Streaming equipment maker Roku, Inc. (NASDAQ:ROKU) rallied on Wednesday following a report that said the company is in talks to be acquired by Netflix, Inc. (NASDAQ:NFLX). An analyst at KeyBanc Capital Markets, however, does not see the deal materializing.
The Roku, Netflix Analyst: Justin Patterson has a Sector Weight rating on Netflix. The analyst rates Roku an Overweight, with a $160 price target.
The Thesis: Laying down his argument, Patterson said Netflix has "explicitly" stated that it is focused on content and will depend on partners for AdTech. This, according to the analyst, suggests the company sees content as the key to growth.
Netflix has in the past shied away from large M&A deals, the analyst noted.
Secondly, a potential combination could invite channel conflict, the analyst said. Roku generated 83% of its revenue in 2021 from Platform revenue, primarily comprising advertising, the analyst noted.
"If a change of control were to occur, we believe large streaming services would likely revisit their channel strategies," Patterson said.
Thirdly, the analyst said it makes more sense for Roku to maintain its position. Unless Netflix is willing to cough up a big premium, Roku is better off staying independent, he added.
Netflix's move into AVOD, according to Patterson, allows monetization and an acceleration in a shift from linear to digital ad dollars.