What Roku’s job cuts could mean for its restructuring, M&A potential

Yahoo Finance tech reporter Allie Garfinkle joins the Live show to discuss Roku's job cuts and potential restructuring plans.

Video Transcript

SEANA SMITH: Let's check on shares of Roku. That stock under pressure, off just about 4%, now falling despite the fact that the company announced a second round of layoffs. This time, the company is cutting 6% of its staff. Now this news follows yesterday's announcement from EA that that company is cutting some of its positions. Yahoo Finance senior tech reporter Allie Garfinkle is here with the latest. And Allie, I think a lot of the talk here when it comes to Roku, when it comes to EA especially, some of these cuts, are they positioning themselves to be acquired? What do you think?

ALLIE GARINKLE: It's a great question, but I think there are two parts to consider here. The first is the buzz of what might happen, right, and then my instincts. So the buzz, right, there's always these murmurings of consolidation in media and tech. And for Roku, there actually have been a number of acquirers who've actually been floated over the last few years. And they are some of the biggest names out there, right? Google, for instance, in 2020, and then Netflix last summer. Actually, last summer, when Netflix hit headlines as a possible acquirer for Roku, the company's stock shot up. So the Street likes it. The Street likes the idea of Roku getting acquired, certainly.

That said, my first job was as an M&A reporter. Did you know this?

SEANA SMITH: I did. That's why--

ALLIE GARINKLE: Did you know this?

SEANA SMITH: --you're the perfect person to ask.

ALLIE GARINKLE: Yes. And philosophically speaking, right, a deal is a fault line, right? It's a moment where there's a gap between what a company aspires to and what it actually has, right? And I think the question about Roku is, what does Roku have, right? You know, they have this OS. They have an advertising network. They have a subscription business. They have this fledgling TV business even, right? And who needs that, I think is the question investors should be asking as we're trying to figure out who it might be.

The reality is, I'm not expecting anything imminently, Seana. It's a difficult dealmaking environment right now. Dealmakers famously do not like high interest rates and economic volatility. So dealmaking is done for now, but not forever, right? I have a lot of sources who've said to me, for instance, that dealmaking should probably pick up in the back half of 2023. So maybe look for something to happen with Roku then and definitely in tech and M&A, more broadly.

DAVE BIRGGS: But you didn't answer your own question, which is, who does need that? Is there usual suspects?

ALLIE GARINKLE: You know, I think there are-- I think it's an interesting situation because there's--

DAVE BIRGGS: Because I've been thinking about it the whole time, and no one comes to mind.

ALLIE GARINKLE: No one comes to mind--

DAVE BIRGGS: In particular, because they started making TV.

ALLIE GARINKLE: Well, this is great. It feels-- in some ways, it's the logical thing to make TVs, and in other ways, it's completely out of the blue, right? So I actually think you're right, Dave, because I think there's a key problem with Roku, which is there's a couple of possible threats, right? Like, you see how Google might want it. You see how an Apple might want it. You'd see how a Netflix might want it. That said, there's no real Cinderella glass slipper perfect fit for Roku, is there? It's also a megadeal, right?

In the end, it would be a deal. I think Roku's market cap right now is around 9 billion. It would be a pretty big highly leveraged deal. Someone would really have to believe in Roku and really want it to make that deal. And yes, they're cutting. It's a pivotal moment for them definitely. They're clearly trying to get operating expenses right. But they still clearly have a long way to go. They're reading that SEC filing. Even if they're slimming down for this deal, even if there was that magic slipper fit, that magic glass slipper fit, I don't know if it would even be the right time now. Does that make sense?

DAVE BIRGGS: It does. And you get the sense that tech layoffs are far from over, so you'll be back soon, sadly, on that regard. We always love--

ALLIE GARINKLE: Sadly?

DAVE BIRGGS: --having you on that regard. That's how I couched that, you see?