What happened

Shares of Roku (NASDAQ:ROKU) dipped 13% across the first six months of the year, according to data from S&P Global Market Intelligence. After skyrocketing 330% in 2019, the streaming video stock was priced for perfection, and the company's valuation dipped even as it continued to deliver encouraging business performance.

^SPX Chart

^SPX data by YCharts

Roku stock lost ground due to a weaker environment for ad sales, concerns about a partnership with a key hardware partner, and some unfavorable coverage from analysts. However, the two quarterly results it has published this year each delivered impressive results, and its stock has since gone on to post significant gains in July's trading.

A Roku remote.

Image source: Roku.

So what

Roku reported fourth-quarter results in February and delivered sales and earnings for the period that came in ahead of the market's expectations. The company posted a per-share loss of $0.13 on sales of $411 million, while the average analyst estimate had called for a per-share loss of $0.14 on sales of $392 million. It also added 4.6 million new active accounts in the quarter.

The streaming hardware and programming specialist then published its first-quarter results in May, posting a loss per share of $0.45 on revenue of $321 million. The loss for the period matched the average analyst target, but sales in the period rose 55% year over year and came in significantly ahead of the market's target for revenue of $307 million. The company also added 2.9 million new active accounts in the quarter, with total active accounts up 37% compared to the prior-year period, reaching 39.8 million.

Despite the strong first-quarter results, some analysts downgraded their ratings and cut their price targets on Roku due to the weaker outlook for ad sales. Analysts also highlighted the possibility that TCL, a smart-television manufacturer that includes Roku's streaming hardware in its devices, could seek to secure more advantageous terms in the partnership.

The overall streaming industry experienced surging engagement as people stayed inside in order to reduce potential exposure to the coronavirus. However, advertisers also pulled back on spending out of concern for weaker economic conditions, creating a weaker growth environment. 

In addition to selling streaming hardware, Roku also generates revenue from ad sales from streaming channels on its platform. Management noted in the company's Q1 call that the uncertain economic conditions were making growing the ad business more difficult, but the company also expects that the need for more efficient advertising will accelerate the shift to streaming-based platforms. 

To put Roku's stock performance in perspective, it's worth taking a look at how other leaders in the streaming space fared in the first half of the year:

NFLX Chart

NFLX data by YCharts

The Walt Disney Company (NYSE:DIS), which launched its Disney+ streaming platform in 2019, saw its valuation decline to an even greater extent than Roku's. In addition to the weaker ad market and entertainment shutdowns impacting the company's crucial media networks segment, The House of Mouse also had to contend with closures for movie theaters and its theme parks. The entertainment giant's stock slide would have been much worse had it not been for the success of Disney+.

Netflix's (NASDAQ:NFLX) status as the leading subscription-based streaming platform allowed it to take full advantage of the coronavirus-related engagement surge and avoid any impact from reduced ad buys. Many streaming platforms saw heightened user activity, but pure-play, subscription-based businesses were best positioned to capitalize on the unprecedented conditions. 

Now what

Roku stock has rallied early in July's trading, with shares up roughly 12% in the month so far. 

ROKU Chart

ROKU data by YCharts

Roku closed out 2019 as the best-performing U.S. tech stock with a valuation of at least $5 billion, and it was able to accomplish this because its business was delivering stellar growth and had a long runway for expansion. Streaming will continue to displace cable, and the company looks positioned to continue benefiting from this trend. 

The stock's dip across this year's first half probably has more to do with last year's incredible gains prompting concerns the company had become overvalued than any signs of weakness in the business. If economic conditions continue to improve, advertising spending will likely pick back up. 

Roku has a market capitalization of $15.9 billion and is valued at roughly 10.7 times this year's expected sales.