On paper, being a sports streaming service that also offers sports betting sounds like a winning combination. Yet based on how things have played out for FuboTV (NYSE:FUBO) stock, that’s not exactly how it’s played out.
Sure, shares in this sports streaming service and aspiring bookmaker made a big bolt out of the gate right after their October 2020 debut. Since early 2021, however, the market’s view on this stock has changed in a big way. It’s not viewing its unique business plan as a winning one anymore. Instead, it’s taking more of a wait-and-see approach.
With good reason. While it’s seen strong subscriber growth in the past year, this may be slowing down. All while its spending heavily on content to heighten its appeal. As for its budding sportsbook unit? It’s behind the eight ball, as rivals with greater capital resources have beaten it to the punch in major U.S. states where online sports betting is legal. Although it claims its pursuing a different strategy to build up its sportsbook business, losses could still end up running high for this unit.
In short, it’s a “also-ran” streamer, and a “also-ran” sports betting operator. Even worse, at risk of seeing its growth rate hit a wall, and high operating losses continue to mount. Don’t expect enthusiasm to return until there are signs these potential issues will be averted.
FUBO Stock and Its 2022 Slide in Price
FuboTV stock has been moving lower for over a year. But in recent months, the sell-off has really accelerated. Since the start of 2022 alone, it’s dropped over 45% from around $16.20 per share to around $8.50 today.
This is on top of a larger, yet more gradual, drop in the price of FUBO stock that happened between last February and December. During that time, it fell from $35.50 to around $15.50, a decline of more than 56%.
Like with other growth stocks, changes in the market have played a heavy role in its price decline. With interest rates set to rise, investors have been cycling out of such plays en masse. Changes in the market (namely, the fading of the meme stocks phenomenon) was also a major factor in its initial 2021 pullback.
However, going forward, the performance of FuboTV’s operating business could become the main driver, and not in a good way.
Possible Slowdown Ahead
Last month, FuboTV reported its results for the December quarter. Revenue of $231 million came in well ahead of analyst expectations ($213.3 million). The company also reported that subscriber numbers for its streaming service now top 1.13 million, a year-over-year increase of 106%.
With this, it makes sense that the market reacted positively to earnings. Although the stock at first dropped after its numbers hit the street on Feb. 23, the next trading day shares went up 10.1%. Recent results may have been solid. But they may not be indicative of how the company performs from here.
For instance, as both my InvestorPlace colleagues Larry Ramer and Louis Navellier pointed out, revenue growth has been slowing down on a sequential basis. This may signal growth peters out before it scales up to the point of profitability.
A slowdown in revenue growth could be more severe, if the bearish argument recently presented by JP Morgan’s Anna Lizzul proves correct. Previously a big fan, the analyst recently downgraded FUBO stock and slashed her price target. She cited the risk that paid subscriber numbers will drop off due to a lack of March Madness programming. This may result in worse-than-expected losses in the quarters ahead.
Sportsbook Operation Not a Silver Bullet
FuboTV’s streaming operation may not be the growth story it appears to be at first glance. Yet you may be thinking, “what about its sportsbook operation?”
While the market says otherwise, combining this with a streaming site may still sound like a winning combination. But take into account why its move into sports betting is no silver bullet. The rollout of Fubo’s sportsbook has been slow.
Only this year is it really ramping up its sportsbook operations. By now, online-only operators like DraftKings (NASDAQ:DKNG) and casino giants like MGM Resorts (NYSE:MGM) dominate the market.
FuboTV so far has acted like it will not follow the same costly user acquisition strategy its rivals have followed. But if subscriber growth slows down, and it fails to develop a captive audience, it may just well have to spend heavily on marketing/promotions in order to scale it up.
Bottom Line on FUBO Stock
Even if you’re bullish today’s issues are just short-term in nature, you may want to take the same wait-and-see approach with FUBO stock that the market is currently taking. As this continues, chances are you’ll be able to buy it down the road at a much lower price.
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, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.
