Roku (NASDAQ:ROKU) stock fell another 4% overnight after one of its key supporters downgraded it.
Analyst Justin Patterson of Keycorp dropped his rating from “overweight” to “sector weight,” his first downgrade in two years. Over the last two years, Roku stock is down 80%.
Roku executives warned about a tough holiday when announcing third-quarter results early this month. The company added 2.3 million new accounts in the third quarter, but device sales were down 7%. Roku also warned that revenue for the current quarter will fall short of a year ago, at $800 million. A few weeks later it laid off 200 employees. Its recovery plan includes niches, like Spanish language and local programming.
Streaming Era Ends
Trouble isn’t confined to Roku, which makes streaming hardware and sells ads on its free Roku channel. Walt Disney (NYSE:DIS), Netflix (NASDAQ:NFLX), Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) have all been letting people go. Production budgets will likely take a big hit in 2023.
Streamers believed there was unlimited revenue to be drawn from having a direct link to customers. But the limits on streaming aren’t just financial. Time is also a factor. There may be nothing on cable’s 150 channels, but streaming consumers can access full libraries of content.
Unlike its Cloud Czar competitors, however, Roku is suffering net losses, which is why Patterson finally cut his support. At its height, Roku was worth more than some of the streaming partners it supported, like Paramount Global (NASDAQ:PARA). Paramount is now worth two-thirds more.
ROKU Stock: What Happens Next?
I expect 2023 to be a year of mergers and consolidation in streaming, and that only the financially strong will survive.
On the date of publication, Dana Blankenhorn held long positions in AAPL, GOOGL and AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.