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Shares of Roku (ROKU -1.98%) turned sharply lower Monday, crashing as much as 9.2%. However, shortly after the market opened, the stock rebounded and as of 11:11 a.m. ET, it was near breakeven.
The catalyst that sent the streaming pioneer tumbling was the fall of Silicon Valley Bank, a subsidiary of SVB Financial Group, on Friday. But there was also good news that helped Roku stock rebound.
The collapse of Silicon Valley Bank (SVB) is having ramifications across a wide swath of financial and technology companies, and Roku was not spared.
In a regulatory filing on Friday, Roku announced that it had approximately $487 million in deposits — or roughly 26% of its total cash and equivalents — held at SVB. The company also advised that its “deposits at SVB are largely uninsured.” Roku went on to say it did not know to what extent it would be “able to recover its cash on deposit at SVB.”
However, before the market opened on Monday, the federal government stepped in to avert the widespread panic that was brewing. In an address to the nation, President Joe Biden assured customers that the Federal Deposit Insurance Corporation (FDIC) would fully guarantee deposits at both SVB and cryptocurrency-focused Signature Bank, which collapsed late last week.
In a note to clients on Monday, Bank of America analysts pointed out that Roku’s regulatory filing last week preceded a decision by Treasury Secretary Janet Yellen, who instructed the FDIC to guarantee that SVB customers will have access to all of their money, insured and uninsured, starting Monday. This is “good news for Roku,” the analysts say. Furthermore, improving advertising trends, a recovering macroeconomy, and Roku’s ongoing international expansion all benefit the company. As a result, the analysts reiterated their buy rating on the stock.
Finally, Roku is currently selling for just 2 times next year’s sales, putting it squarely in bargain-basement territory. Given the resolution of its cash situation, Roku stock remains a buy.
SVB Financial provides credit and banking services to The Motley Fool. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Danny Vena has positions in Roku. The Motley Fool has positions in and recommends Bank of America, Roku, and SVB Financial. The Motley Fool has a disclosure policy.
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