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Roku’s Falling On Business Worries, Not The Patent Dispute

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Updated: 16 Dec 2021
  • Roku (NASDAQ: ROKU) was down 8% yesterday, up 2% premarket today
  • There was a release on the UEC patent dispute but that looks like a very minor influence
  • Of more importance were concerns over business performance: Morgan Stanley has downgraded estimates of future performance.

It’s always possible to point to some specific piece of news as driving a stock price – as we might do with Roku here. They’ve lost one part of a patent dispute and there will be, on Jan 9th, a ban in place on their importing the particular equipment that breaches that patent protection. 

Well, that’s pretty big and UEC has certainly been crowing about it. The full judgment is here. On the other hand Roku – and yes, of course, they would – says that there’s nothing much to it. Roku beat UEC on two of the three patent claims, the third one they’ve already designed around. Even then it only affected some old models of the remote controls and so there. 

Who to believe? Well, if it were a total ban on all Roku equipment imports then we’d be seeing a much greater price reaction, we’re not so it isn’t. 

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So the patent case we might take to be not all that very much where the Roku stock valuation is concerned. What does matter though is the more general market view of the company’s prospects. Here the news is less rosy.

Note that this doesn’t mean that Roku’s prospects are less rosy, but that the market’s views of them are. Morgan Stanley, as an example of one analyst, has issued a price target of $190 for Roku’s stock. That’s below the current market price of $204 or so and well down on the $250 we’d been seeing recently. It’s also the lowest current price target being touted on the Street. 

The particular and specific concern is that Morgan Stanley thinks Roku is still priced for growth. So, part of the stock valuation is that Roku will be a larger company in the future with more subscribers and so on. But then estimation is that there will be few, if any, active accounts added going forward. Thus the downgrade in the estimation of the fair value for Roku’s stock price.

It should be said that while the specific number here is different and lower this general view of diminishing prospects for further rapid growth extends across much of the market. That’s why the general decline in the stock price over time. The Morgan Stanley price or valuation estimate might be an outlier but it’s not out of line with wider opinion in direction. 

It is true that there was that slightly startling news about the Roku and UEC patent dispute and the Jan 9 ban on importation of offending equipment. But that’s not perhaps the real driver of the Roku stock price at present, that’s more about the general performance of the company. Street estimations are that this is declining, thus the stock price.

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