Anyone who spends more than a few minutes going through Roku Inc.'s (ROKU - Get Report) IPO filing would quickly figure out that the company is far less interested in creating large hardware profits than in making money via services made possible by its software platform. And that this strategy had begun to bear fruit in recent quarters.

Roku doubled down on this strategy this week, unveiling a hardware (and software) refresh that showed it's willing to nearly go toe-to-toe with archrival Amazon.com Inc. (AMZN - Get Report) on price. For obvious reasons, that's probably unsettling some investors, but unless things get really out of hand, Roku has little choice but to push ahead with this strategy.

Roku replaced the two HDMI streaming sticks and three set-tops in its hardware lineup with three HDMI sticks and one set-top. The cheapest product of the bunch, the $30 Roku Express stick, packs a processor said to be five times more powerful than the prior-gen Express stick, which also sold for $30 before a September price cut (meant to clear inventory). As was the case before, Roku is also selling a $40 Express+ model that comes with a composite video cable for older TVs lacking HDMI ports.

A new version of Roku's most popular device, the standard Roku Streaming Stick, maintains the $50 price its predecessor had prior to a September price cut. However, the new model comes with 50% more processing power and (more notably) a remote with a voice search button; this feature was previously available only on the top-of-the-line Roku Ultra set-top. A third stick, the $70 Streaming Stick Plus, also supports 4K and HDR video, and comes with an enhanced Wi-Fi radio said to provide up to four times the range of the 2016 Streaming Stick.

The refreshed Roku Ultra doesn't feature notable hardware changes outside of the addition of power and volume buttons to its remote. But its $100 price is $30 less than what the original Ultra cost before a September price cut. Like the older model, the new Ultra supports 4K/HDR video and comes with an Ethernet port, a microSD card reader, a remote-finder button and a remote containing a voice search button and a headphone jack. Two less feature-rich 4K set-tops, the Premiere and Premiere+, are being discontinued.

Along with all the hardware, Roku showed off Roku OS 8, a revamped version of its software platform that comes with a program guide for browsing over-the-air channels and (when supported) streaming content. Other features include improved voice search, the ability to search for over-the-air content and single sign-on support for pay-TV channels.

In terms of pricing, the Roku Express and Streaming Stick bracket Amazon's Fire TV stick, which goes for $40 and comes with a remote supporting Alexa voice searches. And the Streaming Stick Plus' $70 price matches that of Amazon's new Fire TV dongle -- it supports 4K/HDR video and Dolby Atmos audio.

Roku is betting the Ultra's richer hardware feature set will allow it to maintain a $30 premium to the Fire TV dongle. All of Roku and Amazon's devices are priced well below Apple Inc.'s (AAPL - Get Report) latest Apple TV set-top, which starts at $179. Apple, unlike Roku or Amazon, wants to turn a real profit on streaming hardware sales.

Apple is a holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells AAPL? Learn more now.

Unease with Roku's pricing might have contributed to the 23% decline Roku's shares saw in the two trading days following its product refresh, after having risen 92% from its $14 IPO price during its first two trading days. However, profit-taking and broader worries about competition from Amazon were likely bigger factors -- between its unique strengths and challenges, and the giant differences that often exist between how bulls and bears perceive the company, Roku has all the makings of a battleground stock.

Roku's continued aggressive pricing, together with the cost of supporting new features such as faster processors, voice remotes and improved Wi-Fi radios, makes it likely that its hardware gross margin won't improve much going forward from a first-half level of 12%, and could possibly slip further. After factoring other costs such as R&D and marketing spend, Roku's hardware business is almost certainly a money-loser.

The same might hold for Amazon's Fire TV line, given its equally-aggressive pricing. Amazon is fine with this since it sees the Fire TV line as a means to grow Alexa usage and (especially) get consumers hooked on the Prime video and music-streaming services tightly integrated with the software powering Fire TV devices (Amazon's Fire OS).

In Roku's case, the company is betting it will more than offset any hardware losses via the continued rapid growth of its "Platform" revenue, which covers things like ad sales (including for video ads), Roku's cut on content purchases and subscriptions made on its platform, software-licensing payments from TV makers and payments from content providers to have branded channel buttons placed on Roku remotes.

Roku.
Roku.

Platform revenue rose 91% annually in the first half of 2017 to $82.4 million -- this was driven by a 42% increase in active user accounts to 15.1 million, along with higher revenue per active user. And though Platform revenue accounted for only 41% of Roku's revenue, it produced 81% of its gross profits thanks to a 76% gross margin. Odds are good that this gross profit share will rise higher still in the coming months.

With hardware largely treated as a loss leader in the mold of Gillette's razors, the million-dollar question for Roku is whether it can keep Platform revenue rapidly growing in the face of Amazon's onslaught. As much as the mere mention of Jeff Bezos' company is enough to spook many investors in 2017, there are reasons to be cautiously optimistic it can.

Chief among them: Roku has continued to show pretty strong active account growth even as its hardware sales growth has flatlined and (from all signs) Amazon's Fire TV sales have seen healthy growth. This likely has a lot to do with the deals Roku has struck with Sharp, Hitachi, TCL, RCA and other TV makers to get its software on their sets. Whereas Amazon to date has only gotten Fire OS on a handful of third-party TV sets, Roku expects over 150 sets running its software to be available in North America this year, up from 100 last year.

Also: As of June 30, Roku's Platform average revenue per user (ARPU) for the prior four quarters was just a modest $11.22. That leaves plenty of room for Roku to grow ARPU with the help of its high engagement rates and considerable viewing data.

And when it comes to integrating and recommending content on its platform, Roku takes a neutral approach. Amazon, by contrast, goes out of its way to promote its own streaming services on Fire OS.-- access the "Movies," "TV Shows" or "Music" tab on a Fire TV device, and you'll only find Amazon content. One has to access the "Apps" channel to pull up a third-party streaming service.

Last but not least, it can't be overlooked that living room products and services are Roku's only business. The company's fortunes rise and fall based on how well it executes in this space. And as its latest hardware and Roku OS updates show, management has been executing pretty well.

Amazon does have some valuable advantages of its own. Alexa, thanks to its ecosystems and Amazon's big R&D investments, is much more versatile than Roku's voice search solution. Fire OS feels a little more polished than Roku OS, and -- though both platforms support thousands of channels -- the fact that it's based on Android can make it easier for developers to create apps for it. And Amazon can give Fire TV devices millions in free marketing by promoting them on its main site and apps.

But it's worth keeping in mind that the first Fire TV device launched in the spring of 2014. Roku has been fighting Amazon for a while, and generally holding its own. For a price, the company's latest hardware should allow this to continue.