Shares of streaming platform company Roku Inc (NASDAQ: ROKU) hit one month highs last week on the heels of a Business Insider report suggesting the company was an acquisition target by streaming giant Netflix Inc (NASDAQ: NASDAQ:NFLX).
Here’s why Ark Invest is bullish on the potential combination of the streaming companies.
What Happened: A report from Business Insider said Roku “abruptly” closed the employee window for trading of stock. Talks of a potential takeover by Netflix have circulated through the company, according to sources.
Roku offers streaming platforms to consumers and also provides revenue opportunities with streaming companies through partnerships and advertising.
Ark Invest, which counts Roku as a top holding, commented on a potential tie-up of the two companies.
Related Link: 3 Reasons Why This Analyst Thinks A Netflix-Roku Deal May Not Materialize
What Ark Thinks Of Potential Deal: Netflix could be looking toward acquisitions to help boost its growth after reporting a loss of subscribers in the recent quarter.
“In our view, Netflix would gain much more than Roku in such a deal,” Ark Invest Associate Portfolio Manager Nicholas Grous said.
Roku has 61.3 million active accounts and operates the number one TV operating system in the U.S., Canada and Mexico based on hours streamed.
“With a robust advertising business in the connected TV space, Roku could fast-track Netflix’s ambitions. Additionally, Netflix might be looking at broader play in the TV space, with Roku an ideal entrée.”
Grous sees the deal as being more beneficial to Netflix in part because of the vast number of subscription and video-on-demand services offered that are all potential partners for Roku.
Roku could be better off signing an advertising partnership, Grous said. A potential tie-up is still attractive to the portfolio manager.
“Roku is in the process of rebuilding the TV ecosystem on digital rails, becoming a new-age gatekeeper in the burgeoning digital entertainment space, and replacing the need for broadcast and cable companies.”
Roku is the third-largest holding in two Ark Invest ETFs. Roku makes up 8.3% of assets in the Ark Innovation ETF (ARCA: ARKK) and makes up 8.0% of assets in the Ark Next Generation Internet ETF (ARCA: ARKW).
Ark owns more than $750 million of Roku shares across the two ETFs.
ROKU Price Action: Roku shares were down 11.44% to $73.25 on Monday at market close, hitting new 52-week lows versus a 52-week range of $75.03 to $490.76.
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