Why Roku Stock Plunged Today


Shares of Roku (NASDAQ:ROKU) declined by 11.3% on Wednesday, following bearish analyst remarks. 

So what

MoffettNathanson analyst Michael Nathanson slashed his share price forecast for Roku from $330 to $220. If he's correct, investors could suffer losses of roughly 10% from the stock's closing price near $245 on Wednesday.

Why Roku Stock Plunged Today

MoffettNathanson analyst Michael Nathanson is a Roku bear. Image source: Getty Images.

Essentially, Nathanson believes Wall Street's sales and profit projections for the streaming media company are overly optimistic in light of its intensifying competition. Thus, he thinks investors should sell the stock.

Now what

To Nathanson's point, Roku is facing heightened competition from the likes of Amazon.com (NASDAQ:AMZN) and Vizio. The streaming video giant and leading smart-TV maker have their own operating systems and ad platforms, which are rapidly gaining favor among consumers and advertisers.

Amazon's fast-growing streaming ad sales contributed to a 49% surge in its "other" revenue in the third quarter. Meanwhile, Vizio's ad sales boosted its Platform+ net revenue, which soared 134% in Q3. 

Moreover, Amazon said in September that it would manufacture and sell a new line of smart TVs. "We've reimagined what a TV can do by building it with two of our most popular experiences at the core," Amazon executive Daniel Rausch said in a press release announcing the new product launch. Those experiences are Alexa -- Amazon's innovative voice assistant technology -- and Fire TV, the streaming leader's popular operating software.

Amazon is likely to market its new smart TVs aggressively during the upcoming holiday selling season. That could pressure sales of Roku's devices and other manufacturers' TVs that use its software.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.