Recent trends in the stock market have presented an interesting scenario. Companies are reporting explosive revenue growth, and their stock prices are still crashing. The phenomenon can be partly explained by a lessening appetite from investors for unprofitable growth stocks.
Now, more than ever, shareholders are asking businesses to demonstrate they can operate sustainably, which means positive earnings and cash flow. Let's observe three examples.
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1. fuboTV
fuboTV (FUBO -3.50%) is a sports-centric streaming alternative to cable TV. The company is growing revenue and customers explosively, but the stock is crashing. In its most recent quarter ended Dec. 31, fuboTV reported revenue growth of 120% year over year and subscriber growth of 140%. For the year, revenue increased by 144%.
Still, the stock is down 51% year to date in 2022. The market is concerned with massive losses on the bottom line. fuboTV reported a net loss of $112 million in the fourth quarter on revenue of $231 million. The company's most considerable expense is subscriber-related.
2. DraftKings
DraftKings (DKNG -0.87%) is an online gambling company that offers customers a chance to play daily fantasy sports, mobile sports betting, and iGaming. Like fuboTV, DraftKings is growing prolifically. In its most recent quarter ended Dec. 31, 2021, revenue increased by 47% from the same time in 2020. For the year, revenue increased by 101%.
Unfortunately for shareholders, it wasn't enough to stop the bleeding. The stock is down 35% year to date in 2022. DraftKings is investing aggressively to acquire new customers, leading to huge losses on the bottom line. In the quarter ended December, it lost $326 million on revenue of $473 million.
3. AMC Entertainment Group
AMC Entertainment Group (AMC -3.25%) needs no introduction. The popular stock rose to fame in 2021 because of its part in the meme stock frenzy that swept across markets. Economic reopening is causing revenue to surge for AMC. In its most recent quarter ended Dec. 31, revenue blew up nearly tenfold from the same time the year before, from $162 million to $1.2 billion. For the year, AMC boosted revenue from $1.2 billion in 2020 to $2.5 billion in 2021.
Sadly, that was not enough to stop the decline in the stock price, which is down 42% so far in 2022. Like the others mentioned above, AMC is losing money while operating the business. In the quarter ended in December, those losses amounted to $134 million. The company is in a declining industry with fewer people interested in watching movies in theaters when quality films are available to stream at a fraction of the cost.
The common theme
For each of the businesses mentioned above, revenue is growing explosively. Additionally, they are all reporting massive losses on the bottom line. The market perceives this as an unsustainable scenario. No business can go on in the long term by losing money on the bottom line. Eventually, it will run out of cash reserves and deplete its borrowing capacity.
That can partly explain why the market is unimpressed with the revenue growth demonstrated. These companies need to show investors a convincing path to profitability to stabilize their stock prices.
