Merger talk is always fun, and speculation certainly provides for some volatile swings. Currently, ROKU stock is up approximately 10% on these rumors. Netflix, on the other hand, has also seen its shares rise a modest 2% in early afternoon trading.
So, what gives? Typically, on rumors of an acquisition, the acquiring company’s share price sinks. That’s due to the premium investors are pricing in for a potential deal.
Perhaps the market doesn’t think this deal will materialize. After all, we’re only hearing rumors right now. Let’s dive into what two experts think about this subject.
Will Netflix Buy Roku? Analysts Chime In
This potential business combination is one that’s certainly intriguing the Street. After all, both Netflix and Roku are streaming companies with somewhat differing business models. Perhaps Netflix could gain from Roku’s unique focus on niche streaming markets as well as its hardware business.
However, Rich Greenfield of LightShed Partners doesn’t think so. In a recent interview, Greenfield suggested Netflix is unlikely to wade into the hardware waters. It’s been a long time since the company offered its DVD rental business. Accordingly, taking a step back into the past doesn’t seem like a smart or strategic move — at least, according to this analyst.
JPMorgan analyst analyst Cory Carpenter agrees. This deal would be massive in scope, probably requiring a significant premium to Roku’s current valuation around $14 billion to get the deal done. For that kind of money, both analysts agree that better and more “sticky” content could be produced to bolster Netflix’s user metrics.
I have to agree, as well. This deal is one that fundamentally doesn’t make sense, based on each individual company’s business. Sure, Roku has a streaming business that may be enticing to an acquirer. However, the extent to which Netflix will pay a premium for a clientele that likely has significant overlap with its existing base remains unclear.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.