Shares of streaming company Roku (NASDAQ: ROKU) have declined by an astonishing 85% from all-time highs. So, an investment of $1,000 in Roku stock in July 2021 would be worth just $115 today.

But the ongoing pullback allows investors to purchase a growth stock at a discount. So, letU+02019s see if Roku stock can make a comeback right now.


The bull case for Roku stock

The most popular streaming platform in North America, Roku, is valued at a market cap of $10 billion. It accounts for 31% of the global streaming time in Q2 of 2022, followed by Amazon’s (NASDAQ: AMZN) Fire TV at 16%.

Roku’s users streamed 20.7 billion hours of content in Q2, an increase of 19% year-over-year. In the June quarter, its streaming hours per active account per day was 3.7 hours, compared to 7.5 hours of legacy pay-TV per day consumed by the average household in the U.S. Roku expects there is enough room to grow its engagement and close this gap over time.

Roku has successfully monetized its user base via digital advertising. Basically, Roku sells ad inventory from its ad-supported streaming service called the Roku Channel. It also charges a fee from enterprises to use OneView, a proprietary ad buying platform. The streaming giant also takes a portion of subscription payments for those who subscribe to a particular streaming channel, such as Amazon Prime Video.

So, it is well poised to benefit from the cord-cutting phenomenon and the secular shift towards streaming services at the global level.

Roku has managed to increase its revenue from $742 million in 2018 to $2.76 billion in 2021, indicating annual growth rates of 55% in this period. It has enough room to keep driving the top-line higher as ad spending in the connected TV segment in the U.S. is forecast to touch $39 billion by 2026. Further, total TV ad spending will surpass $100 billion by 2026.

Roku generates a majority of its sales from the U.S. and is now expanding its ad business to other geographies such as Canada and Mexico.

In Q2, The Roku Channel was among the top five streaming channels in the U.S. by active account reach as well as streaming hours engagement. It has a portfolio of over 300 free channels across categories such as news, sports, music, and entertainment.

As viewership continues to shift towards streaming, users should seek easy access to content. So, Roku partnered with NBCUniversal to launch local news channels on the Roku Channel in major U.S. markets.


The bear case for Roku stock

Similar to other growth stocks, Roku investors have also endured a difficult time in 2022. The double whammy of rising interest rates and red hot inflation numbers is expected to lower consumer spending and corporate earnings until the end of 2023.

Several companies will also lower advertisement budgets to reduce their cost structure and offset the softness in consumer spending.

While Roku improved its operating income to $235 million in 2021, compared to an operating loss of $13.3 million in 2018, it has reported a loss of $134 million in the first six months of 2022. Analysts also expect the company to report a loss per share of $3.28 in 2022 and $2.73 in 2023, compared to adjusted earnings of $1.71 per share in 2021.

Despite the near-term headwinds, I believe Roku stock price should outpace the broader markets in the upcoming decade.

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