Each year, more consumers cut the cord and shift away from traditional pay TV like cable and satellite. Some of those consumers are shifting toward streaming platforms like Roku (ROKU 0.15%). These platforms allow viewers to access ad-supported services like Walt Disney-controlled Hulu and Comcast's Peacock, as well as premium content from services like Netflix and fuboTV (FUBO -3.50%).
Given that streaming media options are only gaining traction, both Roku and fuboTV have large and growing addressable markets. But which of these stocks is the better buy today?
What fuboTV has going for it
Streaming is great: It allows viewers to watch the content they want, whenever they want to watch it. But what about news, sports, and other live TV?
Image source: Getty Images.
fuboTV is the leading sports-first live TV streaming platform. With the basic plan, subscribers can access over 100 live TV channels across categories like news, entertainment, and sports. And for serious sports fans, fuboTV offers add-on content for an additional monthly fee. If you think that sounds a lot like cable, you're right: The difference is that fuboTV delivers content through the internet at a price that is typically cheaper than cable or satellite.
In addition to subscription fees, the company generates revenue through digital advertising, and it plans to enter the sports betting market later this year. In fact, leveraging its recent acquisitions of Balto Sports and Vigtory, fuboTV has announced the launch of a free-to-play gaming app coming this summer, followed by its sportsbook (gambling platform) in the fourth quarter. Currently, it has deals to bring its betting services to Iowa, Indiana, and New Jersey.
If successful, this could give fuboTV a significant edge over larger rivals like Hulu+ Live TV and Alphabet's YouTube TV. Moreover, Zion Market Research estimates the sports wagering market will reach $155 billion by 2024, meaning this dramatically expands fuboTV's current market opportunity. And its ability to combine live sports content with sports betting on a single platform could be a powerful growth driver.
In terms of financial performance, fuboTV is far from profitable, but it generated $217 million in GAAP revenue in 2020. More impressively, its revenue jumped 98% to reach $105 million in the fourth quarter, driven by strong growth subscribers and ad sales.
|
Metric |
2019 |
2020 |
Change |
|---|---|---|---|
|
Subscribers |
315,729 |
547,880 |
74% |
Data source: fuboTV SEC filings.
Investors should be aware that fuboTV's operations burned over $150 million in 2020. Not surprisingly, the company issued $350 million in debt in January 2021 to supplement the $135 million in cash on its balance sheet at the end of last year. Going forward, investors should pay attention to the company's ability to add new users -- fuboTV's success depends on it.
What Roku has to offer
Roku has created an ecosystem that benefits consumers, content publishers, and marketers. Its platform aggregates ad-supported and premium streaming content, allowing viewers to watch their favorite TV shows and movies from one location.
Roku primarily monetizes its platform through advertisements. To that end, the company offers a range of ad-supported content, including TV shows and movies licensed for The Roku Channel. Last year, in an effort to increase ad inventory, the company expanded its offering of linear TV, which now includes over 100 channels, and launched its Live TV Channel Guide.
It also launched The Roku Channel mobile app last year, giving users direct access to licensed programming from their iPhones or Android mobile devices. More recently, the company purchased failed streaming service Quibi's content for an undisclosed amount, giving Roku exclusive access to more than 75 shows. It plans to make that content available to viewers through The Roku Channel in 2021, furthering its value proposition to consumers.
So far, the company's growth strategy has proven highly effective. Roku is the leading streaming platform in the United States, both in terms of hours streamed and active users. And the company continues to add new accounts and boost user engagement (streaming hours) at a rapid pace.
|
Metric |
2019 |
2020 |
Change |
|---|---|---|---|
|
Active accounts |
36.9 million |
51.2 million |
39% |
|
Streaming hours |
37.8 billion |
58.7 billion |
55% |
Data source: Roku SEC filings.
Roku's ability to drive account growth and user engagement has translated into strong financial performance. In 2020, revenue surged 58% to reach $1.8 billion, and the company generated positive free cash flow of $65.8 million.
Even so, advertisers spend roughly $70 billion on TV ads in the United States each year, according to eMarketer. And as more of that budget shifts away from linear TV, Roku's addressable market should get much bigger. In other words, the company has plenty of room to grow its business, and Roku's solid competitive position should continue to power strong performance in the years ahead.
The verdict
Both of these tech companies have compelling growth strategies, and I am a shareholder of both Roku and fuboTV. But I think Roku has the advantage here.
The company benefits from a stronger competitive position, it generates more revenue, and Roku is operating cash flow positive, meaning it doesn't need to sell new shares or issue debt to fund its growth. That's why Roku wins this contest.
