Wells Fargo analysts downgraded Roku (NASDAQ:ROKU) from Equal Weight to Underweight on Tuesday, citing “substantial risk” stemming from Walmart’s (WMT) acquisition of Vizio (VZIO).
The broker also cut the price target on ROKU from $77 to $51.
ROKU fell 3.6% in premarket trading.
Walmart’s takeover of VZIO will likely put pressure on net additions by 2025-26, especially with the retail giant likely shifting its Connected TV from the Roku operating system to SmartCast, the broker noted.
“ROKU is going to need to reposition given this major shift in the competitive landscape. ROKU and WMT also collaborate on shoppable ads, w/ WMT likely to pivot Walmart (NYSE:WMT) Connect towards the SmartCast installed base,” analysts said.
Wells Fargo also pointed out that Roku’s top three channel partners include Walmart, Best Buy (BBY), and Amazon (AMZN).
Walmart now has its own Connected TV OS, Best Buy doesn't specialize in media/advertising, and while Amazon might have an interest, it likely possesses all the required assets with Prime Video for content and ads, the FireTV OS, and an established device supply chain.
“This leaves ROKU to a fundamental valuation, and we think the story needs to improve for investors to justify a substantial long-term premium to the WMT/VZIO deal.”