Technology stocks have been hammered over the past year and Roku (ROKU 0.06%) is no exception. The video-streaming platform's stock is down 77% in 2022 and a recent pullback in digital advertising spending wreaked havoc on the company in the third quarter. 

But I think calling the time of death for Roku's stock is a bit premature. There are still a few very good reasons to be bullish on this stock if investors are willing to take on a little risk.

Two people watching TV.

Image source: Getty Images.

Yes, Roku's ad business is suffering right now

There's no sugarcoating the fact that any company relying on digital ad sales right now is suffering. 

In Roku's third quarter (ended Sept. 30), the company's total sales increased by just 12% to $761.4 million and were down from $764.4 million in the previous quarter. The vast majority of the company's revenue comes from advertising, and lots of companies have been pulling back on ad spending as fears of a recession have grown. Roku isn't alone in feeling the pinch. Alphabet's Google, Meta, Snap, and others have also seen a lot of their ad sales dry up.

Falling ad sales have translated to plummeting operating income for Roku. After posting quarterly profits in 2021, the company dipped back into the red this year. In the third quarter, Roku's operating loss was $147 million -- down significantly from its operating income of $68.8 million in the year-ago quarter. 

Roku's management also put a damper on investors' hopes when it said that total sales for the fourth quarter will be $800 million, a 7.5% drop from the year-ago quarter. 

Roku is still growing and ad sales will eventually rebound 

The short-term picture for Roku is looking a little bleak. But zoom out a little bit and you'll likely begin to see Roku's long-term potential.

First, the company is still adding active accounts. Roku reached a record 65.4 million active accounts in the third quarter, up 16% year over year. Second, its account holders are spending more time on the platform than before. Streaming hours reached 21.9 billion in the quarter, a 21% increase from the year-ago quarter. 

Need more good news? Consider that the company's average revenue per user also increased in the quarter -- rising 10% to $44.25. 

If all that wasn't enough, even with rising competition in the video streaming platform space, Roku continues to dominate. The company's connected TV platform holds a 30.5% market share (by viewing time), compared to Amazon's Fire TV's 16%, according to Conviva. 

And while the digital ad industry is experiencing a slowdown right now, there's good reason to believe that this won't last forever. The ad business is responding to fears of a recession, but the digital ad industry isn't going away. A few rough quarters are on the horizon, but a bounce-back in ad spending is also likely. 

As fellow Motley Fool writer Jeremy Bowman recently pointed out, ad spending in 2009 -- during the Great Recession -- fell by 4.6%. It was a very significant drop, but the bigger headline was that over the next two years, ad spending grew by double-digital percentages

If the U.S. does enter a recession, it almost certainly won't be as bad as what we experienced during the Great Recession. And if the ad market could bounce back significantly after its decline back then, there's reason to believe it can do the same now. 

Research from eMarketer shows that digital ad spending in the U.S. is on track to reach $315 billion in 2025, up from $240 billion this year. 

Roku is a buy

I'm still bullish on Roku for all of the reasons mentioned above. And I'll add that with the company's stock now trading at just 2.7 times its sales -- compared to its P/S ratio of 12 this time last year -- Roku's shares are looking pretty cheap. 

I would still be cautious about how large of a position you open with Roku right now. But considering that the company is still growing, it's in a leading position in the video streaming platform market, and the fact that digital advertising could likely rebound in the near future, buying some shares of Roku could end up being a good long-term bet.