'We don't think it can get much better from here for Roku,' says Stephens in downgrade

Published Fri, May 22 20208:24 AM EDT

(This story is for CNBC Pro subscribers only.) With Roku's TV partner pulling most of the weight, there's less upside for the streaming platform going forward, according to Stephens. The Wall Street firm downgraded shares of Roku to equal weight from overweight on Friday, largely due to its partnership with Smart TV company TCL. The call sent shares of Roku down nearly 3% in premarket trading. "We believe ROKU has benefited tremendously from TCL's heavy lifting, TCL still isn't participating meaningfully in ROKU's downstream advertising/commerce economics and we have gradually grown more concerned with the duration mos/magnitude of what we believe is ROKU overearning vs. its important partner," Stephens analyst Kyle Evans told clients. Shares of Roku have rallied more than 30% in the past year, benefiting from the fact that Roku is a streaming platform that lets consumer watch Disney+, Amazon Prime Video, Apple TV+, Netflix and Hulu all in one place. TCL is Roku's most important Smart TV equipment provider "by a significant margin," said Evans, accounting for 75% of the top-12 most popular TVs on Amazon. Evans said although the partnership is good from a stock perspective, there is not much upside for Roku. "This is a very strong partnership from a market share perspective but is tilted heavily towards ROKU when it comes to financials (and stock price), and we don't think it can get much better from here for Roku," said Evans. "We tend to get worried when things look as good as they can get." Roku is a well-liked stock on Wall Street with 62% of the 21 analysts that cover the streaming platform, calling it a buy, according to FactSet. Six analysts have a hold rating and two analysts recommend selling the stock. Stephens slashed Roku's price target to $105 per share from $155 per share, implying a slight drop from Thursday's closing price of $114.70 per share. The firm also lowered its 2020 revenue estimates to $1,492 million from $1,605 million. Evans added that he is somewhat concerned about the slow pace of Roku's international expansion. — with reporting from CNBC's Michael Bloom.

The Roku 3 television streaming player menu is shown on a television in Los Angeles, California, U.S., on Thursday, Sept. 12, 2013.

Patrick T. Fallon | Bloomberg via Getty Images

(This story is for CNBC Pro subscribers only.)

With Roku's TV partner pulling most of the weight, there's less upside for the streaming platform going forward, according to Stephens.

The Wall Street firm downgraded shares of Roku to equal weight from overweight on Friday, largely due to its partnership with Smart TV company TCL. The call sent shares of Roku down nearly 3% in premarket trading.