The leader in the entertainment sector is Netflix (NFLX 0.10%). Its market cap of more than $400 billion is nearly triple the $152 billion of its next closest competitor, Walt Disney, at the time of this writing. But other players in the space could supply excellent returns for investors looking at the long term.
One entertainment business to consider is FuboTV (FUBO +0.00%). It was ranked with Netflix among the top 10 most-watched video services last year. Its January agreement to partner with Disney could be a game changer for the company.
With the Disney deal, is FuboTV now positioned to deliver big returns for investors? Or, when it comes to investing in the entertainment space, is Netflix the way to go? A deeper look into each company can provide an answer.
FuboTV's pros and cons
FuboTV specializes in streaming live sporting events to differentiate itself from other video platforms. The Disney partnership puts Fubo management in charge of Disney's Hulu+ Live TV service and adds ESPN content to Fubo. In exchange, Disney receives 70% ownership in Fubo.
Even before the Disney deal, the company was doing well. It ended 2024 with nearly 1.7 million subscribers in North America, a 4% year-over-year increase and a record high for the company. Although it's global, more than 80% of its subscribers reside in North America.
NYSE: FUBO
Key Data Points
With its subscriber growth, FuboTV delivered record-high revenue of $1.56 billion in North America, along with $64.95 million internationally, for a total of $1.62 billion in 2024, a 19% year-over-year increase.
Despite the strong sales gain, the company is not profitable. It ended 2024 with a net loss of $176.1 million. However, this was an improvement over the net loss of $287.9 million incurred in 2023.
The case for Netflix
Netflix's first-quarter earnings report shows why it's the king of the entertainment world. It produced strong 13% year-over-year revenue growth to $10.5 billion. This contributed to net income of $2.9 billion, up from $2.3 billion in the prior year.
NASDAQ: NFLX
Key Data Points
Its first-quarter results followed an outstanding 2024 with $39 billion in sales, a 16% year-over-year increase despite the lack of revenue from its iconic DVD-by-mail service, which shut down at the end of 2023. Net income in 2024 came in at $8.7 billion, an impressive 61% increase over 2023.
Thanks to its consistently strong results, the company produced a streak of outstanding increases in diluted earnings per share (EPS) in the last couple of years.
Data by YCharts; TTM = trailing 12 months.
This streak is set to continue, with estimated diluted EPS of $7.03 in the second quarter, up from $6.61 sequentially. Moreover, management anticipates 2025 revenue to reach at least $43.5 billion, another year of double-digit growth over 2024's $39 billion.
On April 1, Netflix launched a proprietary advertising platform in a bid to expand its income from ads. The company expects to double its fledgling advertising revenue in 2025.
Choosing between FuboTV and Netflix
As the entertainment leader, Netflix has impressive business results. But as the up-and-comer, FuboTV offers the potential for greater share-price appreciation.
This can be seen in each company's price-to-sales (P/S) ratio, which measures how much investors are willing to pay for every dollar of revenue.
Data by YCharts.
FuboTV's P/S multiple below 1 indicates investors are paying less than $1 for every $1 of revenue the company generates. This suggests the stock is undervalued. Netflix's P/S ratio steadily climbed over time, and its shares are now pricey.
But Fubo stock is cheap for a reason. For starters, there's a world of difference between the two companies' return on equity to shareholders.
Data by YCharts.
Not only that, but FuboTV's 2024 subscriber-related costs totaled $1.4 billion. That's an 84% bite out of its $1.6 billion in 2024 sales. Subscriber-related expenses are the licensing fees paid to acquire sports content.
Compare that to Netflix, whose cost of revenue accounted for a much lower 54% of total 2024 sales. That said, it isn't as focused on sports content as FuboTV, whose content is expensive because the sports leagues hold much of the pricing power.
That's why Netflix co-CEO Ted Sarandos said that while the company sees value in offering live sports, "it doesn't really change the underlying economics of full-season big league sports being extremely challenging."
FuboTV's deal with Disney can provide it with the deep pockets needed to acquire desirable sports content, but whether that eventually leads to profitability is a big unknown. As a result, only investors with a high risk tolerance should consider investing in it.
Meanwhile, strong financials and a growing advertising business add up to make Netflix a better long-term investment in my view. Since its P/S ratio is high at the time of this writing on April 21, you could still wait for the share price to drop before hitting the "buy" button.
