It's been tough going for growth stocks since the Federal Reserve indicated in late 2021 that it would start raising interest rates. It's been even more challenging for unprofitable growth stocks like fuboTV (FUBO) and Skillz (SKLZ -2.08%). Each has seen its share price fall by about 95% from their highs.
Each benefited from the lockdown phases of the coronavirus pandemic when demand for in-home entertainment surged. However, reopening economies has slowed growth for these promising businesses.
Let's consider the prospects of each and determine if their crashing stock prices make them a buy right now.
fuboTV is a sports-centric streaming alternative to the cable TV bundle. The company benefits from the secular tailwind of consumers canceling cable in favor of streaming content. That trend is likely long-lasting. Streaming often costs less for consumers, does not come with burdensome long-term contracts, can be set up in less than a minute, and can be viewed on a mobile device anywhere you can get an internet connection.
The advantages have undoubtedly helped fuboTV explode from $218 million in revenue in 2020 to $638 million in 2021. Management expects the momentum to continue in 2022 and has projected revenue of $1.05 billion for the year.
Growth has not been much of a challenge for fuboTV. Instead, it's been balancing growth with profitability. The company is reporting massive losses on the bottom line and has not shown much progress in profitability. That can primarily explain why the stock is down 95% off its high and trading at its lowest price-to-sales ratio.
Skillz is a gaming company with a twist -- it allows participants to wager real money on their games against each other. Because these games are based on skills, not chance, it is not regulated as a gambling business. The unique business model is potentially lucrative since games could be considered more enjoyable when there's a chance to win money.
Like fuboTV, Skillz has been growing revenue rapidly, but unlike fuboTV, its momentum has been considerably slowing since the economic reopening began. Skillz boosted sales from $51 million in 2018 to $384 million in 2021 but expects slower progress in 2022.
Unfortunately, Skillz has also experienced massive losses on the bottom line. Skillz invests aggressively in sales and marketing to attract and retain customers. If Skillz reduces this spending enough to stem net losses, there is no telling how much customer demand could fall. That risk has Skillz stock down 96% off its high and trading at a price-to-sales ratio of 1.5, also at its lowest ever.
Should you buy fuboTV or Skillz, or both?
In short, only the most risk-seeking investors should buy either, or both, of these stocks. Operating a business with massive losses on the bottom line is unsustainable. Eventually, scaling up revenue needs to progress in line with costs to reduce losses and eventually turn profitable. To date, this has not been the case for either fuboTV or Skillz. Right now, there is no telling if these two businesses will ever achieve profitability.