fuboTV (FUBO -3.50%) and Skillz (SKLZ 0.96%) make 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 are sacrificing profitability in the near term to invest in expanding the business.
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fuboTV
Sports-centric streaming service fuboTV offers an alternative to cable TV. The company is riding the powerful tailwind of consumer preferences shifting to streaming over cable. The trend is unlikely to reverse as streaming is more convenient and often less expensive.
fuboTV has grown to surpass 1.3 million subscribers as of Dec. 31, 2021. That was 140% higher than at the same time the year before. Revenue is also snowballing, rising from $146.5 million in 2019 to $638.4 million in 2021.
The challenge for fuboTV has been to deliver this service sustainably. The company has lost hundreds of millions on the bottom line in the last three years, culminating in $383 million in 2021. The bulk of its expenses is subscriber-related, meaning fuboTV is paying more to secure the content than it earns from customers. In its most recent quarter, subscriber-related expenses 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 that's less impressive when the company is generating massive losses on the bottom line.
Skillz
Of course, games are more interesting if you stand to gain tangible benefits for winning. Skillz is a unique gaming company that allows users the chance to wager real money. And because the games on the platform are based on skill and not luck, it is not regulated as a gambling company.
Like fuboTV, Skillz is growing revenue robustly. In 2021, the company reported sales of $384.1 million, up 67% from the prior year. Similarly, it increased the number of paying monthly active users from 320,000 in 2020 to 510,000 in 2021.
Unfortunately, like fuboTV, Skillz is generating massive losses. In 2021, it lost $181 million on the bottom line, up from $145 million in 2020. The losses for Skillz result from aggressive spending on sales and marketing. In both 2020 and 2021, the company spent over 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
fuboTV and Skillz stock are both down substantially from their highs. The market is concerned about the massive losses on the bottom line and the business model's sustainability. Skillz is now trading at a price-to-sales (P/S) ratio of 2.51, down from over 36, while fuboTV is selling for 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 should be fuboTV. The company can raise prices on subscriptions to become profitable, even if it slows subscriber growth. Moreover, it's selling at a lower multiple than Skillz.
