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Updated at 9:37 am EST
Roku (ROKU) – Get Roku Inc. Report shares traded firmly higher Wednesday following a report that linked the streaming service hub to a potential takeover by Netflix (NFLX) – Get Netflix Inc. Report.
Business Insider reported Wednesday that Roku has recently closed the window during which employees can sell their vested stock grants, citing people familiar with the matter, and that talk inside the San Jose, California-based group has focused on a potential takeover bid from streaming giant Netflix.
While Netflix’s balance sheet may be stressed by its planned $33 billion in content spending this year, as well as its ‘junk grade’ credit rating, an all-stock deal with Roku could allow the group to gain access to its ad-sales platform just as Netflix looks to transition away from its subscription-only model.
D.A. Davidson analyst Tom Forte said in a recent research not that Roku has “myriad” ways in which it can help Netflix thanks in part to its ability to “enable Netflix to target advertising on Roku’s platform to try to get consumers to restart the service.”
“For example, it could give Netflix the opportunity to showcase the first season of one its shows on The Roku Channel as a way of inspiring consumers to subscribe to Netflix to watch the remaining seasons,” Forte said. “At a high level, it could help Netflix navigate its initial foray into advertising.”
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Roku shares were marked 5.7% higher in early Wednesday trading to change hands at $98.75 each. Netflix shares, meanwhile, rose 1% to $200.66 each.
Netflix shares, however, are down more than 67% so far this year following following the group’s revelation that it had shed 200,000 subscribers over the the first three months of the year and expects to lose another 2 million by the end of the second quarter.
That slump has reduced its all-stock acquisition fire-power, while loping more than $175 billion from its market cap and forced significant changes in the group’s near-term focus.
“Those who have followed Netflix know that I’ve been against the complexity of advertising and a big fan of the simplicity of subscription,” CEO Reed Hastings tol investors on April 28. “But as much I’m a fan of that, I’m a bigger fan of consumer choice. And allowing consumers who would like to have a lower price and are advertising-tolerant get what they want makes a lot of sense.”
Roku shares, meanwhile, are also down sharply this year, falling more than 60%, pegging its market cap at around $13 billion.
The group posted stronger-than-expected March quarter sales of $734 billion, but lost 19 cents per share for the period even as it added 1.1 million new accounts to take its overall total to 61.3 million.
“Despite its weak share price, the company is able to attract top tech talent because of its overall competitive compensation and culture focused on developing a leading TV-based ecosystem,” Davidson’s Forte said.
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