Investors will gladly pay 7-8 times revenue for a money-losing company if they see it as uniquely valuable. They are seeing that in Fubo (NASDAQ:FUBO) stock today.
What makes Fubo unique is its position within the market. Fubo is a sports-oriented cable replacement, a streaming service costing $65/month (sometimes more) with a defined demographic.
This positioning is why FUBO stock opens for trade today at around $33, with a market cap of $4.22 billion, despite the fact it may do just $5 billion of business in 2021. And it’s losing money.
In a world of entertainment giants, and sports teams worth multi-billions of dollars, Fubo’s small size and potential make it an asset everyone wants to have. The reason is gambling.
A Closer Look at FUBO Stock
If you’re into sports, you watch it a lot. If you have money on it, you watch it a whole lot.
That’s what Fubo CEO David Gandler is banking on. He says his users spend 130 hours each month on his platform. That’s a lot of viewing and it offers enormous potential advertising revenue, along with subscription revenue.
Most of that subscription revenue goes out the door, in programming rights. Fubo focuses on local rights with sports teams like the Colorado Avalanche and the Utah Jazz. If it has to add an extra charge to get this programming, as in New York, it does so.
These rights have been a hard “get” for players like Alphabet’s (NASDAQ:GOOGL) YouTube TV, because of the high price regional sports networks like Sinclair Broadcasting’s (NASDAQ:SBGI) Bally networks have been demanding. Fubo is willing to pay because of its defined audience, and because of the promise in sports gambling.
Fubo will launch its Fubo Sportsbook this quarter, on a state-by-state basis. The bookie operation was announced at a September event in New Jersey. It will roll out team by team wherever and whenever it becomes legal.
Buy It All
The potential of gambling has analysts pounding the table for Fubo stock as a unique value proposition.
It’s the perfect stock for when animal spirits are aroused, as our Louis Navillier explained. By the end of 2021 Fubo will have sports betting licenses in five states. The stock already rips higher when analysts anticipate those numbers. When they come in, it could rip higher still.
There may also be a second act for investors who act now. Some analysts see Fubo as primarily a takeover target. Comcast (NASDAQ:CMCSA), Walt Disney (NYSE:DIS) and ViacomCBS (NASDAQ:VIAC) already hold stakes in Fubo.
If Disney were to spin out its ESPN sports franchise, as has been rumored, a deeper move by that company into sports gambling would set off a bidding war.
For now, Fubo will use the media stakes to hold off the pure gambling plays. DraftKings (NASDAQ:DKNG), Caesar’s Entertainment (NYSE:CZR) and Flutter Entertainment (OTCMKTS:PDYPY) would all find Fubo affordable, even at double its present valuation. A bidding war could make that happen very quickly.
The Bottom Line
As our Chris Markoch has written, Fubo stock is fully valued based on its present business and prospects. You’re betting on gamblers wanting to consolidate the industry as it develops, and on states being hungry enough for revenue that they will allow it.
The sports business is changing as sportsbooks spread across the country and onto viewers’ couches. Ads for such services are becoming ubiquitous. Fubo stock is an easy way to play the coming action.
On the date of publication, Dana Blankenhorn held no positions in companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. Just in time for Halloween he has a collection of COVID-19 stories https://www.amazon.com/Bridget-OFlynn-Virus-COVID-19-Pandemic-ebook/dp/B09K8PSQC8/ at the Amazon Kindle store. Write him at firstname.lastname@example.org or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.