Pivotal starts 'dramatically overvalued' Roku with Sell rating, $60 target

Pivotal Research analyst Jeffrey Wlodarczak initiated coverage of Roku (ROKU) with a Sell rating and $60 price target. The streaming service closed yesterday up 3% to $133.76. The emergence of "dramatically" more competition will likely drive the cost of over-the-top devices to zero and put "material" pressure on advertising revenue splits, Wlodarczak tells investors in a research note partially titled "Is ROKU BROKU?" Comcast's (CMCSA) recent moves with its free Xfinity Flex product will likely be copied by other distributors, adds the analyst. He believes Comcast's move to free will materially reduce Roku's potential outsized subscriber growth and average revenue per user opportunities, or the reasons for the stock's "premium" valuation. Roku management deserves credit for the asset they have created, but "everyone has realized the living room is too important and the big boys with massive leverage" are likely to make the company's growth much more difficult, argues Wlodarczak. The analyst believes that despite the recent selloff, shares of Roku are still "dramatically overvalued."