Roku CEO Anthony Wood
Roku
- Roku stock surged 7% on Wednesday after an Insider report detailed internal speculation that Netflix may acquire the streaming platform.
- Roku abruptly closed its trading window for employees in recent weeks, sparking speculation that material news may be imminent.
- Netflix has its eyes on building out an advertising business, which Roku has already developed.
Roku stock surged 7% on Wednesday after an Insider report detailed internal speculation that Netflix may acquire the streaming platform company.
Much of the speculation ramped up in recent weeks among Roku employees after the company abruptly closed its trading window, which is a period of time in which employees are able to sell their vested Roku stock.
Companies often close trading windows ahead of schedule when material news is imminent, in an attempt to prevent insider trading from occurring.
Roku stock would be an easier acquisition for Netflix to swallow after the company’s market valuation fell from a peak of more than $60 billion to about $13 billion today. The more than 80% decline in Roku’s stock price has made it difficult for the company to retain top talent, as it relies on share-based compensation like most tech companies.
For Netflix, an acquisition of Roku would help the company gain quick exposure to a fast-growing advertising business that it may be able to quickly integrate into its own streaming platform. Netflix is working on a cheaper advertising-based subscription tier that is expected to be launched by the end of this year.
Roku’s video-advertising platform generated $647 million in first-quarter revenue. “It makes sense with where Netflix wants to go,” a technology investment banker told Insider about the potential merger.
A senior-level Roku employee told Insider that a deal between the two companies would “align well in terms of culture, business, and current valuation,” as Netflix attempts to get into video advertising “and Roku has it.”
In 2014, Hastings said, “we’re working with over 1,000 devices now. There’s no value add for us to do a device.” But those calculations may have changed now that Roku’s advertising revenue is much larger than the revenue it gets from selling physical streaming devices.
Netflix would be returning to its roots if it purchased Roku, given that the streaming service spun out Roku in 2008. Roku founder and CEO Anthony Woods was internally developing a set-top box for Netflix, but Hastings decided to abandon the plan as he worried an exclusive device would pigeonhole Netflix’s ability to launch its streaming platform on a number of devices.
Netflix may not have become as large as it is today if it rolled out its own device years ago. But with the company losing subscribers and racing to pivot to advertising, an acquisition of Roku today could more attractive than it may have a few years ago.
