Following its strong quarterly results, is FuboTV (NYSE:FUBO) stock a buy? Yes and no. On one hand, it’s clear that this sports streaming/wagering play is showing signs it can live up to the sky-high expectations investors once had for it.
On the other hand, even with its strong recent numbers, it still has its work cut out for it. When it comes to streaming, it’s competing with larger, better capitalized rivals in big media and big tech. These competitors could make it tough for the company to acquire popular sports programming.
When it comes to sports wagering, it must contend with first movers in the space, like DraftKings (NASDAQ:DKNG), as well as casino giants like Caesars Entertainment (NASDAQ:CZR), which again are more established, and have deeper pockets.
Said competition could limit how far it can grow. Add in concerns about its potential profitability, and the stock’s still rich valuation. Put it all together and it’s questionable whether shares, trading for around $25 per share today, won’t pull back further. Remember, FUBO stock was trading at $50 per share in February.
FUBO Stock and Its Recent Quarterly Results
Since its most recent quarterly earnings release, FuboTV shares have started moving back in the right direction. Taking a look at its results, it’s clear why we may be seeing signs of renewed optimism.
For the quarter ending March 31, revenue rose 135% year-over-year, and handily beat analyst expectations. On top of these strong financial results, the company upped its guidance as well. For the current quarter ending June 30, it projects revenue of between $120 million and $122 million. That’s more than 20% above Wall Street’s current estimates.
In the spring, investors wrote this off as an over-hyped “story stock.” But it now appears there’s some steak to go with that sizzle.
The question though, is whether it’s enough to give FUBO stock another major boost. Sure, the company is clearly still in growth mode. But while the numbers by themselves look impressive, many challenges remain on its plate.
Trying to become profitable in a low-margin business with heavy competition, it’s questionable whether its streaming business can someday become a cash cow. As for its sports wagering business? That’s way behind its rivals, so it may be too late for it to build up a substantial customer base.
High Competition Remains a Key Risk
Its recent results may look solid, but existing issues are still on the table with FUBO stock. As our own Matt McCall discussed in April, streaming is a low-margin business that doesn’t scale well. Not only that, competition runs high when it comes to acquiring the rights to stream sporting events.
Big media companies are still willing to treat sports as a loss leader for their broadcast and cable television networks. And they’re willing to continue paying up in order to attract audiences to their own streaming services.
Big tech, looking to bolster subscriber numbers for their streaming services, has been paying up for sports as well. For example, Amazon’s (NASDAQ:AMZN) recently signed a $10 billion, 10-year deal with the NFL. Outbid for the A-list programming, FuboTV may be stuck with streaming marginally popular sports. That’s not good for its long-term prospects.
Sure, perhaps it can make up the difference with its budding sportsbook operations. However, competition runs high in this space as well. While it’s only getting started with its sportsbook, DraftKings, Caesars, along with Flutter Entertainment’s (OTCMKTS:PDYPY) FanDuel and Penn National’s (NASDAQ:PENN) Barstool Sportsbook have built up tremendous user bases. By the time it’s finally rolled out its sports wagering app across the U.S., there may not be enough of the market left for it to capture.
Putting it simply, it makes sense why investors became more skeptical about FUBO stock over the past few months. Recent results may be strong. But the jury’s still out whether its streaming and wagering services can give the established names a run for their money.
The Bottom Line
Another key issue with FuboTV is valuation. Given its high growth, it makes sense why it still trades at a fairly high price-sales multiple (around 6.3). But given the questionable prospects of its eventual profitability, coupled with the concerns that the larger names in gambling, media, and tech crowd it out, it becomes even harder to assess whether shares can hold steady at today’s prices, much less rally back towards their “meme stock” highs.
So, what’s the best move with FUBO stock right now? Even if you still think the company has potential, wait for another pullback before initiating a position.
On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Thomas Niel, a contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.