Roku (ROKU -4.98%) stock has been battered over the past year, falling nearly 80% from its all-time high in July 2021. The company has been crushed because of a few factors, namely the supply-chain headwinds that have ravaged the TV market. For consumers, TVs have been hard to get, and considering Roku makes money off of consumers watching television through its streaming platform, this has hurt the company. Additionally, as COVID-19 lockdowns subsided in the U.S., Roku saw its streaming hours dip.

All that being said, the company is poised for a rebound. Despite these headwinds, the company has been able to continue expanding revenue and streaming hours on its platform -- albeit with a few bumps in the road along the way -- and it is gaining new customers despite this TV shortage. This puts Roku in a prime position in the streaming market, and with its dominance in the industry already, Roku is poised to succeed over the long term.

Person watching TV.

Image source: Getty Images.

Roku has executed, despite major headwinds

The supply-chain shortage has made it difficult for all streaming platforms to attract new customers, which makes the value proposition for advertisers much less fruitful. After all, if fewer new accounts are joining the platform, an advertiser might spend less of its budget there. However, Roku has remained relatively resilient in expanding its user base. In Q1 2022, which was reported on April 28, 2022, active accounts continued to shoot higher: This number jumped 14% year over year, and the company now has over 61 million active accounts. 

This has kept the value proposition strong for advertisers. The average revenue per user (ARPU) remained robust, reaching nearly $43 in Q1, which jumped 34% year over year. Therefore, advertisers are still choosing to place ads on Roku, despite these headwinds in new user growth.

The company also makes revenue from the platform that Roku sends viewers to. For example, if a consumer uses Roku's platform to subscribe to Walt Disney's Disney+, Roku will receive a cut of the subscription revenue.

This stable expansion in advertising revenue has helped the company's cash flows and profitability. The company did lose $26 million in Q1, but that represented less than 4% of total revenue. Roku also generated more than $87 million in free cash flow in Q1.

Where to go from here?

The company's resilience during these supply chain headwinds is indicative of the company's leadership. Despite TV deliveries being scarce, the company attracted new users. This potentially signals that Roku has mindshare with consumers and that the few consumers who can switch from legacy TV to streaming are choosing Roku to do so. 

If this brand recognition continues, Roku could capitalize on the continued shift to streaming platforms. In March 2022, 65% of U.S. adults aged 18 to 49 watched streaming TV, which surpassed the percentage of adults in that age range watching pay-TV. This is the first time this has happened. While there likely won't be a 100% switch for every person in the U.S., it's clear that streaming is becoming the primary source of entertainment for adults and pay-TV is falling by the wayside.

With Roku as a dominant platform, the company will likely be able to ride streaming tailwinds over the long term. Consumers are now spending 46% of their television time streaming, yet just 18% of an advertiser's TV ad budget goes to streaming services. This provides a huge opportunity to increase ad revenue for Roku. As advertisers begin to realize that streaming is becoming more prevalent, advertisers will shift their budget more toward streaming and away from legacy TV. With over 61 million active accounts, Roku is poised to capture a decent chunk of this shift. 

How Roku could get shut off

However, Roku is not a guaranteed success story. While it might be one of the leaders in the industry right now, there is plenty of competition that could change that over the next decade. Big companies like Apple have platforms similar to Roku's, and it faces pushback from pure-plays like Vizio.

That being said, competitors have struggled to catch up. Vizio, for example, had just 15 million active accounts and streamed 3.9 billion hours of TV in Q4. Roku, on the other hand, has 300% more accounts and streamed 21 billion hours of TV in Q1.

Investing in the top dog that has a green field ahead of it could be a lucrative opportunity, and Roku fits this bill. Additionally, the company is currently trading at just 5 times sales, the lowest valuation it has traded at since 2019.

At this low price, investors could be getting a bargain right now, which is why I think Roku could be a life-changing investment if you can hold the company for the next decade or longer.