Headquartered in California, Roku (ROKU) provides a popular streaming-content platform. I am bullish on the stock.
Many years from now, the 2020s might be known as the streaming renaissance. Going out to see a movie in a theater can be expensive, and COVID-19 lockdowns prompted people to stay indoors to save money and protect their health.
Amid this backdrop, Roku became a streaming star and the company’s shares soared in value, for a while. Lately, though, Roku stock has approached pre-pandemic levels as a less accommodative Federal Reserve compels traders to dump their highest-flying stocks in favor of risk-off investments. Besides, one commonly cited valuation metric makes Roku shares seem expensive.
Is there any hope for a rebound in Roku stock, then? That’s the billion-dollar question, and the bull camp should be glad to learn about Roku’s collaboration with a famous name in retail. Additionally, takeover talk is circulating and while there are no guarantees, it’s exciting to consider how a potential piece of good news could propel the Roku share price.
On TipRanks, ROKU scores a 8 out of 10 on the Smart Score spectrum. This indicates a potential for the stock to outperform the broader market.
Streaming Deal of the Year (So Far)
The bigger they are, the harder they fall. This isn’t always true, but Roku stock provides a textbook example of a falling star in the markets. Shockingly, Roku stock climbed from around $76 at the outset of the COVID-19 pandemic in the U.S., to $470 in 2021. However, it soon thereafter fell back down to $80 by mid-2022.
As Roku stock practically makes a round trip, it’s understandable if investors are feeling nervous. Even after the share-price decline, Roku’s trailing 12-month P/E ratio is still quite elevated, at 82.26. This might not be a deal-breaker, but some value investors might consider it a red flag.
Still, if you believe that the streaming revolution is here to stay, then a small position in Roku stock could be justified. Indeed, one retail store behemoth clearly believes that Roku has staying power, even during a time of economic challenges such as high inflation.
Not long ago, Roku dropped a bombshell when it announced that Walmart (WMT) “will be the exclusive retailer to enable streamers to purchase featured products fulfilled by Walmart directly on Roku.” The idea is to make it fast and convenient for streaming customers to “purchase directly at the time of inspiration,” which is really just a fancy way of saying, “impulse-buy.”
Here’s how it might work. A streaming customer would see a must-have item for sale in a “shoppable ad” on his screen. Then, he could proceed to a checkout screen, and his payment details would be “easily pre-populated from Roku Pay,” which is Roku’s payments platform.
Peter Hamilton, head of TV Commerce at Roku, suggested that the two companies are “making shopping on TV as easy as it is on social [media].” It’s an intriguing concept and one that could produce significant revenue streams for Roku and Walmart.
This Deal Could be Even Bigger
Can you imagine a more impactful development for Roku than a deal with Walmart? Nothing could possibly be bigger than that, right?
Actually, anything is possible, including a takeover of Roku, which could send Roku stock soaring if it happens. You won’t find this on Roku’s press releases page, but there’s a report of “detailed internal speculation” that Netflix (NFLX) might attempt to buy out Roku.
It was even reported that takeover speculation has ramped up among Roku’s employees. This doesn’t guarantee that a buyout will actually happen, however. Nevertheless, it’s mind-blowing to think about the implications of this event, if it actually transpires.
Basically, it would involve the combination of two streaming kings, thereby producing a streaming company that would be almost unbeatable. There is a question, though, of whether Netflix would actually want to acquire Roku.
Perhaps this is the silver lining for the decline of Roku’s market cap. It means that Netflix could potentially acquire Roku at a steep discount compared to a year ago. Besides, Roku’s business could be a great fit for Netflix. Apparently, a senior-level Roku employee said that a deal between Roku and Netflix would “align well in terms of culture, business, and current valuation,” since Netflix wants to get into video advertising “and Roku has it.”
Wall Street’s Take
According to TipRanks’ analyst rating consensus, ROKU is a Moderate Buy, based on 17 Buy, five Hold, and one Sell ratings. The average Roku price target is $152.26, implying 84.83% upside potential.
The Takeaway
The idea here isn’t to hastily load the boat on Roku shares because the company might get bought out by Netflix. The last thing you need is to lose money because of a “Buy the rumor, Sell the news” event. In other words, Netflix might deny that it’s planning to buy out Roku, and that could send Roku stock lower.
What’s known for certain, however, is that Roku has a powerful partnership with Walmart. This could prove to be a watershed moment for Roku, so it’s fine to add a few Roku shares if you feel that this collaboration will enhance the company’s top and bottom lines.
