Roku was downgraded by Wells Fargo because of rising competition and shares that already reflect optimistic projections. Roku 's rating was lowered Friday to equal weight from overweight by Well Fargo's Steven Cahall, who said consensus expectations are now calling for a 50% and 47% jump in average revenue per user for the next two years respectively. Those high expectations are Cahall's bull case and leaves little room for error, the analyst said. "The primary reason we go from Overweight to Equal Weight is, while there may still be a long ARPU runway, it's far better understood," the note said. The analyst also cited new competition from companies including Amazon, which just rolled out its own branded smart TVs. "The crowded marketplace leads us to a lower valuation multiple," Cahall wrote. The analyst slashed his 12-month price target on the stock to $350 from $488. That represents just a 4% gain from where the stock closed Thursday. After a surge during the pandemic as streaming boomed, Roku shares have calmed down this year and are about unchanged for 2021. Roku shares pulled back near the end of the summer after reporting a slowdown in streaming viewing. The stock was down more than 2% in premarket trading following the Wells Fargo call.
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
Roku was downgraded by Wells Fargo because of rising competition and shares that already reflect optimistic projections.