What happened
Week to date, shares of Roku (ROKU 5.25%) were down 2.9% as of 10:57 a.m. ET on Friday, according to data provided by S&P Global Market Intelligence. The stock was up more than 16% for the week on Wednesday after rumors started circulating that Netflix (NFLX 3.24%) might be interested in buying the streaming platform.
However, by the end of the week, inflation fears and worries over the economy weighed on the stock's performance. The stock has fallen 63% year to date as Roku wrestles with supply chain issues for its connected-TV devices and headwinds in the streaming service market.
So what
Ongoing supply chain disruptions have caused a spike in TV prices in the U.S., which has contributed to Roku's slowing revenue growth in recent quarters. This has been a key concern for investors and explains why the stock was already falling year to date.
While it's not the first time that Roku has been rumored to be an acquisition candidate, the latest speculation might have some substance to it, especially given that Roku is trading at a lower valuation than a year ago. Some potential suitors could view Roku has deeply undervalued right now.
Now what
Despite the slowing growth for Netflix and Roku, the long-term shift from traditional TV to streaming video remains intact, so both companies still have bright futures. But with Netflix losing 200,000 subscribers in the first quarter and calling for a steeper loss of 2 million in the second quarter, it makes sense that the streaming leader might want to consider acquiring a leader in digital advertising technology. Netflix CEO Reed Hastings mentioned on the first-quarter earnings call that his company is considering rolling out an ad-supported plan at some point.
One reason a Netflix-Roku combination might not work is that Roku operates an open platform that allows third-party services to connect with users. Those services might have a big problem giving a Netflix-controlled platform access to their streaming data.
