Throughout 2021, FuboTV (NYSE:FUBO) went from a heavy favorite to an underdog. But so far this year, FUBO stock is starting to look more like a longshot.
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Since January, shares in the streaming/sports betting play have continued to tumble. Starting off 2022 at around $16 per share, it’s now trading for around $9 and change.
Yes, recent stock market volatility has played a role in its extended decline. Yet this isn’t the reason why it keeps on dropping. Investors are also continuing to realize that this company, which seems like a winner when it went public in 2020, faces higher hurdles than first expected.
This is both in terms of its revenue growth potential, as well as its potential to become a high-margin, profitable business. It faces high competition in both areas in which it operates. The company is also at a disadvantage when it comes to building up its sportsbook business.
Down big from its highs set shortly after its debut, some may be hoping it’s a potential comeback story. However, there’s not enough to suggest it’s on the verge of making one. Even if you’re interested in plays in this space, skip on it. Other names may make for better opportunities.
Two Reasons Why Sentiment Has Shifted in a Big Way
So, why has the market’s view on FuboTV done a 180, with its shift from positive to negative? Chalk it up to two reasons. First, sentiment for i-gaming/sports betting stocks has shifted in recent months
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Once extremely bullish on the online gambling legalization trend, investors have soured on the space. In large part, due to high customer acquisition costs. Most i-gaming companies are spending heavily on marketing and promotions, to lock down market share. In an article published in late January, I discussed this issue in detail, when talking about another former favorite in this space.
Investors initially accepted this narrative, giving them the benefit of the doubt. Yet now, the market’s concerned that high competition will make it hard for the industry to take its foot off the gas. These expenditures will remain high, making reaching the point of profitability difficult. With this, FUBO stock, like most of its peers, have been on a downward trajectory for months.
Second, concern is rising that FuboTV’s game plan for success (offering sports betting and sports streaming isn’t as surefire as it once seemed. As InvestorPlace’s Larry Ramer argued last month, the company is seeing its revenue growth sharply decelerate during its fiscal third quarter. Based on its preliminary Q4 numbers, revenue growth, although still in the triple-digits, has slowed down even further.
The takeaway? If this trend continues, Fubo may find itself unable to scale to the point of profitability.
Too Little, Too Late
It’s unclear why FuboTV’s strategy is facing challenges taking off in popularity. One would think that, with the sports betting trend, atop the cord-cutting trend, its service would face little difficulty grabbing a large share of the 72.6 million households that still have pay TV packages.
In his above-mentioned article on FUBO stock, Ramer cited high competition in the streaming space. In addition, the more niche nature of the platform. Along with this possible root cause, something else may be hindering its growth efforts. That would be the slow rollout of its sportsbook app.
So far, Fubo Sportsbook has launched in just two U.S. States: Arizona and Iowa. By now, larger competitors have entered well above a dozen states. These companies, ranging from those solely involved in online gambling, to land-based casino giants, have a significant first mover advantage. Its sportsbook venture could prove to be a classic case of too little, too late.
In other words, Fubo’s rivals have grabbed substantial market share, well before it has achieved national presence. It may find limited success using the “carrot” of sports betting in order to attract customers to its service. If this ends up happening, and revenue growth continues to slow down? I wouldn’t have much hope that it’ll be able to narrow its losses. Much less, get itself on a fast path out of the red.
The Bottom Line
Projected to post losses of $2.10 per share in 2021, and $2.03 per share in 2022, and with its rate of revenue growth expected to decelerate further, it’s no surprise so many are throwing in the towel on this bad bet.
Possibly late to the game when it comes to using the sportsbook legalization trend to grow its platform, the best move for now is to stay away.
FUBO stock earns an “D” rating in my Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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