By Cody Willard
Looking for what I’ve termed Revolutionary ideas at reasonable valuations, I’ve got a new company for us: fuboTV (NYS:FUBO) . Fubo is a TV-streaming service with a partial focus on sports programming and, soon, betting.
When I started researching fuboTV a few weeks ago, I didn’t realize it was a direct competitor to my YouTube TV service (not to be confused with YouTube itself), which I’ve used for cable TV since last year.
But sure enough, that’s what I found when I signed up for the service. And frankly, it’s got a much better interface and layout than YouTube TV does. (Alphabet (NAS:GOOG) owns YouTube TV.) So my wife wants us to switch to fuboTV permanently, which we will probably do when the free trial month of fuboTV is over.
While streaming companies are mostly focused on serving recorded content (think Netflix (NAS:NFLX) , Walt Disney’s (NYS:DIS) Disney +, HBO Go, Hulu, YouTube and others), fuboTV has focused on sports content. This focus on mostly live content is somewhat unique to sports and, frankly, puts fuboTV in a spot where it could end up an acquisition target of one of the big streaming companies.
As for valuation, it’s surprisingly cheap relative to other growth stocks in the sector. The company is on track to boost revenues by more than 150% this year to $570 million, and analysts are looking for another 60% growth next year to more than $900 million. The market cap is $3.8 billion, meaning the stock is trading at “only” seven times this year’s revenues and at just over four times next year’s revenue estimates.
Another thing that’s compelling is that the company hasn’t overpromised on its milestones as it grows to profitability in coming years. The company expects to have at least three million subscribers in 2026, up from 680,000 subscribers at the end of last quarter. With 10 million households in the U.S. currently using a streaming service for live broadcast TV, that means fuboTV’s market share is about 6% or 7% and growing from about 0% three years ago.
About 80 million people or businesses in the U.S. subscribe to some sort of cable TV service, so that means 70 million households can still cut the cord from traditional cable and satellite TV service to a streaming service.
Over the next five to 10 years, there will be tens of millions of people who sign up for streaming TV, so let’s say 50 million subscribers will come to one of the streaming TV services. Assuming 10% market share, that’d be five million subscribers at an average of, say, $60 a month for nearly $3 billion per year in revenue.
The company is currently running at about a zero gross margin rate as it acquires rights to more sports content and competes for cable services against bigger competitors. I’d expect gross margins for the overall business to be 40%-50% in five years. FuboTV is adding a higher-margin gaming/sports gambling side to the business as states roll out new looser regulations.
I have started to buy some common stock in fuboTV for what I expect will be a mid-sized position over the next two or three weeks.
I often wonder if we are foolish to bother talking about the broader markets.
That said, the markets are a collection of individual stocks, and I do think there’s value in making sure we’re not overly “long” when the risk-reward ratio in most individual stocks based on valuations, growth rates, sentiment and the economy are high, as they are now.
In that vein, one thing I think I’ve finally figured out about the markets and how they react to news in both individual stocks and, therefore in the broader markets, is that there’s usually a delayed reaction. When my littlest daughter, who has Trisomy 13, was younger, she often had a delayed reaction to stimuli. For example, when we’d sneak up to her and go “Boo!” it’d usually be a half a second or so before she’d giggle.
For most people, that reaction would be instant. The markets lately, as millions of retail investors moved into the markets for the first time and now trade around the news, have had a delayed reaction to many events. Companies can report great results and their stocks will go down at first before finally reacting to the good news a few days later.
Last Friday (Sept. 10), the markets had a big reversal from their highs and sold off into an ugly close. This Wednesday, old-school professionals like Jim Cramer were then looking to sell the morning’s early pop at the open in expectation that, as for most of my career was so often the case, the markets would reverse and sell off later in the day.
But the retail and momentum investors just bought the dip, as they have all year. The markets closed steady.
Keep in mind this delayed reaction in the markets.
Cody Willard is a columnist for MarketWatch and editor of the Revolution Investing newsletter. Willard or his investment firm may own, or plan to own, securities mentioned in this column.