Better to buy: fuboTV vs. Skillz


fuboTV (NYSE: FUBO) and Skill (NYSE: SKLZ) make for an interesting comparison because they have at least a few things in common: each is growing revenue at a rapid rate and each is generating massive losses on the bottom line.

Let’s take a closer look at these growth stocks, which sacrifice short-term profitability to invest in business expansion.

Image source: Getty Images.

fuboTV

Sports-centric streaming service fuboTV offers an alternative to cable TV. The company is taking advantage of the strong tailwind of consumer preferences moving towards cable streaming. The trend is unlikely to reverse as streaming is more convenient and often cheaper.

fuboTV surpassed 1.3 million subscribers as of December 31, 2021. This was 140% more than the same period the previous year. Revenues are also snowballing, rising from $146.5 million in 2019 to $638.4 million in 2021.

The challenge for fuboTV has been to provide this service in a sustainable way. The company has lost hundreds of millions of dollars over the past three years, peaking at $383 million in 2021. Most of its spending is subscriber-related, which means fuboTV pays more to secure content than she won’t win customers. In its most recent quarter, subscription spending totaled 93.5% of revenue.

fuboTV is gaining market share, growing 2.75 times faster in its fourth quarter than the overall live TV streaming market. But it’s less impressive when the company generates massive losses on the bottom line.

Skill

Of course, games are more interesting if you gain tangible benefits by winning. Skillz is a unique gaming company that allows users to wager real money. And because games on the platform are based on skill and not luck, it is unregulated as a gaming company.

Like fuboTV, Skillz is increasing its revenue sharply. In 2021, the company recorded sales of $384.1 million, up 67% from the previous year. Likewise, it increased the number of paying monthly active users from 320,000 in 2020 to 510,000 in 2021.

Unfortunately, like fuboTV, Skillz generates massive losses. In 2021, it lost $181 million in net income, compared to $145 million in 2020. Skillz’s losses stem from aggressive spending in sales and marketing. In 2020 and 2021, the company spent more than 100% of its revenue on sales and marketing. Indeed, in 2021, Skillz spent $465 million on sales and marketing on revenue of $384 million.

The verdict

Shares of fuboTV and Skillz are both down sharply from their highs. The market is worried about the massive losses on the bottom line and the sustainability of the economic model. Skillz is now trading at a price-to-sales (P/S) ratio of 2.51, down from over 36, while fuboTV is selling at a P/S ratio of 1.57, down from over 18.

That said, if you had to choose one of these unprofitable growth stocks, it would have to be fuboTV. The company may increase subscription prices to become profitable, even if it slows subscriber growth. Plus, it sells at a lower multiple than Skillz.

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Parkev Tatevosian has no position in the stocks mentioned. The Motley Fool owns and endorses Skillz Inc. and fuboTV, Inc. The Motley Fool has a Disclosure Policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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