Jefferies downgraded Roku and Spotify this morning
Jefferies weighed in on streaming stocks today, issuing bear notes to Roku Inc (NASDAQ:ROKU) and Spotify Technology SA (NYSE:SPOT).
Digital Advertising Slowdown Could Weigh on Roku Stock
The Wall Street broker downgraded Roku stock to "underperform" from "hold," adjusted its price target down to $30, and lowered its 2024 revenue estimate to "better align with a prolonged slowdown in digital advertising" thorough the end of the year.
The news has ROKU trading 3.4% lower at $47.15. The shares' 73.6% year-over-year drawdown over the last nine months has seen multiple rally attempts cut short by its 80-day moving average.
Coming into today, analysts were split towards Roku stock. While 13 rated ROKU a "hold" or worse, 10 still recommended a "buy" or better, meaning more downgrades could soon roll in. What's more, the 12-month consensus target price of $59.24 is a 25% premium to last night's close, leaving even more room for more brokerages to jump on the bearish bandwagon.
Weighing in with options could be a prudent route. Roku stock's Schaeffer's Volatility Index (SVI) 79% ranks higher than just 21% of readings from the past year, meaning options traders are pricing in low volatility expectations. It's also worth pointing out that ROKU ranks low on the Schaeffer's Volatility Scorecard (SVS), with a score of just 14 out of 100. In other words, the security has consistently realized lower volatility than its options have priced in, making the stock a potential premium-selling candidate.
Product Convergence Spells Danger for Spotify Stock
Jefferies downgraded Spotify stock to "hold" from "buy," and lowered its price objective to $95 from $115. The analyst said that the convergence of products like music, podcast, audiobooks, and fandom "is happening, but much slower than expected," and expects the streaming service's growth margins to pull back below Wall Street's expectations within the next two years.
SPOT is down 1.4% at last check, to trade at $90.51, set to snap a five-day winning streak. In the last 12 months, Spotify stock is down 61%.
In a similar vein as ROKU, Spotify stock remains a downgrade risk. Of the 21 in coverage, 12 rate SPOT a "buy" or better, while the average 12-month target price of $112.88 is a 23% premium to Wednesday's close.