While investors should avoid making drastic decisions based on a single earnings report, quarterly updates act as paragraphs within a stock's chapters in its long-term story.

So while I may rarely sell based on specific information provided in a given earnings call, such updates can still be beneficial for reinforcing my current investment thesis on a stock.

That appeared to be the case when I looked at Roku's (ROKU 0.27%) recent first-quarter report. Let's see why Roku looks more promising than ever now, especially after its sell-off this year.

Advertising's massive shift to streaming television

With its platform and player operating segments, Roku has quickly transformed into much more than the small black and purple streaming devices it was initially famous for selling.

Specifically, platform revenue accounted for nearly 90% of overall sales in the latest quarter, led by its burgeoning advertising unit.

Best yet for Roku investors, this platform segment and its advertising revenue look poised to continue thriving for years to come. Consider the following quote straight from the company's first-quarter shareholder letter: "Marketers are following viewers to TV streaming. In Q1 the top 10 broadcast TV advertisers increased spend on Roku nearly 80% year-over-year, while spending 7% less on legacy pay TV."

The shift from legacy television to streaming is healthier than ever, and Roku will collect its outsized share of these streaming advertising sales moving forward.

With industry behemoth Netflix considering a potential move to offer ad-supported streaming, Roku's importance in the advertising industry is only growing.

And as the company's most significant advertising customers continue to pour money into Roku's platform, its long-term outlook is excellent with streamers calling out ad-supported viewing as a critical path forward.

Toddler and teddy bear sitting on floor and watching nature show on TV.

Image source: Getty Images.

Ad customers' rapidly increasing spend

Not only are Roku's largest advertising partners switching to streaming TV at a fast rate, but its broader base of advertising customers is here to stay.

Speaking to this point in the recent shareholder letter, founder and CEO Anthony Wood and CFO Steve Louden wrote:

Advertisers who partner with us are coming back and spending more: In Q1 we retained 96% of advertisers that spent $1M+ (calculated year-over-year on a trailing 4 quarter basis), and average spend among returning advertisers increased more than 50% year-over-year.

Should Roku maintain these customer retention and expansion trends for an extended time, its $13 billion market capitalization could prove far too small given its deepening relationships with some of the largest brands in the world.

Why this matters for Roku

As this shift toward ad-supported TV continues, Roku benefits from increased advertising demand on its free Roku Channel and through the sales made on its ad platform.

With Roku players serving as a loss leader to bring new customers into its ecosystem, the company has created a tidy flywheel effect across its network that includes 61 million members.

Whether audiences go to the Roku Channel and watch free ad-supported content or go to a service like Discovery+ and watch ad-supported content (with ads bought on Roku's platform), the company's position in the industry gives it an enviable competitive advantage.

Trading at roughly 74 times free cash flow, Roku may look expensive. However, expanding advertising revenue could help the company rapidly outgrow this valuation, especially considering a temporarily negative gross margin in the player segment.

Thanks to these two stats highlighting Roku's advertising potential and its ability to grow average revenue per user regardless of how a viewer engages with the platform, the stock looks like an excellent long-term holding.