Roku (NASDAQ:ROKU) was one of last year's hottest IPOs, but it was also one of last week's biggest losers. The company behind the namesake video-streaming platform and devices took a nearly 14% hit on the week after posting poorly received financial results

Its fourth quarter was solid, but Roku's blowout third quarter was always going to be a hard act to follow. Throw in near-term concerns about margins, sluggish hardware sales, and soft guidance for the current quarter, and its clear why the bears won last week's tug-of-war with the bulls. But there are reasons to think the bulls may have the last laugh.

The Roku player lineup introduced last year.

Image source: Roku.

1. There's a method to decelerating revenue growth

Roku shares took off last year after the company stunned investors with 40% growth in its head-turning Q3, following revenue upticks of 28% and 19% in the Q1 and Q2. The step back to 28% in Q4 might initially seem like a relative letdown, but analysts had only been holding out for a 24% rise. 

The slowdown of year-over-year growth was expected, because hardware sales -- flat to declining at Roku over the past year -- were going to weigh down the scintillating growth of its platform business. People purchase a lot of Roku devices as holiday gifts, which makes them a bigger part of the revenue pie in Q4. Player sales accounted for nearly 75% of Roku revenue in Q4 2016, and while that figure was down to 55% this time around -- given the combination of a 7% decline in player sales and a 129% surge in platform revenue -- it was still a slight sequential uptick from the third-quarter breakdown. Player sales will hold back growth in the fourth quarter, making this a more impressive achievement than the similar 28% in revenue growth that Roku posted during last year's first quarter. 

2. Platform revenue is everything 

An interesting nugget in terms of cascading player revenue is that Roku actually sold 7% more devices that stream Roku's operating system during the quarter than it did a year earlier. Revenue in that category is down 7% because the average selling price has declined 14% over the past year. Heavy promotional activity and the introduction of the $29.99 Roku Express are making it cheaper to stream video at home, and while that's taking a toll on top-line growth -- and, more importantly, margins -- it's also by design.

This is an arms race, and getting devices that feature Roku's operating system into the hands of consumers is the key to growing its revenue-generating audience. The 129% pop in platform revenue came from a combination of active accounts rising 44% to 19.3 million users and average revenue per user over the trailing 12 months climbing 48% to $13.78. Roku doesn't mind losing the pricing battle to win the streaming war -- and it definitely is winning it. 

3. Framing guidance matters

Roku's outlook was a mixed bag. It expects revenues of $120 million to $130 million for the current quarter, shy of the $131.7 million that analysts were targeting. However, the midpoint of the $660 million to $690 million range that it's forecasting for all of 2018 is comfortably ahead of the $661.5 million that Wall Street was modeling. 

It's easy to see why the market was more concerned about the current quarter's soft guidance than the expected beat for the entire year. Investors place more weight on shorter-term outlooks, especially since we are now nearly two-thirds of the way through the quarter. A lot can happen as a year plays out. 

However, let's go over why the market shouldn't ignore the big picture here. The midpoint of Roku's range suggests 25% revenue growth in the first quarter and 32% for 2018. Revenue growth will accelerate beyond the first quarter, but let's be fair in that assumption. A big reason for the soft first quarter is that if we look back to Q1 2017, we find that player revenue was a still-beefy 64% of revenue. The comparisons will get kinder after that. Roku is a platform company, and that will be the ultimate measuring stick. 

We're in the middle of a couch-potato land grab when it comes to streaming. Some investors won't forgive the near-term margin pain Roku is accepting to grow its audience, while others will misread the hardware sales trends. Roku is doing things right, even if last week's stock chart suggests that it's wrong.