Shares of Roku (NASDAQ:ROKU) are up 10% today on speculation that Netflix (NASDAQ:NFLX) is considering buying the company. No deal has been officially announced, and these could just be rumors that amount to nothing. But this is welcome news for shareholders, who have had to watch the share price fall 60% year-to-date (YTD) to $93.42 as of June 7.
Multiple reports say Roku, which manufactures streaming devices, has closed the window during which employees can sell their vested stock grants. The move was spurred by internal chatter that the San Jose, California-based company is going to sell itself to streaming giant Netflix.
ROKU stock is nearly 80% below its 52-week high of $490.76. Here are 10 things investors should know about a potential deal that would see Netflix acquire Roku.
10 Things Investors Should Know
1. An acquisition makes sense, as the purchase would give Netflix access to Roku’s advertising sales platform as it moves to transition away from its subscription-only business model.
2. Any deal would likely be an all-stock transaction. Netflix’s balance sheet is currently under stress due to the $33 billion it has allocated for content development this year. Also, the company currently has a “junk grade” credit rating.
3. Several analysts have said in recent months that Netflix buying Roku would make sense. A deal would enable the streaming giant to run targeted advertising on Roku’s platform and get consumers to re-engage with its content.
4. NFLX stock has been hammered this year, falling 65% YTD following news that it lost 200,000 subscribers over the the first three months of the year. It also forecast that it will lose another 2 million by the end of the current second quarter.
5. The decline in the share price has wiped $175 billion off Netflix’s market cap and forced the company to consider adding advertising to its streaming platform — something it previously said it would never do.
6. Roku’s video-advertising platform generated $647 million in revenue during this year’s first quarter. It competes with the likes of Apple (NASDASQ:AAPL) and Amazon (NASDAQ:AMZN) in the market for internet-connected TVs and other devices.
7. Sales of Roku’s physical streaming devices have slowed to the point where the company’s advertising revenue is its main income generator today.
8. The downturn in ROKU stock has brought its market capitalization down from a peak of $60 billion to about $13 billion, making it an easier acquisition for Netflix.
9. Ironically, Netflix would be returning to its roots if it purchased Roku. The streaming giant initially developed the company, then spun it off back in 2008.
10. Roku founder and chief executive Anthony Woods was working on a set-top box for Netflix. However, the company didn’t follow through with the idea over concerns the device would prevent it from launching its streaming platform elsewhere.