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JPMorgan Does Not See Netflix (NFLX) Acquiring Roku (ROKU)

June 8, 2022 10:02 AM EDT
Get Alerts ROKU Hot Sheet
Price: $56.08 -0.76%

Rating Summary:
    17 Buy, 11 Hold, 6 Sell

Rating Trend: = Flat

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JPMorgan Does Not See Netflix (NASDAQ: NFLX) Acquiring Roku (NASDAQ: ROKU).

Analyst Cory Carpenter comments "ROKU shares are up 6% in pre-market trading (vs. SPX futures down 0.5%) following an article this morning discussing the possibility of a NFLX acquisition. We think NFLX acquiring ROKU is highly unlikely for a number of reasons: 1) NFLX’s ad efforts are still in the very early stages. We’d be surprised if NFLX made an acquisition of this magnitude, essentially shifting the platform from no ads to ‘all-in’ on AVOD over the span of a few months. We do not think this would be well received by NFLX shareholders. We think it’s more likely that NFLX builds its ad offering on its own or through smaller M&A deals—similar to its gaming effort. A NFLX-owned Roku also removes part of Roku’s appeal as a neutral platform. While Roku is starting to compete more on the margin through The Roku Channel, we struggle to see DIS+ and other scaled streaming platforms handing over ad inventory to NFLX. That said, we recognize Roku was born out of NFLX, the two companies know each other well, and Roku has a leading CTV ad biz that would certainly help NFLX with its upcoming AVOD offering; 2) It’s too big of a deal for NFLX, in our view. Roku’s ~$13B market cap is ~15% of NFLX’s ~$90B market cap. If we added a ~50% deal premium, that implies a Roku acquisition that is ~22% of NFLX market cap. NFLX has ~$6B of cash and ~$15B of debt, and would need to issue equity; & 3) ROKU is less profitable and would be dilutive to NFLX. NFLX would also inherit ROKU’s hardware biz that is operating at negative gross margin. We project ROKU Operating Income of negative 7.5% in 2022, which compares to our estimated NFLX OI of positive 20% in 2022."



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