Roku stock surged Wednesday after a news report indicated that Netflix is considering a potential acquisition of the streaming video platform. Purchasing Roku would give Netflix a play in advertising-supported streaming video.
Analysts were divided on the possibility of a Netflix-Roku tie-up, which Insider reported. Netflix and Roku officials declined to comment on the report.
In April, Netflix executives announced plans to offer a lower-priced, ad-subsidized membership level of its subscription-based service. At the time, Netflix Chief Executive Reed Hastings said the company would look to partner with other firms for the ad-serving technology.
Netflix made the surprise move after reporting a loss of subscribers in the first quarter and forecasting greater losses in the second quarter. Netflix is facing heightened competition in internet television from the likes of Walt Disney, Warner Bros. Discovery, Paramount Global and others.
Roku Stock Jumps On News
Truist Securities analyst Matthew Thornton said a Netflix-Roku deal has "industrial logic." Roku would give Netflix expertise and scale in the online advertising business, he said. Thornton rates Roku stock as buy with a price target of 150.
On the stock market today, Roku stock jumped 9.1% to close at 101.88. Netflix stock climbed 2.1% to 202.83.
Other analysts quickly shot down the possibility of a Netflix acquisition of Roku.
Rumored Acquisition Called 'Absurd'
LightShed Partners analyst Rich Greenfield called the rumored acquisition "absurd." He said Netflix wouldn't want to manage Roku's hardware business. Roku makes set-top boxes and dongles for accessing internet TV and also licenses an operating system to makers of smart televisions.
"Netflix owning hardware and basically prioritizing one hardware, meaning themselves, over the thousands of devices that Netflix runs on seems completely antithetical to everything that (Netflix) has built over the last 20 years," Greenfield told CNBC on Wednesday.
Wells Fargo analyst Steven Cahall said a Netflix acquisition of Roku would be "highly unlikely." In a note to clients, Cahall said Netflix instead will pursue "an asset-light approach to advertising."
Also boosting Roku stock on Wednesday was news that ARK Invest bought Roku shares for its flagship exchange-traded fund.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
