Roku (NASDAQ:ROKU) is officially an advertising platform company.

Roku's platform revenue surpassed its player revenue for the first time ever in the first quarter of 2018, and it's not turning back. Platform revenue grew 106% year over year to $75.1 million last quarter. That compares to a 3% decline in the player segment, which totaled $61.5 million in sales. The platform segment is fueled primarily by Roku's advertising products, which accounted for about two-thirds of platform revenue last year and three-quarters of revenue in the fourth quarter.

And the advertising business has a ton of room to grow. Roku likes to highlight the annual $70 billion in U.S. television advertising spend, but simply looking at another major video content distributor can show you how much room there is for Roku's ad business.

Roku home screen on a television.

Image source: Roku.

The third-largest video content distributor

In Roku's earlier letter to shareholders, management liked to point out that if it were a traditional MVPD (multichannel video programming distributor), it would be the third-largest just behind AT&T and Comcast (NASDAQ:CMCSA). Indeed, AT&T ended the first quarter with 25.4 million video subscribers, and Comcast had 21.2 million. Roku ended the quarter with 20.8 million active accounts, and with the pace it's growing (up 47% year over year), it won't be long before it's bigger than both.

And time spent on Roku devices continues to grow as well. Roku users spent a total of 5.1 billion hours searching for and streaming video in the first quarter, an average of about 2.7 hours per person per day.

For reference, the average American spent 3.9 hours per day watching TV during the second quarter last year. That number is declining at an accelerating rate as more people cut the cord and stream more video entertainment on devices like Roku's. The average amount of time spent watching traditional TV is also significantly lower among younger viewers than older viewers.

Granted, much of the time spent streaming video on Roku is on ad-free platforms. But Roku also takes some of the subscription fees from services it helps sell.

Not only is Roku quickly growing its active account base, its audience is increasingly engaged with the platform.

Could Roku have an advertising business like Comcast?

Comcast receives a few minutes of commercial time during each hour of broadcasts. And in 2017, it generated about $2.3 billion, which worked out to be around $106 per residential video customer. Roku's platform segment generated just $264 million -- $15.07 per user -- in the last 12 months.

Importantly, Roku's ads can be more effective than traditional television commercials. Nearly half of its users don't have traditional cable, so Roku provides the best opportunity to reach those consumers on television. Additionally, Roku has unique user data that it can use to make ads more effective, and it's developed ad products around that data.

Roku is also taking a greater stake in the time spent on its devices with the Roku Channel, which is now a top-15 app on Roku. Roku Channel aggregates free video content and shares ad revenue with those providing the video. Management believes it could become a popular place for media companies to monetize their content instead of licensing it to subscription video services for a flat rate.

Comcast's $2.3 billion in advertising revenue shows how much potential there is for Roku's advertising business, especially when you look at it on a per-account basis. If Roku can come anywhere close to Comcast's level of monetization, it stands to see substantial revenue growth. And considering the margins on its platform business are so much higher than its player business, earnings will likely grow even faster.

Adam Levy has no position in any of the stocks mentioned. The Motley Fool recommends Comcast. The Motley Fool has a disclosure policy.