Ticker Symbol: ROKU
Shares of the streaming device and advertising company Roku are up over 12% this morning as rumors swirl that the company could be an acquisition target for streaming giant Netflix. Roku remains one of the only independent streaming device makers in the market currently, with the other popular devices being made and sold by technology behemoths such as Apple, Google and Samsung. Netflix shares were also trading up around 3% in the morning session.
A tie-up between Netflix and Roku would unite one of the largest independent streaming companies with one of the largest streaming device makers, combining Netflix’s content slate with Roku’s hardware and advertising revenue. Validity to the rumors was added by news reports that Roku had abruptly closed the trading window in the company’s shares for employees. Furthermore, Business Insider reported that conversations around a union of the two companies have been ongoing inside Roku headquarters in recent weeks.
Roku would also be an attractive takeover target for Netflix from a price perspective given that shares have fallen over 70% in the past 52-week period. The company’s stock hit an all-time high of $479.50 in June of last year, and were last exchanging hands at $103.75, down 78% from the peak. The current share price would imply an enterprise value of $12.4 billion for the company. Netflix has also come off sharply from its’ highs from last year, down 70%.
Netflix currently has an enterprise value of $102 billion and reported a cash balance of $6 billion as of March 31st. Even if Netflix offered a 40% acquisition premium to Roku’s current valuation, the entire acquisition would cost the company roughly $17 billion. Netflix could offer an all-stock offer if they did not want to fund the acquisition through loans, or raise debt through capital markets at reasonable levels given its’ investment-grade rating from S&P.
Roku and Netflix also have history between the firms. Roku’s founder, Anthony Wood, was a Vice President of Netflix when he initially pitched the company on making its own media player. The executive team at Netflix decided against the plan, but did invest $6 million to create an independent company, which would eventually become Roku with its’ head and founder. Despite the sharp haircuts in valuations both companies have experienced recently, they are both still investor and analyst darlings. Roku’s advertising business would also diversify Netflix’s revenue, which is currently entirely subscription based.
However, the deal has not been announced officially and synergies between the two companies are not obvious. Additionally, Netflix’s competitors may not want to offer their streaming service through Roku if the platform is owned by Netflix. Furthermore, Roku shares experienced a similar jump in June of 2021 when a report from the Wall Street Journal raised the specter of the company being acquired by media and cable giant Comcast.
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