In summertime, a Roku employee's fancy lightly turns to thoughts of M&A.
And this summer, those thoughts involve Netflix. Roku's moribund Nasdaq price was up as much as 10% Wednesday morning, following a Business Insider report about swirling rumors within Roku's San Jose headquarters about a possible acquisition by the Los Gatos, Calif. SVOD giant.
The apparent trigger: Roku management suddenly closed the window on company employees being able to transact their vested stock.
A logical case can be made as to why Roku, a company that now makes most of its money through advanced advertising, might appeal to Netflix, which is trying to ramp up its advanced advertising acumen quickly.
Most notably, Roku is a bargain right now.
Even with its Wednesday morning boost, Roku's market capitalization stands at just over $14 billion, a fraction of the nearly $64 billion it peaked at nearly 11 months ago.
The bear case can be made, as well, with Netflix given a junk-grade credit rating by Moody's in April, just a few days after the streaming company's management reported drastically reduced revenue growth during the first quarter.
The idea of Netflix buying another big Silicon Valley streaming company, with a similarly cratering stock price and supply-chain issues of its own, might not work for many media equity analysts.
And there is some doubt that Roku is the magic bullet that will enable Netflix to quickly get into ad-supported streaming.
“I love Roku’s business and think it is a great company,” Wedbush Securities analyst Michael Pachter told Barron’s Wednesday morning. “It is hard to see how the company is better if owned by Netflix, as there are very few synergies between the two, and Netflix competitors might balk at offering their services on a platform owned by Netflix.”
As Barron's poignantly recalled, it was around this time last year that rumors swirled within Roku about a possible deal with Comcast.
Notably, if such M&A with Netflix did occur, it would bring Roku back full circle, with CEO and Co-Founder Anthony Wood having incubated his company at Netflix back in the late aughts. At the time, Netflix was looking to develop a streaming device to help its users take their living rooms over the top in the pre-smart TV era.
Ultimately, as the narrative goes, Netflix Co-CEO Reed Hastings decided that Netflix making its own gadgets would disrupt its neutrality and upend its quest to be widely supported by third-party consumer electronics companies.
