Wells Fargo downgrades Roku to equal weight after strong second quarter

Investing.com -- Wells Fargo downgraded Roku to Equal Weight from Overweight on Friday, saying the streaming platform's strong second-quarter results had lifted its estimates but left limited upside to its valuation as the company moves toward its planned acquisition by Fox Corp.

Wells Fargo cut its price target to $165 from $167. It values the stock at $96 per share in cash and $69 in Fox stock under the proposed deal, which it expects to close in the first half of 2027 with limited risk and no new bidder emerging. Roku closed at $154.08 on Aug. 13.

The brokerage raised its 2026 and 2027 revenue estimates by 3.8% and 4.6%, respectively, to $5.76 billion and $6.45 billion. It also lifted its 2026 adjusted EBITDA estimate by 12% to $761 million, while cutting its 2027 estimate to $837 million from $869 million as it expects higher operating expenses to support device sales.

Roku's second-quarter platform revenue rose 25% year over year to $1.22 billion, beating Wells Fargo's estimate by 4%, while subscriptions and other revenue grew 25.6%. Adjusted EBITDA reached $254.3 million, well above the brokerage's $175.9 million estimate, and free cash flow was $280.9 million.

Wells Fargo said advertising and subscription trends remained strong, while media and entertainment revenue continued to improve. It estimated that political advertising could contribute about $161 million to 2026 revenue, while sports programming could support subscription growth in the second half as football season begins.

The brokerage flagged pressure on Roku's device margins from higher chip and memory costs and said sales and marketing spending could rise in the second half to support distribution and channel sales. It noted that the second-quarter device gross-profit beat included an estimated $38 million pretax tariff refund.

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