Advertising is a small but growing part of fuboTV's (NYSE:FUBO) overall business. In 2021, it could take on even more importance. According to a report by GroupM, spending on connected TV ads is estimated to grow 25% this year. That's bigger than the estimated overall growth in ad spending in 2021 (19%). 

Importantly, it highlights a continued shift in marketing dollars to streaming content providers. Folks are watching less linear TV, choosing instead to stream their favorite shows and movies. Not surprisingly, advertisers want to follow viewers. 

A person watching content on a tablet.

Advertising revenue increased by 206% at fuboTV. Image source: Getty Images.

Vying for your attention

In its first quarter of 2021, fuboTV reported ad revenue of $12.6 million, a 206% increase from the same quarter last year. The growth of advertising was faster than the overall revenue growth of 135% year over year. Still, advertising made up only 10.8% of overall revenue, signaling there could be room for expansion. In Q1 2020, advertising was 8% of revenue. Here's what fuboTV had to say about its ad business in its Q1 shareholder letter:

The first quarter was also very strong for our advertising business, building on our subscriber expansion and increased viewer engagement. The majority of brands advertising with fuboTV are repeat clients, attracted to fuboTV's differentiated and highly engaged audience. We also continue to attract new advertisers with a high level of retention.

The trend is not likely to stop there. Global ad spending on connected TV is expected to reach $16 billion this year and nearly double to $31 billion by 2026. Despite growing faster, connected TV is still a small part of overall ad spending, which is estimated at $749 billion in 2021. Connected TV advertising is in its early stages of development with a large and growing market opportunity. 

fuboTV is guiding investors to look for it to report revenue growth of 101% in its fiscal year 2021. Undoubtedly, advertising will play an increasing part in that growth throughout the year.

What this could mean for investors 

The bulk of fuboTV's business comes from subscriptions. Importantly, this source comes with higher costs compared to advertising. Indeed, 95% of fuboTV's overall expenses in the first quarter were subscriber-related expenses -- for instance, paying Disney (NYSE:DIS) for providing fuboTV subscribers with access to ESPN.

As fuboTV increases the ratio of advertising revenue to overall revenue, it could boost profits as well, an area that is still negative for the company. In Q1 2020, it lost $55 million, and the loss increased to $70 million in Q1 2021. Its profitability is something the company desperately has to improve.

A chart comparing fuboTV with several growth stocks on price-to-sales ratio.

Data source: YCharts. PS = price-to-sales.

The excellent results fuboTV posted in the first quarter have boosted its share price. As a result, the company is now trading at a forward price-to-sales ratio of 8.38. That's a substantial discount from fellow growth stocks in various fields (see chart). Admittedly, the stocks in the chart don't comprise an apples-to-apples comparison. They just provide a snapshot of what investors are paying for high-growth companies.

Given that fuboTV will benefit from the long-run secular tailwind of consumers shifting to streaming, the increasing share of advertising revenue, and its relatively fair valuation, investors can feel comfortable adding fuboTV to their lists of growth stocks to consider

 
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