There was one number that stuck out to me in Roku's (ROKU -10.29%) second-quarter earnings report. It's a great indication of the current strength of streaming and the Roku platform.

Roku saw its users stream 25.1 billion hours of content on its platform in the second quarter. That number's flat from the first quarter. And while most investors don't get excited about flat metrics, it's the first time Roku hasn't seen engagement decline since 2020. (And we all remember what happened in the second quarter of 2020.)

Roku's strong user engagement bodes well for its goal of returning to profitability in 2024.

More TV time is shifting to Roku

Management was keen to point out that Roku's 21% year-over-year increase in engagement outpaced linear TV's 13% decline in viewership in the same period.

There's no doubt streaming is displacing a lot of linear TV time. Streaming services accounted for a record 38.7% of TV usage in July, according to Nielsen's The Gauge. The ongoing strikes in Hollywood are a big contributor to the trend, with a noticeable acceleration in the shift to streaming since the end of April.

But the impact of the writers' strike wasn't immediate for most linear programming. In other words, people were shifting more time to Roku even while linear TV still offered plenty of content. So while some investors may be worried about what happens when the NFL and NBA seasons start again this fall, or writers and actors get back to work, Roku's platform should have a lot of resilience.

On top of that, The Roku Channel is outperforming many of its peers. Roku's ad-supported video-on-demand service exceeded 1% of TV time last quarter, and 1.1% of total TV time in July. That's a similar level as Comcast's Peacock.

Management says streaming hours on the channel grew by more than 50%. With a substantial audience, Roku's attracting new content partners and has the potential to command better ad rates. It recently signed a deal with Comcast's NBCUniversal to bring content like Saved by the Bell and Murder, She Wrote to the Roku Channel.

Pushing toward profitability

Roku may face some continued challenges in monetization throughout 2023, but 2024 should show strong improvements as it expects to return to positive adjusted EBITDA.

One of Roku's biggest ad revenue sources will remain pressured through at least the third quarter. Companies have pulled back on media and entertainment (M&E) ad spend amid the writers' strike. M&E consists primarily of ads from streaming services and media companies promoting content or pushing new subscriptions. While Roku will still partake in revenue shares with streaming partners, it won't be collecting as much revenue from those services, as they don't have as much content to promote.

M&E was already under pressure this year as investors pushed media companies to generate profits from streaming. One way they've cut expenses is by pulling back on marketing. That's why we've seen Roku's average revenue per user decline 7% year over year.

That pressure is offset in the near term by a recovery in other ad markets, particularly consumer packaged goods. But the long-term shift to streaming should ultimately benefit Roku with M&E ad spending coming back into favor as new content comes to streaming platforms.

The secular trend toward ad-supported streaming should also benefit Roku, as it can negotiate better ad or revenue shares with its growing and increasingly engaged audience. As the company grows into its elevated operating expenses (growth slowed to 8% last quarter), it should show significant operating leverage as revenue starts to accelerate.

So not only should investors stay optimistic about Roku's potential to reach positive adjusted EBITDA in 2024, but the prospects in the second half of the decade look great, too.