SAN FRANCISCO: Roku Inc's high-flying stock tumbled 15per cent on Monday after Morgan Stanley downgraded the video streaming company, warning that revenue and profit growth could slow next year.
Morgan Stanley analyst Benjamin Swinburne cut Roku to "underweight" from "equal-weight" and trimmed his price target by US$10 to US$110, warning of "overall exuberance over all things streaming."
The stock fell US$23.50 to US$136.87 shortly after midday.
A major winner in the consumer shift away from cable television in favor of Netflix and other streaming services, Roku's stock has gained more than 300per cent in 2019, even after Monday's slump.
Shares of the San Jose, California company, which reported a wider loss for the September quarter, are valued at an elevated 12 times revenue expected over the next 12 months, compared to a multiple of about 6 for streaming leader Netflix, according to Refinitiv.
"We believe there are risks to growth expectations not reflected in current valuation levels. Specifically, we think revenue and gross profit growth slow meaningfully in '20 and the multiple compresses," Swinburne wrote in a report.
Competition in the streaming market is increasing rapidly, with Walt Disney Co and Apple Inc launching new services last month. AT&T Inc's HBO Max and a new offering from Comcast Corp are expected to enter in 2020.
Reflecting growing competition in hardware used to deliver streaming services, Roku's stock tumbled 28per cent over three days in September after Comcast said it would offer internet customers a streaming media set top box for free.
Monday's drop in Roku's stock was on track to be just a bit less than the 16per cent sell-off from Nov. 7 after the company's quarterly report failed to satisfy investors, even after its net loss and revenue exceeded analysts' average expectations.
Also on Monday, Netflix fell 2.2per cent, trimming its gain in 2019 to 15per cent. Over last week's U.S. Thanksgiving holiday, the company began streaming its hit mobster movie "The Irishman," which JPMorgan said could boost its shares.
As the streaming video market has become more crowded, Roku has shifted its focus from device sales to advertising, which is now the company's fastest-growing revenue stream.
Eleven analysts recommend buying Roku's stock, while three recommend selling and another three are neutral.
(Reporting by Noel Randewich; Editing by Richard Chang)