Most penny stocks aren't worth investing in. Companies whose shares are trading for less than $5 apiece are usually that cheap for a good reason, and the reason is usually that they're terrible businesses. However, some penny stocks are attractive. One that I think is worth a closer look is FuboTV (FUBO +0.00%), whose shares are currently trading for just under $3 each. Let's consider why FuboTV might be one of the best penny stocks to buy and hold for five years.
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What does FuboTV do?
It might be helpful to think of FuboTV, a streaming platform that focuses primarily on sports, as the Netflix of sports. However, that comparison has severe limitations. Whereas Netflix dominates streaming, FuboTV is not the biggest player in the sports niche -- several media giants have platforms in that department that are arguably performing just as well, if not better. FuboTV's prospects changed radically last year when it merged with Hulu+ Live TV, a popular streaming platform owned by Disney; the merger closed in October.
The two platforms, Hulu+ and FuboTV, will operate independently, but they are now parts of the same company -- and that's the company investors would be putting their hard-earned cash into. Why was this move important? Let's go through at least three reasons. First, it helps FuboTV diversify its offering. Sports-related streaming subscriptions can be seasonal, as many hardcore fans subscribe only for half of the year (or so), enough to watch their favorite teams play. However, Hulu+ Live TV has a much larger and varied content library.
Second, FuboTV now has far more subscribers than it did before. The company now has almost 6 million subscribers in North America alone. That's more than its total subscribers -- in North America and elsewhere -- before the transaction closed. Third, following this transaction, Disney now has a significant 70% stake in the new FuboTV.
Having the backing of a media giant is a massive advantage. Besides capital, Disney has expertise that could help FuboTV better navigate the competitive media and streaming landscape, carve out a larger niche, and become more successful than before.
NYSE: FUBO
Key Data Points
Beware of the risks
FuboTV is in a stronger position than it was before its merger with Hulu+ Live TV. However, there are several things to keep in mind. The original FuboTV isn't growing paid members at a good clip. As of the end of the third quarter (before the transaction closed), FuboTV had 1.6 million subscribers, up just 1.1% from the year-ago period. And in its rest-of-world category, FuboTV members declined 9.5% year over year to 342,000.
Also, as already mentioned, other companies dominate the sports streaming niche, and competition will likely intensify over the medium term. Netflix has been slowly making a push into live sports. The company's brand name alone could attract a significant audience. Of course, the new FuboTV is more diversified, but sports will remain a key part of its strategy. If it loses out there, its financial results and stock price will suffer.
There is plenty of competition outside of the sports niche, too, which is one reason Hulu+ Live TV also lost 100,000 subscribers in the third quarter. Can the new FuboTV perform well through 2031, given that its two streaming platforms are struggling to gain new users? My view is that the stock is risky, but given the brand names involved -- FuboTV has made a bit of a name for itself in its corner of the market -- a better strategy might help it turn things around.
For instance, FuboTV could offer bundles of its two streaming services at attractive prices to entice new customers. And with Disney's backing, the company could also aggressively expand into new territories. With the right execution, FuboTV could perform well as the streaming market continues to expand and take market share away from cable. Interested investors with the right risk tolerance should remember that there is a reason FuboTV is a penny stock, and it's probably best to start with a small position until FuboTV is on a stronger footing.
