged more than 14 percent to $60.74, the steepest drop since February 2018, and the third-biggest decline since the company went public in 2017.

Even after the slump, Roku shares have almost doubled this year. Analysts at Macquarie downgraded the stock Wednesday to neutral, saying it's at "a full valuation," and that the ad-supported video on demand (AVOD) space is becoming intensely competitive.

Source: CNBC

In addition to selling its own streaming hardware and licensing its technology to TV manufacturers, Roku makes money by selling ads when customers watch certain channels and shows from the service. The Roku Channel lets users watch hundreds of free ad-supported shows and movies and subscribe to premium channels like Showtime and Starz.

But Disney, AT&T's WarnerMedia and Comcast's NBCUniversal are all planning their own streaming services, which "could limit the amount of library content made available to Roku Channel over time," Macquarie said. Disney has already made plans to pull its movies from Netflix so its own platform can stream them exclusively. And Apple is expected to announce its own service at an event March 25.

The analysts also expressed concern that Roku's business model could become outdated if the industry moves toward a more open approach to targeted TV ads. Disney, NBCU and CBS are among networks in a consortium called Project OAR (Open Addressable Ready), pushing an open approach to ad targeting that "may conflict with Roku's more closed system," Macquarie said.

According to Variety, Project OAR aims to launch in early 2020.

Still, the Macquarie analysts raised their price target on Roku from $57 to $66 and increased their revenue estimates for this year and next about by about 2 percent.

Disclosure: Comcast is the owner of NBCUniversal, parent company of CNBC and CNBC.com.

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