Roku, Inc. (ROKU) shares fell more than 12% after Comcast Corporation (CMCSA) announced that its Xfinity Flex will be free for internet-only customers. The Roku-like streaming player provides millions of Comcast customers with the ability to easily access their favorite streaming services and manage their connected home devices from their television, creating potential competition for Roku's flagship product.
The news came shortly after Guggenheim reiterated its Buy rating and raised its price target on Roku stock from $119.00 to $170.00 per share. Analyst Michael Morris believes that the stock is an "under appreciated opportunity" and that the company is "uniquely well positioned" to benefit from the secular shift to streaming video consumption and targeted advertising demand. He also noted Roku's strong mobile app download trends.
The analyst's comments mirror those of William Blair's Ralph Schackart, who believes that Roku will see the same phased stages of international growth as Netflix, Inc. (NFLX) did during its international expansion.
From a technical standpoint, Roku stock broke down from trendline support toward the 50-day moving average at $127.66 during Wednesday's session. The relative strength index (RSI) remains near neutral levels with a reading of 42.37, but the moving average convergence divergence (MACD) remains in a significant bearish downtrend following the stock's peak this month.
Traders should watch for some consolidation above the 50-day moving average over the coming sessions as investors digest the Comcast news. If Roku stock breaks down from those levels, traders could see a move to close the gap from early August to around $105.00. If the stock rebounds from the 50-day moving average, traders could see a move toward $150.00 levels. Since the decline began in early September, the bearish case appears to have the most momentum.
The author holds no position in the stock(s) mentioned except through passively managed index funds.