What happened
Shares of streaming service platform Roku (ROKU 2.95%) jumped 5% Tuesday as of 12:15 p.m. EST.
The stock dropped a similar level Monday after it was reported that Roku is close to acquiring the video catalogue of short-form streaming company Quibi.
So what
The thought of Roku entering the content business spooked some investors, but a Wells Fargo analyst today gave shares an overweight (buy) rating, with a $414 price target. The stock closed Monday at $317.90 per share.
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Now what
The bullish opinion from Wells Fargo (WFC 2.98%) analyst Steve Cahall is based on his belief that momentum in Roku's advertising-video-on-demand (AVOD) business will accelerate and provide "operating leverage upside," according to thestreet.
Cahall also doesn't feel the potential acquisition of Quibi would be a negative catalyst. He said, "A deal for Quibi content is supportive of better ARPU [average revenue per user] growth."
But creating content can be expensive, if that's the direction Roku is heading with a Quibi deal. It's possible that acquiring the content catalogue would not lead to a larger content-creation strategy. With Quibi shutting down after just six months of operation, Roku could be able to buy the content at a good price.
Investors will have to wait for management to share the company strategy should the acquisition be announced. So far, Roku management has been a trailblazer in the blossoming television streaming market. It would be wise to continue to trust its judgment.
