Roku (ROKU 1.36%) has fallen off a cliff in 2022 as investors worry about a possible recession. However, despite the recent stock decline, there are reasons to be optimistic about the company's long-term future.

Here are two great reasons for investors to take another look at Roku.

1. The Roku Channel raises its bet on original content

When people first look at Roku, chances are they assume the company makes most of its money from hardware -- streaming sticks, players, and streaming bars. However, anyone who looks at its earnings releases quickly realizes that Roku only makes around 12% of its revenue from hardware. Instead, it generates 88% of its money from platform revenue, selling digital advertising and content-distribution services. 

One of the best ways for the company to improve its digital-advertising results is through Roku Originals -- The Roku Channel's (TRC) original content strategy. Expanding the breadth of its Roku Originals content makes it more attractive to young, diverse, and affluent viewers -- an approach that increases viewership, increases advertisers' interest, and attracts more content providers to TRC.

The company recently increased its bet on the Roku Originals strategy by hiring industry veteran Charlie Collier, former CEO of Fox (NASDAQ: FOXA) and president of AMC Entertainment (NYSE: AMC).  One industry insider believes Collier is a star personality, making TRC a more attractive destination for content, viewers, and advertising. In addition, the market interprets Roku's hire of Collier as a signal that TRC will develop even more original content.

Once the economy rebounds from its current downturn, Roku's bet on Collier and original content should pay off.

2. New Roku devices

Although its hardware may not be a direct growth engine for the business, its devices serve as consumers' primary entry point into the Roku ecosystem. Therefore, Roku still invests in improving its devices. For instance, in September, it upgraded its budget streaming device, Roku Express, from a single-band Wi-Fi device to dual-band Wi-Fi, enabling faster streaming.

Additionally, on Oct. 12, Roku moved beyond simply upgrading its streaming devices or building out its line of audio speakers and entered a new category -- the smart home. Its lineup of smart-home devices includes cameras for inside and outside home monitoring, floodlight cameras, video doorbells, smart lights, and indoor/outdoor smart plugs. Furthermore, consumers can purchase a smart-home subscription that unlocks additional camera and video-doorbell features, such as person detection, vehicle detection, and more. These video devices can stream to a Roku TV or player and work with Google Home. Alexa should be available in early November. Roku also said its Smart Home appliances would be exclusively in-store at Walmart on Oct. 17 and available online at Walmart.com and Roku.com.

According to a Fast Company interview, Roku CEO Anthony Wood said its goal is to turn its streaming platform into a home-control hub. Roku Smart Home customers would gain the ability to do things like view video from the Roku cameras and doorbells on the TV while simultaneously streaming a show or movie.

Research company MarketsandMarkets believes the smart-home market could grow from $84.5 billion to $138.9 billion by 2026 -- a sizable market for Roku to gain share.

Investors should be cautious in this terrible market

Although the company has a high upside in the long term, the near-term future for the company looks ugly. Second quarter 2022 results show a significant slowdown in TV advertising that management blamed on the poor macroeconomic environment. Additionally, Roku's bottom-line results have dropped into unprofitability, and free cash flow is negative -- terrible news in this economy. 

ROKU Free Cash Flow (Quarterly) Chart

ROKU Free Cash Flow (Quarterly) data by YCharts

Investors often aggressively sell unprofitable companies in an inflationary and rising interest-rate environment. And the main problem for Roku is that despite recent Federal Reserve rate hikes, inflation is still running hot at 8.2% as of September 2022, making it more likely that interest rates will continue higher and the company's fundamentals will further deteriorate.

Despite the steep dive in stock valuation from a December 2020 price-to-sales (PS) ratio of 23.15 to today's PS ratio of 2.37, the stock could fall much further over the near term. 

Suppose you are attracted to high-upside Roku initiatives, like an expanding original-content lineup or the growing smart-home opportunity. But you dislike taking near-term losses. It might behoove you to put the stock on a buy list and wait for improving macroeconomic conditions and business fundamentals before investing.