FuboTV (NYSE:FUBO) has come down off of its highs and is now a cheap, fast-growing online TV and sports betting play. FUBO stock is down to a price around $30, a large decline from its peak of $62 in late December. This is a 51% decline that now puts the stock in solid buy territory.
In fact, it is down 31% in the past month alone.
Most of this selloff occurred after its Q4 earnings. The report, released on March 2, was very strong, and showed a difficult outlook. There is nothing new with this kind of treatment by the market. It does not care about the past. The only thing that matters is the future outlook of the company.
Forecasts Not Up to Expectations
The reason for this is quite solid. This company’s revenue rose 83% year over year in 2020 (just as it had predicted in January). Most of this came from a 73% increase in full-year subscription revenue ($230 million) compared to total revenue of $268 million.
Moreover, revenue in Q4 alone rose 98% to $105.1 million (see page 6 of the company’s shareholder letter).
But earnings were still negative. In Q4 alone it lost $92.3 million on an operating basis and $167 million in fourth-quarter net income.
But that was not why FUBO stock subsequently fell. The market was upset at fuboTV’s outlook for the upcoming quarter and beyond.
For example, the company said on page 8 of the letter that historically Q1 has been “softer” than Q4. This is a seasonality issue. That is why most companies emphasize their year-over-year stats rather than sequential growth. So when they forecast just $101 million to $103 million for Q1, they underlined this represented 98% to 102% YoY growth.
The market incorrectly took this to mean that growth was slowing. That is obviously incorrect, due to the seasonality issue.
Or is it?
Keep in mind that FUBO stock trades at a market cap of $3.26 billion. At the time, on March 2, it was at a market cap 30% above today’s price — that’s $1 billion higher at $4.26 billion. The market was thinking run-rate revenues (queuing from $105 million in Q4) would be at least $420 million for 2021.
In fact, analysts culled by Seeking Alpha have an average 2021 forecast of $471 million. This put the stock at a price-to-sales multiple of 9 times 2021 sales (i.e., $4.26 billion divided by $471 million). Now, at $3.26 billion market value, FUBO stock is at just 6.9 times sales.
The point is the market wanted to de-risk the market cap.
FuboTV’s Target Value
But this does not make much sense. For example, it is very clear that the company’s subscription and revenue growth will continue at a fast clip. By 2022, Seeking Alpha reports that analysts expect $781 million in sales. This is almost 3 times (+273%) as great as the $286 million revenue fuboTV made in 2020.
Moreover, it means that today’s $3.26 million market value is only 4.2 times forecast 2022 sales. That is a very cheap measure, especially if earnings turn positive by then.
By comparison, for example, 8×8 (NYSE:EGHT) — a $3.54 billion market cap SaaS software company — has a higher valuation. It trades for 5.64 times the revenue forecast for March 2022. That is 34% higher than the 2022 market value for FUBO stock.
Another software company with a similar market cap is PagerDuty (NYSE:PD). This is a $3.1 billion market value real-time digital signal tech company. It trades for over 10.6 times revenue to January 2022. This is 18% higher than fuboTV’s 9 times 2021 sales metric.
PluralSight (NASDAQ:PS), a $3.5 billion SaaS software company, is at 6 times forecast 2022 sales, 42% above FUBO’s 4.2 multiple. Sprout Social (NASDAQ:SPT), a $3 billion market cap social media software tool company, is at 12.36 tines 2022 sales, 194% higher than fuboTV.
What To Do With FUBO Stock
These companies are all non-profitable but fast-growing, similar market cap size tech stocks. But they have an average 72% higher valuation by the market than FUBO stock. Even without the highest comp (SPT stock), the average is still 31.3% higher.
Using this figure, fuboTV should trade at 5.52 times 2022 forecast sales, or $4.3 billion. This implies that FUBO stock is worth at least $38.26 per share, or one-third higher than today.
There is also the sports betting story for fuboTV. Great. But that is part of the growth story — the percentage increases in sales. The issue at hand is the valuation on a comp basis. There are other ways to do this comp analysis.
For example, you could also do an analysis of sports betting stocks and gambling stocks. You could also do an ARPU (average revenue per user) analysis compared to other media stocks. I did that in my last article. What I have done today is compare FUBO stock to similar-sized, non-profitable and fast-growing tech stocks.
Based on this, fuboTV is worth $38.26, or at least 33% more than today. This is likely to happen over the next year. Most investors who average into FUBO stock starting with today’s price are likely to make good money.
On the date of publication, Mark R. Hake did not hold a long or short position in any of the securities in this article.