- fuboTV (FUBO) stock offers growth but no profits
- FUBO can’t offer most Regional Sports Networks, and its Sportsbook is limited
- Investors should hold off buying FUBO for now
fuboTV (NASDAQ:FUBO) stock offers growth without profit. That’s not what the market wants right now.
FUBO reports results May 5. It is expected to bring in $238 million, about twice its take from the same period a year ago. But it’s also expected to see $90 million in losses. It could lose $100 million, 71 cents per share, which it blames on the marketing costs of getting new subscribers.
But marketing is not FUBO’s real problem. Its real problem is getting the rights it needs to do the business it wants to deliver.
A year ago, analysts would have been delighted with FUBO’s numbers. Today, they’re appalled. FUBO is becoming a penny stock. It opened May 4 at $4.18/share, a market capitalization of $731.06 million. Just six months ago it was over $33.
Why I Was Wrong
The business proposition hasn’t changed. The company offers a streaming cable alternative, heavy on sports, and the promise of a sportsbook.
But it underestimated the willingness of Sinclair Group (NASDAQ:SBGI), which bought most of the Regional Sports Networks (RSN) holding local rights in 2019, to take losses. After dropping the Sinclair RSNs , which operate under the name Bally’s, FUBO became just another streamer.
FUBO is financially outgunned by rivals like Walt Disney’s (NYSE:DIS), Hulu Plus Live TV, Alphabet’s (NASDAQ:GOOGL), YouTube Plus, and DirecTv Stream, now run by private equity but still 70% owned by AT&T (NYSE:T). Sports is also helping cable operators that do license the RSNs, like Charter (NASDAQ:CHTR), remain relevant.
DirecTv illustrates FUBO’s problem. It has the Sinclair RSNs in its higher-end packages. Those prices start at $90/month. FUBO costs $70/month. Last year the RSNs were estimated to be charging up to $7.50/month per subscriber and more for cable access.
It’s hard to sell yourself as a system for sports lovers when you don’t have sports.
FUBO’s Long Gamble
The goal for FUBO has always been to combine its content with sports gambling.
States that have legalized online sports betting, like New Jersey and Pennsylvania, have reported strong growth, even outside football season.
But this illustrates the problem. While the Supreme Court allowed sports betting in 2018, it still must be legalized and regulated by the states. Each state is moving at its own pace and setting its own rules, often with a small number of licensees. FUBO must find a way to fit inside those requirements. The company says this will take time and significant revenue will show up next year, but how much and how fast remains uncertain.
The Bottom Line
Most analysts covering FUBO, gaming, and streaming blame marketing costs for the stocks’ failure to launch. That’s not the problem. It’s the business agreements necessary to get into business that are the problem.
Sinclair drastically overpaid for the former FOX RSNs. It can stay in business, even show a dividend, from its local station operations.
State governments are also not moving into online gaming the way advocates like FUBO thought they would. Some states are resisting it. Others are offering only a limited number of licenses. The process is highly political, with the potential for corruption at every stage.
FUBO lacks the capital needed to control the process. It can only follow it, taking advantage where it’s offered. What looked like an easy path to riches thus looks more like a long march.
The profits are out there, but it will take time for FUBO to reach them.
On the date of publication, Dana Blankenhorn held a long position in FUBO. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.