Before the recent acquisition news, FuboTV (NYSE:FUBO) stock was a bet on the future of sports streaming. But now, with its announced deal for Vigtory, this sports streaming play now offers exposure to another emerging trend.
I’m talking about sports wagering. Granted, Wall Street has already expressed its excitement for sports wagering plays. That’s why DraftKings (NASDAQ:DKNG), Penn National (NASDAQ:PENN), and other plays have soared since last spring. But, as the “growth story” backing sports betting stocks continues, more runway remains on the table.
That’s the case here with FuboTV, even as one bear has called this the “most compelling short in their careers.” With the possibility of more positive developments in the coming months, there’s a pathway for shares to continue surging. Possibly, toward the high-water mark set in late December ($62 per share).
Yet, with a bear case as compelling as its bull case, be careful. A high risk stock, shares could still fall back toward prior price levels (under $15 per share) in the near-term.
Why Vigtory Deal Changes The Game for FUBO Stock
Cord-cutting and pandemic-related tailwinds gave investors reason to bid up FuboTV shares late last year. But, just before New Year’s, some became skittish. Shares sold off, as prominent short-sellers like Kerrisdale Capital grew more vocal in their criticism of the stock’s valuation.
Yet, with the Vigtory deal, there’s a new factor at play. No longer just a platform to watch sports without a cable subscription, it could become the place U.S. households watch (and wager) on major sporting events.
How massive is the potential for FUBO stock? InvestorPlace Senior Investment Analyst Luke Lango broke it down Jan. 12. With its growth accelerating, not decelerating, the platform is well on its way to scaling up to profitability. With the integration of sports betting into its platform, it’s not out of the question it could eventually have a subscriber base topping 10 million.
Interestingly, despite the excitement over its growth potential, valuation (while still rich) looks reasonable compared to similar plays. With a $2.4 billion market capitalization, and $459.7 million in projected 2021 sales, the stock trades at a price-to-sales ratio of around 5.2x.
Compare that to DraftKings, which trades for 25.6x estimated 2021 sales. But, while this could justify a rebound from $35 per share back to above $60 per share, it’s no slam dunk. Why? There’s more to the bear case than just concerns over valuation. Keep in mind these risks before buying.
Despite Solid Bull Case, There’s Merit to the Bear Case
The sports betting integration plans add to the case this upstart will quickly become a major platform for sports. But, its future isn’t set in stone. On paper, it’s reasonable to think this content/wagering platform may have an edge over the competition.
However, this company is just getting warmed up conquering the sports betting space. Vigtory Sports is hardly a first mover in this industry. Its operations just commenced last fall. In addition, Vigtory’s main selling point are the better odds it offers to its customers on point-spread wagers. This may appeal to more sophisticated sports bettors. But, with lower margins, this business model requires sufficient volume to make it profitable.
But, the jury’s not only out on whether FuboTV’s foray into sports betting will pay off. As I mentioned above, one short-seller called this the “most compelling short” in their investing careers. That analyst was LightShed’s Rich Greenfield, whose bear case is more than just splitting hairs over valuation. Even with $183 million in IPO proceeds, the company must go toe-to-toe with deeper-pocketed rivals, like Alphabet’s (NASDAQ:GOOG,NASDAQ:GOOGL) YouTubeTV, and Disney’s (NYSE:DIS) Hulu Live.
Also, sports programming is a loss-leader for the cable industry. It’s debatable whether it can become a profitable business for streamers like FuboTV. In short, as it faces more substantial hurdles than it seems at first glance, there’s a good chance the company experiences a hiccup sometime down the road.
That may be soon, or it could be over a year from now. But, whenever it happens, expect it to have a major negative impact on FUBO stock.
Don’t Bet The Ranch, But Consider FUBO Stock a Cautious Buy
Weighing the bull case against the bear case, both sides of the debate make good points about the future of FuboTV. But, whether it becomes the premier sports platform (or not), what matters now is whether shares are heading up, or down, in the near-term.
With sports betting stocks still in vogue, and the possibility of additional positive news in the near-term, FUBO stock may be worthwhile as a cautious buy at today’s prices. Just don’t bet the ranch.
On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.
Thomas Niel, a contributor to InvestorPlace, has written single stock analysis since 2016.
