Streaming platforms went through a rough patch a few years ago as a pandemic-related boom that led to soaring subscriptions came to an end. Some, like Netflix, have recovered since. Others, like Roku (ROKU -1.10%), are still struggling. The streaming specialist's shares are down by 70% over the past three years.

That's a massive drop, one that might prove to be a blessing in disguise for some investors. If Roku can stage a comeback and climb back to its all-time highs, those who buy its shares today will see outsize returns. Does Roku have what it takes?

ROKU data by YCharts

The bull case for Roku

Roku's financial results haven't been entirely awful. In the third quarter, the company's revenue increased by 16% year over year to $1.062 billion. Other key metrics also trended up. The company's viewing hours grew by 20% year over year to 32 billion. Streaming households rose to 85.5 million, 13% higher than the year-ago period. Investors are worried about Roku's average revenue per user (ARPU), which remained flat at about $41.10 for the period.

Roku's bottom line also remains in the red, with a net loss per share of $0.06 in the period, better than the loss per share of $2.33 recorded in the previous year's quarter. Still, as long as Roku continues to increase its ecosystem, it should keep attracting more advertisers, an example of the network effect. Further, the company's flat ARPU is a result of its growth in international markets, where its monetization efforts are still in their early innings.

This highlights another important point. There is a vast worldwide opportunity in streaming. According to some research, the U.S. is the most advanced market worldwide, with its penetration rate (in terms of subscriptions) a healthy 30% above the global average. And even in the U.S., streaming made up just 40.5% of total television viewing time in October.

So, there are plenty of opportunities for this mode of entertainment -- which is taking over the world -- to grow in terms of users and television viewing time. Whichever streaming service wins, Roku should benefit from the industry's increased prominence. Lastly, Roku remains in the red because it takes losses on sales of its namesake devices. The company's platform segment, where it records advertising and other related sources of revenue, is profitable on an operating basis.

Roku's decision to sell its devices at a loss is a calculated risk. The company plans to grow its ecosystem and, by extension, its ad revenue enough to the point where device sales become inconsequential. Given the company's strong position in the industry and the vast white space still available, Roku's strategy could pay off in the long run.

What is the verdict?

Roku faces stiff competition from companies with large budgets in the connected TV (CTV) space. Some of them, like Amazon, are successful and diversified enough that they can afford to absorb losses in their CTV businesses as they grow their audiences.

Roku remained the CTV leader in North America, but according to some data, it lost momentum in the third quarter. The company's market share in North America in the period was 37%, a 29% year-over-year decrease. If the trend continues, it could hinder Roku's revenue and streaming household growth along with the company's long-term prospects.

The good news is that Roku remains the worldwide leader in the CTV market. And despite the company's loss of market share in the third quarter in North America, its financial results were decent -- growing revenue, streaming households, and viewing hours. With monetization in international markets still lagging, Roku's opportunities to bounce back remain intact, in my view. Let's not forget that the company's struggles a few years ago weren't just due to an end to the pandemic boom.

Economic issues led to a decline in ad spending. Those haven't subsided, especially in the media and entertainment (M&E) category. Roku expects M&E ad revenue to make a lower percentage of its total revenue moving forward, but it also thinks the non-M&E category will fill the gap. That hasn't happened yet.

So, as Roku climbs out of this slump, improves monetization in international markets, and continues to make headway in the vast runway available in streaming, the company could deliver strong returns to patient investors.