What happened
Shares of Roku (ROKU 0.15%) initially gained ground on Wednesday, jumping as much as 2%, before losing their momentum and heading southward. As of the market close, the stock was down 4%.
While there wasn't any company-specific news, results from a streaming rival and partner at first provided a boost for the streaming pioneer, before the prevailing negative market sentiment dragged the stock lower.
So what
Netflix (NFLX -3.92%) reported its third-quarter results after the market close on Tuesday, and the unexpectedly robust performance took investors by surprise. The service added 2.4 million subscribers, sailing past its own forecast (and Wall Street's consensus estimates) of roughly 1 million.
This led to revenue of $7.9 billion, up 5.9% year over year. The strong dollar hurt Netflix's revenue, which grew 13% excluding the impact of foreign exchange rates. Fiscal discipline and the additional subscribers helped support the bottom line, with earnings per share of $3.10 soaring past the $2.14 expected by analysts.
Now what
So what does this have to do with Roku? The streaming platform has suffered under the weight of slowing streaming adoption. The fact that Netflix's subscriber growth resumed after two successive quarters of declines provided Roku shareholders with evidence that viewers merely hit pause on streaming services, and the demise of the industry has been very much exaggerated.
Roku has experienced a similar slowdown, as first- and second-quarter growth in active accounts stagnated at about 14% year over year. During the same periods, streaming hours also took a hit, growing 14% and 19%, respectively. Those anemic growth rates and a return to unprofitability left some investors wondering whether Roku's best days were behind it. Netflix's increasing subscriber numbers gave investors confidence -- however fleeting -- that Roku will likely experience a similar boost to its sagging growth.
Investors will know for sure in the coming weeks, as Roku is scheduled to release its third-quarter results after the market close on Wednesday, Nov. 2.
As I've argued before, Roku is down but not out, making the streaming platform leader a buy.
