Growth stocks are having a challenging year in 2022. The market has fallen out of love with them as higher interest rates eat into the present value of future cash flows. Skillz (SKLZ 4.97%), fuboTV (FUBO -8.21%), and DraftKings (DKNG 0.48%) have not been exceptions to the rule. They have each seen their stock prices fall dramatically due to changing macroeconomic factors outside their control.
In addition to falling under the category of supercharged growth stocks, the three have one more factor in common -- they are all generating losses on the bottom line.
Skillz is a gaming company with a unique angle -- it allows participants to wager real money on the outcomes of contests played against one another. Interestingly, because the games are based on skill and not chance, it is not regulated as a gambling company. That unique feature has helped Skillz grow revenue from $51 million in 2018 to $384 million in 2021.
However, the company is investing aggressively to sustain that growth and generating massive losses on the bottom line. In 2020, Skillz lost $145.5 million. The losses worsened in 2021 when it reported a negative $181.4 million.
fuboTV is a sports-centric streaming alternative to cable TV. Folks are increasingly cutting the cord on cable and switching to streaming options. The latter is often more affordable and always more convenient. The trend has helped fuboTV's revenue surge over the years. Sales exploded from $4 million in 2019 to $638 million in 2021.
However, fuboTV is paying so much for the rights to show content to its subscribers that it, too, is not profitable. In 2019, 2020, and 2021, fuboTV has reported a net loss of $194 million, $610 million, and $383 million, respectively.
DraftKings operates a mobile sportsbook, iGaming, and daily fantasy sports website and app. The company benefits from a tailwind of continuing legalization of its services across the U.S. Revenue has soared from $192 million in 2017 to $1.3 billion in 2021.
Similar to the companies mentioned above, DraftKings loses money every year. The company is investing aggressively to acquire customers with each new state legalized for mobile gambling. DraftKings lost $1.2 billion in 2020 and $1.5 billion in 2021.
What this could mean for investors
Of course, the management of each company has control over their level of spending and can decide to lower costs at least to a point to break even on the bottom line. The conscious decision to invest aggressively in growing the business indicates they see great value in gaining market share as quickly as possible.
That's understandable. In newer industries like the ones each of these companies operate in, it could pay to be the first to acquire customers. It builds up switching costs, making it harder for competitors to capture market share.
Regardless, the market wants little to do with these unprofitable growth stocks, and they are selling off fast. That could be an opportunity for risk-seeking investors to scoop up shares in these fast-growing businesses at a discount.