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Investing.com – Roku fell sharply on Monday after Morgan Stanley (NYSE:MS) sounded the alarm on the steaming media platform on worries about valuation amid rising competition and slowing growth.

Morgan Stanley's Benjamin Swinburne downgraded Roku to underweight from equal weight and raised his price target on the stock by $10 to $110. Roku (NASDAQ:ROKU) plunged about 15%.

With the cord-cutting phenomenon in full swing, Roku has seen its shares quadruple for the year, as the streaming media platform has reaped in the benefits of helping consumers switch from cable. But the red-hot gains for the year has pushed Roku's shares into frothy territory and they are far too expensive, Swinburne warned.

"Roku shares are up over 400% (year to date) due to rising estimates and overall exuberance over all things streaming," he said. "As a result, we see the risk/reward skewed to the downside."

The streaming media platform is unlikely to generate the growth needed to justify its frothy valuation at a time when rising competition may likely syphon off advertising dollars that would have previously made its way to Roku, according to Swinburne.

"This has been the case with other emerging digital, advertising businesses like Snap and Twitter, where rather than fade modestly, growth slowed dramatically," he said.

The company has done little to alleviate fears of slowing growth after reporting weaker active-account growth in the latest quarter, on a year-over-year basis.

For the moment, however, Roku's has managed to avert the "momentum growth selloff" seen recently, thanks to the launches of AppleTV Plus and Disney+ in the past few weeks, Swinburne added.

Sentiment on Roku was also soured by reports that Netflix (NASDAQ:NFLX) starting Dec. 1 would be ending support for older Roku Players, Vizio TVs, and some Samsung (KS:005930) smart TVs.

Customers using the older Roku players would likely need to purchase a new streaming device to continue watching content with their (NASDAQ:Netflix) subscription.


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