One of Friday’s biggest winners was Roku (ROKU +20.52%), even if that title warrants an asterisk. The company behind the country’s most popular TV streaming operating system jumped 20% after sources told Bloomberg Roku was in talks with at least one media company for a potential sale.
Roku doesn’t need to be bailed out. It’s growing faster than it has in several years. It’s been consistently profitable over the past year, and its balance sheet is flush with more than $2 billion in cash and no long-term debt. It shouldn’t be desperate, giving it more leverage than a typical company that is reportedly open to a buyout.
Image source: Getty Images.
There are plenty of potential suitors, if the account is accurate. Let’s look at five possible buyers that just make sense to have Roku on their side.
I think Comcast (CMCSA +2.17%), Microsoft (MSFT +0.11%), Netflix (NFLX 1.20%), The Trade Desk (TTD +2.06%), and Disney (DIS 0.43%) are five names to watch, in that order. Let’s take a closer look at the five potential suitors for Roku.
Today’s Change
(20.52%) $24.55
Current Price
$144.19
Key Data Points
Market Cap
$21B
Day’s Range
$119.75 – $148.70
52wk Range
$77.64 – $148.88
Volume
511
Avg Vol
2.7M
Gross Margin
44.19%
1. Comcast
A company that relies on cable TV and broadband internet for more than half of its revenue — and the lion’s share of profitability — may seem an odd choice at the top of this list, but follow the money. Folks are cutting the cord that’s tethering them to cable TV. They’re flocking to Roku and other streaming platforms.
Buying Comcast transforms the sleepy media stock from having its largest business as a disruption risk to owning the leading disruptor. Roku does that immediately. It will take time for operating profit to offset the loss of Comcast’s cash cow, but it’s a strong pivot.
Today’s Change
(2.17%) $0.52
Current Price
$24.49
Key Data Points
Market Cap
$88B
Day’s Range
$23.91 – $24.50
52wk Range
$23.13 – $34.34
Volume
1.2M
Avg Vol
33.2M
Gross Margin
57.18%
Dividend Yield
5.22%
Comcast needs a spark. Comcast stock has lost more than a quarter of its value over the past year. In fairness, though, all five of these stocks have fallen between 16% and 73% over the past year. They all need a spark.
However, Comcast has missed out on back-to-back summers of smaller rivals being acquired, fortifying a competitor. A spinoff and a juicy 5.4% dividend yield haven’t attracted investors. It’s time for a more aggressive move.
Today’s Change
(0.11%) $0.42
Current Price
$390.76
Key Data Points
Market Cap
$2.9T
Day’s Range
$382.27 – $392.25
52wk Range
$356.28 – $555.45
Volume
1.5M
Avg Vol
35M
Gross Margin
68.31%
Dividend Yield
0.91%
2. Microsoft
I’m not seeing Microsoft on the list of analysts and buyout watchers handicapping this particular race, but it does make sense for Microsoft to make a move. Microsoft’s Xbox has gone from a leading platform for digital streaming — being the first console to pair up with Netflix in its TV streaming efforts — to an afterthought. Sure, Xbox owners can still access all of the popular apps, but that leaves its audience of viewers to die-hard gamers.
Microsoft saw rival consumer tech behemoths roll out Fire, Chromecast, and Apple TV to go mainstream. Buying Roku would make it the top dog in both dongles and factory-installed TV operating systems. Unlike its three rivals already entrenched in this niche, Microsoft has an easier path to regulatory approval in this particular market. Microsoft is also the wealthiest company on this list. Its market cap of $2.9 trillion and a cash balance four times Roku’s enterprise value make it an easy lift.
Today’s Change
(-1.20%) $-0.97
Current Price
$80.30
Key Data Points
Market Cap
$338B
Day’s Range
$79.29 – $82.00
52wk Range
$75.01 – $134.12
Volume
348
Avg Vol
37.7M
Gross Margin
49.44%
3. Netflix
If Netflix were smart, it wouldn’t be in this situation. The company had Roku founder CEO Anthony Wood in the building, working on what would’ve been its first streaming device. Netflix decided against going that route, and Roku took things from there.
Netflix saw what happened to its stock after it made a play for Warner Bros. Discovery (WBD +0.45%) late last year. The stock only started to recover after Netflix lost out, collecting a hefty termination fee in the process.
Netflix doesn’t need to own the leading app ecosystem. It might also have a harder time getting antitrust regulators to sign off. However, if there’s a juicy prize out there, it’s fair to say that Netflix is on the short list of contenders after falling short on Warner Bros. Discovery.
Today’s Change
(2.06%) $0.39
Current Price
$19.29
Key Data Points
Market Cap
$9.1B
Day’s Range
$18.33 – $19.99
52wk Range
$18.31 – $91.45
Volume
265
Avg Vol
20M
Gross Margin
77.83%
4. The Trade Desk
Roku and The Trade Desk are passing ships. Roku stock has soared 87% over the past year. The Trade Desk has plummeted 73%, far worse than the double-digit declines for other names on this suitor list. There’s been a total reversal of fortune.
A year ago, bears were concerned that The Trade Desk would eat into Roku’s market. Instead, Roku wound up being the more fortified player by striking a well-received partnership with The Trade Desk’s largest adtech rival in connected TV. Revenue has decelerated for four consecutive quarters, from 25% in the first quarter of last year to a 12% increase in its latest report. Roku’s revenue growth has accelerated to 22% in the first three months of this year, its strongest showing in four years.
A big challenge for The Trade Desk in pulling this off is how the two have truly changed paces. The Trade Desk’s enterprise value of $8 billion is less than half of Roku’s $19 billion. This feels like something more out of the Ryan Cohen playbook. A deal can be done, and The Trade Desk CEO Jeff Green needs a transformative deal like this to cool his hot seat. However, in this scenario, don’t be surprised if a deal for The Trade Desk to acquire Roku winds up going the other way around.
Today’s Change
(-0.43%) $-0.43
Current Price
$99.91
Key Data Points
Market Cap
$174B
Day’s Range
$99.56 – $101.77
52wk Range
$92.19 – $124.69
Volume
53
Avg Vol
9.2M
Gross Margin
31.63%
Dividend Yield
1.25%
5. Disney
There is less of an incentive for Disney to make a play for Roku than for the other players, but read the room. Disney has a great content catalog and a streaming business that has been profitable for two years. However, new CEO Josh D’Amaro came over after heading up the theme park business at the House of Mouse.
In two months, at its D23 fan conference, D’Amaro will discuss many of the new experiences coming to Disney’s global theme parks. Disney will also talk about new studio content. He may want to consider a signature move to prove how important streaming is to the overall business, such as a potential purchase of Roku. This is the least likely of the five scenarios to happen, but it wouldn’t be a shock if the company behind some of the most popular streaming apps — Disney+, Hulu, and ESPN — decides to be the forever home of the lucrative Roku ecosystem.
