At first glance, Roku (ROKU 1.00%) might appear weak competitively. The streaming platform competes with the largest companies in tech, including Amazon, Google parent Alphabet, and Samsung. This places Roku at a size disadvantage as the liquidity of each of these mega-tech companies far exceeds Roku's $12 billion market cap.

Meanwhile, Roku continues to look for ways to cut costs. In a regulatory filing on September 6, the company announced it will lay off 10% of its workforce (about 360 people) by the end of the year. It's Roku's third round of layoffs in the last year.

But despite its small size and cost-cutting actions, the entertainment stock has built a strong case that it can at least compete with these tech giants on the streaming front. Three factors may make it a compelling investment despite its sizable competitors.

1. Roku is a first mover (at least in North America)

Few envisioned an internet-based streaming industry when entrepreneur Anthony Wood founded Roku in the early 2000s. This vision inspired him to develop the world's first TV operating system, making the television a device to connect to online video content.

This development occurred under Netflix's umbrella as Wood took a second job as its vice president of Internet TV. Wood worked there for 10 months before Netflix spun the company off in 2008, leaving the streaming market to Roku.

Moreover, Roku had the vision to change the focus from selling players to becoming an advertising giant. In the first half of 2023, this platform's revenue made up 87% of Roku's $1.6 billion in revenue.

The initial emphasis on developing the operating system and players may also be one of its competitive strengths. Most of the reviews rate Roku's players the best overall. Ease of use, an extensive library of apps, and its comparatively neutral approach are among the reasons Roku stands out.

As a result, Roku is the No. 1 streaming platform in North America, with a 50% market share, according to the February 2023 CTV Device Global Market Share Report. Admittedly, Samsung is the market leader in the Asia Pacific region. But with Roku commanding a significant market share there, it remains competitive even though it is not necessarily the market leader.

2. Network effects

Moreover, network effects help to bolster the North American market lead. The components of the network are comprised of viewers, content providers, and advertisers.

These parties effectively draw one another. Audiences like the platform for the aforementioned ease of use and extensive app library. This motivates content providers to turn to Roku.

Furthermore, the large audiences make it a draw for advertisers who utilize the platform to reach their audiences. To this end, the company developed Roku Ad Manager, which allows advertisers to purchase ad space. More importantly, advertisers can tailor ad campaigns, target audiences, measure the effectiveness of ads, and optimize campaigns in real time. That level of control serves as a further incentive to choose Roku.

3. The shift to streaming

Furthermore, such information becomes more critical as advertisers capitalize on the shift from traditional TV to streaming. Due to streaming's rising popularity, Roku continued to increase the number of active accounts and streaming hours as consumers spent more time on the platform.

In the second quarter of 2023, active accounts rose 16% year over year to nearly 74 million. Also, the 25 billion streaming hours on the platform surged 21% higher over the same period. These numbers should especially benefit Roku as the slumping ad market shows signs of recovery.

Also, according to Nielsen, a record 39% of all TV was streaming, and the Roku Channel accounted for over 1% of all TV viewing time. And since so many customers access other channels through Roku, the company should profit as streaming TV continues its march to capture 100% of TV viewing.

The state of Roku

Roku is cutting back on office space, slowing hiring and cutting outside services expenses in an effort to streamline its operations. Investors reacted positively to those moves, with the stock price jumping more than 11% on the heels of Roku's regulatory filing.

Given Roku's popularity and market position, it should continue to stand out despite intense competition. Indeed, it has attracted large competitors, and Samsung's lead in the Asia-Pacific region presents a challenge.

However, customers, content providers, and advertisers seem to prefer Roku, and its largest competitors operate in numerous segments, leaving Roku to focus on the streaming ad business. Also, it has first-mover status, an easy-to-use platform, and the benefit of a secular move to streaming to lead its industry. Those factors make competing with Roku more challenging, even for the world's wealthiest companies.