When FuboTV (NASDAQ:FUBO), a sports streaming television service tried to pivot to sports betting, this should have raised alarm bells. FUBO stock looked like a sure bet during the last bull market.
In November 2021, FUBO stock rallied one last time before plunging. It failed to rally by much after posting a big fourth-quarter loss on Feb. 23.
FUBO Stock Flat After Triple-Digit Growth
In Q4, FuboTV posted triple-digit year-over-year growth in total revenue. The firm benefited from strong advertising revenue and subscriber growth. Revenue grew by 118.6% to $229.67 million. It still ended the quarter with non-GAAP earnings per share loss of 57 cents.
For the fiscal year 2021, the company posted operating expenses of $997.8 million, exceeding revenue of $638.4 million. Still, the company’s net loss margin is a strong improvement from 2019 levels.
FuboTV posted strong subscriber results with 1.13 million. Content hours streamed of 1.16 billion resulted in an average revenue per user of $72.70. Directionally, FuboTV’s business is in the right direction. The company guided revenue in the range of $1.08 billion to $1.09 billion. Subscribers will be in the range of 1.5 million to 1.51 million.
Opportunity
Investors may imagine that FuboTV’s Q4 results would have sent the stock up by at least 30% on the day. But the market is in a bear phase. The Federal Reserve cannot delay raising interest rates. More importantly, tapering will shrink the money supply lifting expensive technology stocks. FuboTV will need more than subscriber growth to impressive investors.
Long-term investors may take advantage of the market’s fear. FUBO stock lost its way, giving patient investors a chance to speculate on its rebound.
Markets expected the company to post stronger guidance. Without the National Collegiate Athletic Association’s March Madness tournament from Turner Networks, revenue from subscription growth will slow. Furthermore, FuboTV needs to par expenses. The lower weaker marketing efforts will weaken the momentum from the Fubo Sportsbook rollout.
The company’s wagering business is evolving positively. It launched its first iteration of Sportsbook in Iowa and Arizona. It now has market access deals in 10 states. Investors should anticipate the entry into new markets will accelerate subscriber monetization. Chances are growing that FuboTV will operate at GAAP profitability within a few quarters.
Growth
FuboTV has strong connected television potential. Expect cost per thousand (CPM) advertisement impressions at $22 or more this year. Advertising is allocating their budgets in different FuboTV programs. Hours per customer will grow, raising the company’s revenues.
FuboTV will continue to tweak its pricing model. This will result in optimization in all components of its service. It has plenty of data to analyze. When it finds an optimal balance between pricing and advertising volume, FuboTV’s operating margins will expand.
Price Target
According to Tipranks, analysts have a $14.57 price target on FUBO stock. The price target range of $9 and $20 indicates that analysts have a varying opinion on its upside.
Simplywall.st uses various valuation models to estimate FuboTV’s fair value.
The stock’s $23.93 fair value will require FuboTV to grow revenue to around $3 billion by the year ended 2024. It may still post losses in two years. Still, management has the flexibility in lowering expenses. For now, the company needs to invest in the business to grow its customer base.
Risks
FuboTV’s sports betting initiative risks competing with bigger names like DraftKings (NASDAQ:DKNG) and FanDuel. It does not have the scale yet. Still, it will leverage its subscriber base to drive customers. In addition, the company will lower its customer acquisition cost by adding more market access licenses.
FuboTV’s expenses will continue to outpace revenue growth. It is focused on growing customer satisfaction by developing its platform. Fortunately, the high quality of service will lead to strong customer retention. It will further its OEM channel relationship with companies like LG and Vizio. This strengthens FuboTV’s platform and improves the user experience.
The company must also invest in the ad technology side. For example, in the next two months, FuboTV should report strong advertising customer growth.
Your Takeaway
FuboTV is a typical growth company whose high expenses exceed revenue. It needs to invest heavily in the business. Eventually, its platform leverage will pay off. Revenue growth will accelerate from the customer base in the millions. Low customer turnover will decrease FuboTV’s marketing expenses.
Short-sighted investors who gave up on FUBO stock risk selling at the lowest point. Market sentiment may reverse unexpectedly. Although the Fed’s rate hike cycle is a near-term risk, it is a long-term opportunity. Once the Fed contains inflation, speculators will consider FuboTV’s growth prospects.
Investors should consider the stock before speculators bid the stock higher.
On the date of publication, Chris Lau 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.
