Here's Why Roku Stock Popped Today
What happened
Shares of Roku (NASDAQ: ROKU) jumped 9% on Wednesday on rumors of a potential combination with Netflix (NASDAQ: NFLX).
So what
Speculation over a deal is swirling among Roku's employees, according to a report from Business Insider. Interestingly, Roku is said to have halted its employees' ability to trade its stock. Trading restrictions of this type tend to occur when a company expects to announce news that could materially impact its stock price.
Many of Roku's employees have seen the value of their holdings in the digital-media platform plunge in recent months. Intensifying competition in the streaming arena and a rotation out of so-called stay-at-home stocks have contributed to the sharp decline in Roku's share price. Should Netflix make a bid for the company, Roku's employees could see the value of their shares skyrocket.
Some investors believe Netflix is interested in acquiring Roku's advertising technology. In April, the streaming leader announced its plans to launch an ad-supported subscription option. Netflix is struggling with subscriber losses, and its leadership team thinks a lower-priced offering could return its membership metrics to a healthy rate of growth.
Now what
Buying Roku could accelerate Netflix's advertising ambitions. With more than 61 million customer accounts and a leading digital ad platform, Roku would instantly make Netflix a force within the advertising industry. Roku's viewership data could also help to inform Netflix's content production and acquisition efforts.
Still, some investors question whether a deal would be worth the cost. Being platform agnostic has helped Netflix gain widespread distribution. Purchasing Roku could make rival streaming platforms and device makers less willing to partner with Netflix.
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Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix and Roku. The Motley Fool has a disclosure policy.
