Title: Two Key Factors That Could Delay a Roku Buyout
This week's been a prosperous one for Roku (ROKU), shedding -4.59%, yet its long-term prospects remain uncertain. Two analyst predictions sparked a 19% surge in its shares within the first four trading days. First, Guggenheim's Michael Morris proposed a speculative scenario where advertising leader, The Trade Desk (TTD), might acquire Roku once it develops its smart TV operating system. Later, Laura Martin from Needham suggested Roku could face an acquisition at a premium as early as 2025, with six potential buyers in sight.
However, a stock on a meteoric rise is also at risk of plummeting when the bubble bursts. With Roku's market value soaring, acquiring it will demand a substantial premium—a challenge the company's board and shareholders may be reluctant to accept.
Roku, however, has weathered the challenges, displaying stellar growth in users and streaming hours. Its user base has expanded by 13% in the past year, reaching 85.5 million households, while usage has surged 20%. Despite engagement skyrocketing, with households spending over four hours daily on Roku, the company still grapples with profitability. Operating losses remain, and ARPU fell two years ago due to the stagnation within the connected TV market, crucial for its ad-supported platform's revenue.
Since last August, Roku shares have soared 70%, doubling since the year began. Its financial health has improved significantly in the recent quarters, as shown by its positive EBITDA and cash flow. The company's likely on the brink of returning to profitability, bolstering its chances of remaining an independent player.
Considering Walmart's acquisition of Vizio, desperately searching for a rival's operating system, Roku appears like a missed opportunity for the giant retailer. Lacking the market presence and ARPU of Roku, the price Walmart paid for Vizio could've been used to incentivize Roku stockholders for even a 50% premium. Regrettably, the purchase window has now closed for Walmart. The other potential buyers might conceivably face complex regulatory hurdles to acquire Roku in 2025.
Analysts may drool over theory-based acquisition scenarios, but an independent Roku holds a compelling story. Its continual growth, increasing financial stability, and innovative product pipeline justify the allure of holding onto the stock as an investment, rather than seeking an acquisition.
Investors who are interested in finance and money might find Roku's current situation fascinating. Despite facing challenges with profitability, the company's significant user growth and improving financial health could make it an attractive investment opportunity, potentially justifying a premium if an acquisition were to occur.
