Roku, Inc. (ROKU) shares fell more than 6% during Thursday's session after Guggenheim downgraded the stock from Neutral to Buy and lowered its price target from $77.00 to $72.00 per share. The analyst cited growing competition from Apple Inc.'s (AAPL) newly launched video offerings as well as Amazon.com, Inc. (AMZN) and other streaming video services. CFO Steven Louden's sale of 100,000 shares also shook the analyst's confidence in Roku stock in recent weeks.
The move comes shortly after Rosenblatt initiated coverage of Roku stock on April 2 with a Neutral rating and a price target of $63.00 per share. According to that analyst, the company needs more premium content on The Roku Channel to justify a higher valuation, given that the intrinsic value was more than reflected in the then-current price. The analyst also noted that Roku's ad margins continue to experience compression.
The company did recently announce the availability of HBO, and soon Cinemax, via Premium Subscriptions on The Roku Channel. The new additions join more than 25 other premium subscriptions that are already available on The Roku Channel.
From a technical standpoint, Roku stock moved sharply lower in early March before gaining ground by early April and then falling again. The relative strength index (RSI) moderated to neutral levels of 50.33, but the moving average convergence divergence (MACD) continues to see a bearish downtrend. These indicators suggest that the stock has room for more downside before reaching oversold conditions.
Traders should watch for a breakdown from trendline support to the 50-day moving average and S1 support near $58.00. A further breakdown from those levels could lead to the 200-day moving average and S2 support at around $52.00. If the stock rebounds from these levels, traders could see near-term trendline resistance near R1 resistance at 72.70. A breakout from these levels could lead to R2 resistance at $80.88.
The author holds no position in the stock(s) mentioned except through passively managed index funds.