Why Roku Rallied 20% This Week

Shares of streaming device platform Roku (NASDAQ: ROKU) rallied 19.5% through Thursday trading, according to data from S&P Global Market Intelligence.

This week, Roku didn't make any company-specific announcements. However, not one but two Wall Street analysts highlighted Roku as a potential buyout candidate.

Roku: The belle of the streaming ball?

Things got interesting for Roku right off the bat Monday, when analysts at Guggenheim pointed to the benefits of a potential tie-up between Roku and programmatic advertising superstar The Trade Desk (NASDAQ: TTD).

The Trade Desk recently came out with its own streaming TV operating system called Ventura, which could be a competitive threat to Roku. However, Roku has a big lead in the independent streaming OS category. Therefore, Guggenheim analysts thought a tie-up between the two might make sense as a stronger combined competitor to big tech's streaming platforms, since The Trade Desk and Roku are for the most part independent and don't have their own content to preference. While there is some original content on the Roku channel, it's pretty sub-scale compared with big tech competitors' offerings.

On Wednesday, another analyst team at Needham also noted that Roku could be a buyout candidate, naming a number of potential suitors. These include The Trade Desk, big tech companies, or even large retailers. The analysts thought that Roku's proprietary datasets in consumer streaming habits and ads-inspired purchasing behavior could become a valuable commodity for others.

For what it's worth regarding Ventura, Needham also suggested that Roku cease opening its viewer data to The Trade Desk, in order to potentially force a buyout.

Should you buy Roku for the buyout?

Roku is down over 80% from its 2021 highs, so it may be intriguing. However, I'd caution against investing in a company merely on hopes of a buyout, as one may never emerge. Those looking to buy Roku shares should assess whether it can stand on its own among increasing competition.

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Billy Duberstein and/or his clients have positions in The Trade Desk. The Motley Fool has positions in and recommends Roku and The Trade Desk. The Motley Fool has a disclosure policy.