Netflix down 74% makes ROKU acquisition challenging
Rumor has it Netflix $NFLX is in talks to acquire $ROKU. The pairing would create quite a unique value proposition for customers and shareholders, however diving into the cashflows and balance sheets of both companies shows that an acquisition in the current climate will prove challenging.
Roku currently trades at approx $10.3 billion market cap, with $2.92 billion in revenue, $88.65 million in debt, and $2.24 billion in cash.
Netflix on the other hand trades at $84.32 billion market cap, with $30.4 billion in revenue, $14.53 billion in debt, and $6.01 billion in cash.
Let's say Netflix makes an offer at 50% premium over current values, that means it will cost $15.45 billion. So any acquisition will need to be done with cash or debt + script, or script only.
If script only, Netflix will need to issue 85.8 million shares, which is a tough pill to swallow when the stock is down 74% from it's 52 week high of $700.99.
On the flip side of this is the fact that ROKU is also down 83% from it's 52 week high, so the dilution effect is close to the same as if Netflix bought Roku at it's peak.