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Why Roku Shares Rose 5% Today

By Howard Smith - Jan 5, 2021 at 12:30PM

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After news yesterday of a potential acquisition, an analyst gave shares a Wall Street-high price target today.

What happened

Shares of streaming service platform Roku ( ROKU -8.72% ) 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.

hand holding remote aimed at streaming TV

Image source: Getty Images.

Now what

The bullish opinion from Wells Fargo ( WFC -1.19% ) 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.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Roku Stock Quote
$207.75 (-8.72%) $-19.86
Wells Fargo & Company Stock Quote
Wells Fargo & Company
$47.21 (-1.19%) $0.57

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