Roku (ROKU  ) shares were down by 9% following the company's second-quarter earnings report. It was strong in terms of topping earnings and revenue expectations, but investors sold due to a decline in streaming viewership and higher hardware margins.

Roku, originally a spinoff from Netflix (NFLX  ) had been a market leader with a 145% gain over the past year and a 2,560% gain since its IPO in late 2017. It's been one of the winners of the increase in online streaming and cord-cutting, and its business saw a spike in users and growth due to the pandemic.

Inside the Numbers

In Q2, Roku reported $0.52 in earnings per share which topped estimates of $0.13 per share. This was a significant improvement from its $1.15 per share loss in Q2 of 2020. Revenue also topped expectations at $645 million, beating consensus estimates of $618 million. This was an 81% increase from last year.

However, shares were down as Roku said streaming hours, totaled 17.4 billion hours, a 1 billion decrease from the previous quarter. The company attributed this to the economy reopening, weather improving, and summer travel. On a year-over-year basis, streaming hours were up 19% globally. Roku's results were consistent with many other tech companies which saw a surge in growth and use during the pandemic.

Another issue for the company is that margins on its streaming devices are falling as it contends with higher costs and "tight component supply conditions and shipping constraints." The company absorbed the higher costs, leading to negative gross margins for its Player. However, the company is more of a bet on making money from ads and premium streaming tiers rather than making money on hardware. In Q2, platform revenue, which includes distribution and advertising, exceeded $500 million.

Stock Price Outlook

Over earnings season, certain themes tend to emerge which gives a better picture of the overall economy. One consistent theme for many tech stocks was a strong second quarter but warnings that growth would decelerate due to less growth and less engagement as the economy was returning to normal.

Many tech stocks have priced in such developments given their underperformance over the last 6 months. I believe the situation is somewhat analogous to the reopening stocks but from the opposite perspective.

To get a better understanding of the airlines, cruises, and hotels, it's helpful to compare 2021 results to 2019 figures as this is a better indicator of where the business is. Similarly, I think that these types of comps will be necessary for tech stocks as 2020 likely will distort results to the higher side. From this perspective, Roku's results are quite positive and its decline in streaming viewership understandable.