A Risky Print Ahead for Roku - Wells Fargo

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By Sam Boughedda 

In a note to investors Monday, Wells Fargo analysts said another risky print is ahead for Roku (NASDAQ:ROKU).

The analysts have an Equal-Weight rating and a $64 per share price target on the stock. They said the firm's analysis of user data suggests ROKU's 3Q22 Active Accounts and net adds will be below our prior estimate and Street expectations.

"We are lowering our 3Q22E net adds from +1mm to +500k to partially reflect the results of our correlation analysis from the Apptopia data analysis. We think there's downside risk to our numbers, but we are being mindful that the correlation data is not perfect, and we hesitate to fully reflect the negative 2-3mm of MAU losses for Roku's 3Q," wrote the analysts.

The analysts stated Roku shares continue to face headwinds, having suffered from supply chain issues, elevated investments in opex, a broader tech sell-off, and, currently, ad pressures.

"We are also slightly trimming our monetization expectations to better reflect weakness in the scatter market and the slowdown in our 3P data. As a result, we are lowering our 3Q revenue/gross profit/EBITDA estimates from $702mm/$324mm/-$79mm to $660mm/$301mm/-$93mm, so we're below guidance. For Q4, we are also lowering our net adds estimates from 3.2mm to 2.5mm to better reflect inflationary cost pressures driving consumers to pull back on discretionary spending," the analysts added.

Wells Fargo believes ROKU will be especially sensitive to net adds as it's seen as more structural, vs. ads being cyclical.