Why Roku Stock Soared This Week | The Motley Fool

What happened

Shares of Roku (NASDAQ:ROKU) climbed over 15% this week after The Wall Street Journal reported that Comcast (NASDAQ:CMCSA) CEO Brian Roberts is considering making a buyout offer for the company. Buyouts typically come at a premium to the current share price, which is likely why Roku stock popped on the news.

So what

Roku’s smart TV operating system has seen major adoption over the past few years with the rise of streaming TV and the decline of the cable bundle. Last quarter, Roku’s active accounts hit 53.6 million, up 35% year over year. Comcast, on the other hand, is seeing its cable subscribers move in the opposite direction. In the first quarter, it only had 19.4 million video subscribers, down from 20.8 million in the same quarter a year ago.

These metrics are not an apples-to-apples comparison since subscribers are free to sign up for a Roku account, while Comcast video subscribers all pay a monthly bill. Nevertheless, they show the direction in which the industry is heading. The Journal‘s report stated that Comcast wants its own streaming-video platform, which could come from buying Roku or building its own.

Now what

With a market cap of $56 billion, Roku would be a huge acquisition for Comcast, which itself has a market cap of $250 billion and does around $15 billion in annual free cash flow. But if you’re a Roku shareholder, there’s not much you can focus on except how the underlying business is doing. In Q1, streaming hours on Roku grew 49% to 18.3 billion, revenue grew 79% to $574.2 million, and total gross profit grew a whopping 132% to $326.8 million. This is strong financial growth, which is likely why Comcast is thinking about making an acquisition offer.

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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