Netflix buying Roku? Some say idea is 'absurd'
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As reports arose Wednesday suggesting Netflix (NFLX) might be looking to buy Roku (NASDAQ:ROKU), analysts were quick to dismiss the feasibility of the 'Stranger Things' host breaking out its checkbook to acquire the streaming TV platform company.
LightShed Partners analyst Rich Greenfield didn't hold back, arguing that Netflix (NFLX) buying a hardware company would be "antithetical" to its (NFLX) long-term strategy.
"This is one of the most absurd things I've ever heard in 27 years following media stocks," the media and technology analyst at LightShed Partners told CNBC on Wednesday.
"Netflix owning hardware and basically prioritizing one hardware, meaning themselves, over the thousands of devices that Netflix runs on seems completely antithetical to everything that [Netflix management] has built over the last 20 years," he added.
Speculation over a potential sale drove ROKU's stock higher in premarket trading. This followed an Insider report that said ROKU had "abruptly" closed the window for employees to trade company stock, fueling chatter among employees of a possible NFLX tie-up.
Bolstered by the rumors, ROKU rose about 5% before the opening bell. NFLX dipped about 1%.
Greenfield also downplayed the business-model match between the two companies, saying that Netflix (NFLX) wouldn't want to rely on ad revenue the way Roku (ROKU) does. He acknowledged that NFLX was likely going to expand its offerings to include a pricing tier with ads but estimated that ad revenue would max out at 20%-25% of the firm's total top line.
"To spend $20 billion, let's just say, to buy Roku to make advertising this huge, huge piece of the company would seem very, very out of character," he said.
The LightShed analyst speculated that Roku employees fueled the rumors out of a desire to be acquired by a larger company in the face of increased competition.
For NFLX, Greenfield contended that the streaming service needed to produce more consistent content to draw subscribers.
"The content on Netflix needs to be more consistent at a higher level. That is the bottom line: that for $17 billion, they need more massive hits," he said.

For more on NFLX, see why Seeking Alpha contributor The Entertainment Oracle thinks the recent success of Stranger Things really presents "more of a warning sign." On ROKU, read why fellow SA contributor The Asian Investor thinks "the market is wrong about Roku."