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ITC Bans Roku’s Product Imports; Shares Hit a New All Year Low

The U.S. International Trade Commission (ITC) passed an order in favor of Universal Electronics Inc. (UEI) in a patent infringement case against Roku, Inc. (ROKU).

The ITC found that many of Roku’s products infringe the UEI patent and have been barred from the import and sale of such products. The final order will be passed on January 9, 2022, after the expiration of a Presidential review period.

Following the news, shares of the TV streaming platform, ROKU hit a new all-year low of $190.23 and closed the day down 8% at $203.94 on December 15. Meanwhile, shares of UEI soared 8.3%, closing at $40.51 on December 15.

Patent Infringement Case

During yesterday’s hearing, the ITC found Universal Electronics’ evidence as “substantial,” “impressive” and “dispositive”, and certified that Roku’s products infringed UEI’s six different patent claims.

Thus, the commission issued an order banning Roku from importing and selling infringed products including televisions, set-top boxes, remote control devices, streaming devices, and soundbars.

Even though Roku has redesigned some of its products to avoid infringement, UEI still believes that these products infringe its patents. Going forward, Roku will have to certify its products at the Customs before importing them.

Management Comments

UEI’s SVP & General Counsel, Richard A. Firehammer, Jr., said, “We brought this action to protect our highly innovative intellectual property from unauthorized use by Roku, and we are gratified that the ITC recognized Roku’s infringement and ordered it halted.”

Firehammer added, “We look forward to working with U.S. Customs and Border Protection to ensure the Commission’s orders banning imports of infringing Roku products are appropriately enforced. UEI will continue to take all actions necessary to put an end to Roku’s unlawful activities.”

Analysts’ View

Following the news, Rosenblatt Securities analyst Mark Zgutowicz reiterated his Buy rating and $500 price target on ROKU, which implies a whopping 145% upside potential to current levels.

 Zgutowicz said, “Final patent infringement case against some Roku devices is a non-issue that affect products no longer imported by Roku. Note, Roku was exonerated on 2 UEI’s 3 patent infringement lawsuits last month, and we understand Roku made technical design changes that eliminate any infringement of the one remaining UEI patent, per the company.”

Based on the low holiday supply of Roku TVs, the analyst expects weakness in his and Q4 consensus estimates of 3.3 million net active account adds.

The Wall Street community is cautiously optimistic about the stock with a Moderate Buy consensus rating based on 17 Buys, 2 Holds, and 2 Sells. The average Roku price target of $369.63 implies 81.2% upside potential to current levels. Shares have lost 37.4% over the past year.

Website Traffic

TipRanks’ Website Traffic tool, which uses data from SEMrush Holdings (SEMR), the world’s biggest website usage monitoring service, offers insight into ROKU’s performance.

In November, Roku website traffic recorded a 6.57% year-over-year decline in monthly visits. However, year-to-date website traffic growth increased by 8.11% compared to the same period last year.

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