Roku (NASDAQ:ROKU) and other streaming companies were dealt some rough news when cable giant Comcast (NASDAQ:CMCSA) announced it would be giving away its Xfinity Flex streaming boxes for free to its internet-only customers. Roku's stock price dropped precipitously following the announcement, from $150.52 on Sept. 17 to $106.30 on Sept. 25.

Some analysts are predicting an even further drop for Roku. Pivotal Research Group anticipates the stock will drop another 55% because it remains "overvalued despite the recent pullback," according to CNBC. 

A couple watches TV.

Image source: Getty Images.

Roku and other streamers -- or Over-the-top (OTT) media services companies -- have succeeded by cashing in on TV viewers' passion for streaming video content. As more and more TV viewers began to cut the cord and purchase only internet services from cable companies, the future looked bright for streamers.

Comcast's decision to provide its internet-only subscribers with free streaming devices, though, could convince other traditional cable companies to do the same. With Smart TVs becoming the norm in the U.S., and with competition heating up, Roku may need to pave a new path to long-term success.

The competition is heating up for Roku

It's been quite a whirlwind for Roku since it went public two years ago. In the first 12 months of being public, the stock increased from $26.54 to $73.03, a 175% increase. Even after dropping into the $20-range again by the end of 2018, Roku made a strong comeback, reaching its all-time high of $169.86 on Sept. 6.

But since then, the company has lost 40% of its value following the entrance into the streaming market by much larger companies such as Comcast, Facebook, and Apple.

Comcast and Facebook are set to attack Roku from the streaming device standpoint, while Apple TV+ -- set to launch Nov. 1 -- will come pre-loaded on all iPhones, iPads, Mac computers, and Apple TVs, as well as select Samsung smart TVs, with plans to increase the availability on other streaming devices.

As if competing with Amazon and its Fire TV Stick wasn't challenging enough, now Roku will have to deal with threats from three others ranked in the top 26 U.S. publicly traded companies by market capitalization.

Smart TVs could damage Roku's outlook, too

On top of having to deal with the entrance of major competitors into the market, Roku and other streaming companies must also face the fact that smart TVs are becoming more commonplace in the U.S. These TVs have the ability to connect to the internet directly and have built-in apps for the most popular streaming services that were once only available on devices such as Roku.

According to a recent Leichtman Research study, 32% of all households in the U.S. now have smart TVs. That may not sound like a lot, but it's a significant increase from 24% in 2017 and 7% in 2014.

As the proliferation of smart TVs continues to increase, it will present another roadblock for Roku's quest to gain new customers.

Streaming is strong, but maybe not for Roku

One powerful statistic in the Leichtman Research report is that 49% of homes in the U.S. have at least one streaming device such as a Roku, Apple TV, or Amazon Fire TV Stick -- up from 40% in 2017. So, even though the percentage of U.S. homes owning a smart TV is increasing, so, too, is the percentage of those owning a stand-alone streaming device.

Since Roku's founding back in 2008 as a Netflix streaming device -- and its revamping in 2010 -- Roku has done an excellent job gaining customers. It has feasted on the U.S. market, focused specifically on customers who purchase TVs from lower-end manufacturers, reaching as many as 31 million households.

At the end of the second quarter of this year, Roku announced impressive top-line increases of 59% year over year and 51% quarter over quarter. Its revenue reached $250.1 million at the end of the second quarter, with $114.2 million in gross profit.

But a follow-up performance for the third quarter isn't likely, if most projections prove correct. Roku is expected to hold its next earnings call in early November, and if it's worse than some expect, it could result in an even larger drop in value as investors flee the stock.

Should investors run from Roku?

The initial response to that question would seem to be: Yes -- as quickly as possible. Who could blame an investor for thinking that way? A $3.7 billion loss of market value in about a week is never a good thing, to say the least, nor is the analysis that the stock is still overvalued.

For now, it may be best for prospective investors to hold off on buying new Roku stock, and for current investors to sell off a portion to mitigate future losses.

There may come a time, though, when Roku stock becomes a value play. The company has overcome large drops in valuation before -- going from $73.03 a share in September 2018, to $27.28 in December 2018, to reaching $169.86 in September 2019. If nothing else, it has proven Roku can take on the "big boys" and still succeed.

And if the company can find a way to take the lead in the ripe Asian market for smart TV interfaces, savvy investors who bought in low following poor U.S. performance could be celebrating their decision.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.