From a distance, the case for fuboTV (NYSE:FUBO) stock looks rather intriguing. fuboTV has launched a sports-focused streaming service, which targets an enormous market. It’s moving into the online sports betting business, which provides another massive opportunity.

Meanwhile, even after a huge rally FUBO stock doesn’t look all that expensive. Based on 2021 top-line guidance of $415 to $435 million, FUBO trades at about 18x revenue. That guidance almost certainly will be hiked when fuboTV reports fourth quarter results in early March, given that preliminary Q4FY2020 numbers handily topped the company’s projection.

Certainly, 18x revenue isn’t cheap. (Note that with the conversion of preferred stock, plus in-the-money warrants and options, fuboTV has about 160 million shares outstanding, for a market capitalization near $8 billion.) But in this market, investors have proven willing to pay up for the market’s better growth stories. Almost always, they’ve been rewarded for focusing on growth over valuation. FUBO stock seems like the next name to support that strategy.

But if you look close, there are real concerns here. I’d focus on two: one for the streaming business, and one for the sportsbook strategy. Those concerns can undercut the seemingly simple bull case in a hurry. As a result, from here the rally in FUBO stock looks like a textbook case of too far, too fast.

Costs and Revenue

Preliminary fourth quarter numbers from fuboTV look impressive. For the quarter, the company expects revenue to climb about 80% year-over-year, with the year-end subscriber base growing more than 70% in twelve months.

That’s the good news. But there is a very real problem with that growth. fuboTV’s customers simply aren’t all that profitable.

We don’t have Q4 expense numbers yet (they’ll be released on March 2), but we can review figures for the first three quarters of 2020. In Q3FY2020, fuboTV revenue was $61.2 million. “Subscriber related expenses” were almost exactly equal, albeit slightly higher.

Per fuboTV’s filings with the U.S. Securities and Exchange Commission, subscriber related expenses “consist primarily of affiliate distribution rights and other distribution costs related to content streaming.”

In other words, those expenses are what fuboTV pays networks for the programming on its platform. And, at least in Q3, those expenses are higher than its total revenue.

Scale and Streaming

Here’s the bigger problem: as fuboTV itself notes, those affiliate fees are “generally incurred on a per subscriber basis.”

After all, free trial subscriptions could be skewing the revenue and expense numbers to some degree. fuboTV pays networks for the programming given to free customers, but gets no revenue in return. The gap between costs and expenses did narrow sharply between Q2 and Q3.

So it’s probably too negative to argue that fuboTV can’t be profitable, simply because in Q3 it paid all of its revenue out to content providers. That trend should continue to improve.

But fuboTV’s gross margins — the difference between revenue and content costs — will never be that high. Because the fees paid are per-subscriber, fuboTV doesn’t get much in the way of benefits from scale. Operating expenses and marketing can be leveraged somewhat, but the gap between price and content costs simply isn’t going to be that big.

And that is a huge problem for a stock trading at 18x forward revenue. Again, that multiple doesn’t sound that big relative to this market. But the kinds of growth stocks trading at 15x-plus sales usually are software plays which offer tremendous economies of scale.

Once a software product is released, an incremental user pays the same price as the previous customer, but the costs plunge. For fuboTV, because of per-subscriber content costs, its next customer essentially is just as profitable as its last one — which is to say, not that profitable at all.

Competition and Pricing

That could change, if fuboTV can upend the economics of the entire video industry. Obviously, that seems unlikely.

Bear in mind that fuboTV remains a relatively small fish in the industry. It’s not yet one of the largest streaming providers. Given its focus on sports, at least at the moment it doesn’t plan to be, either.

And it’s sports that are causing the thin profit margins across the industry. Traditional cable companies at this point are happy to let their video customers walk.

Perhaps over time the economics of the business change. But, as the industry is currently set up, fuboTV simply is not going to see much in the way of profit margins without sharply higher prices. Given competition from streaming and (still) cable providers, it’s hard to see how the company has that kind of pricing power.

Sports Betting and FUBO Stock

It’s possible that at least some FUBO bulls aren’t buying the stock for the streaming offering, but for its sportsbook strategy. Or, at least, they see the integrated offering as something that can capture significant dollars from sports fans.

Certainly, sports betting has catalyzed at least part of the massive rally in FUBO stock from $10 in mid-October to nearly $50 at the moment. Most recently, FUBO jumped 34% on Jan. 12 when the company announced its plan to acquire sportsbook operator Vigtory.

But let’s take a step back here. Vigtory, at the moment, has no business. It has one market agreement, with the Casino Queen in Iowa, but the company hasn’t gone live yet.

Iowa is a state that already has 18 other licensees. Meanwhile, Vigtory’s model seems to share the same profit concerns as fuboTV itself. The company said in September that it was planning to beat the entire industry on pricing, offering a -105 vig instead of the (usually) industry-standard -110.

Though I’m optimistic toward sports betting growth, it’s worth pointing out that margins in that business too aren’t great. Vigtory’s strategy halves revenue and adds to margin pressure. Yet FUBO added well over $1 billion in market value on the deal alone.

Perhaps the sum of the two parts, of streaming and sports betting, offsets some of the disadvantages inherent to each of those parts. Perhaps fuboTV can disrupt these two huge industries full of entrenched competitors with advantages of their own.

But there’s an obvious risk that it won’t be so easy. 18x revenue hardly seems to price in that risk.

On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in the article.