Roku falls as Wolfe Research downgrades on concerns 'flywheel' is facing 'mounting challenges'
Justin Sullivan

Roku (NASDAQ:ROKU) shares fell on Tuesday as investment firm Wolfe Research downgraded the media and communications company, citing worries that the company's "flywheel" is not as strong as previously thought. 
Analyst Peter Supino lowered his rating on Roku (ROKU) shares to underperform from peer perform and put a $77 price target on the stock, noting the company is likely to face challenges adding users and monetizing them.
Supino noted that due to less hardware available for purchase due to a number of reasons, including supply chain issues and inflation, Roku (ROKU) is likely to not add as many customers as once thought. 
"We expect less hardware available and purchased through [2023], bringing [estimated 2023] net adds to 6.7M, the lowest level since [2017]," Supino wrote in a note to clients.
Roku (ROKU) shares fell more than 4% to $83.15 in premarket trading. 
In addition, Supino noted that there is risk to average revenue per user as "high quality" advertising-supported video-on-demand alternatives emerge, including the launch of Disney+ (DIS) and Netflix (NFLX). The analyst said rather than expanding the advertising market, these new entrants are likely to lower the average cost-per-thousand, or CPM metric. Though they will bring increased supply, it's likely they will "push dollars away from non-premium categories (i.e. FAST advertising)."
Lastly, Supino noted that Roku's (ROKU) profitability is likely to be an issue, as the company is in a "catch-22" as it looks to invest in the future to expand and acquire content, while also worrying about margins in a weakening economy. 
Earlier this month, ARK Invest CEO Cathie Wood made another aggressive call, stating that Roku (ROKU) can reach $605 per share by 2026.
Analysts have been mostly positive on Roku (ROKU). It had an average rating of BUY from Seeking Alpha authors, while Wall Street analysts rate it a BUY. Conversely, Seeking Alpha's quant system, which consistently beats the market, rates ROKU a STRONG SELL.