With over 4.95 billion internet users across the globe, online entertainment is becoming one of the most popular activities among users. It involves accessing entertainment content, which includes videos, music, books, and games over the internet.
Furthermore, an increase in penetration of electronic devices and the presence of internet service at an affordable price should enable the global online entertainment market to grow at a CAGR of 20.82% between 2021 and 2027, reaching $652.5 billion by 2027, Allied Market Research reports. Thus, companies in this industry should benefit.
With this in mind, I am going to analyze and compare two streaming stocks, Roku, Inc. (ROKU) and fuboTV Inc. (FUBO), to determine which is a better investment for the rest of the year.
Roku offers a TV streaming platform, enabling users to watch various media content, including movies and TV episodes, live sports, music, news, and others. The company operates through two business segments: Platform and Player. fuboTV Inc. is a sports-focused live TV streaming company that provides live sports, news, and entertainment content in the US and worldwide.
Year-To-Date (YTD), shares of ROKU lost about 49%, and FUBO is down 64% over the same period.
Recent Developments
On April 19th, Rosenblatt analyst Barton Crockett initiated coverage of Roku with a "Buy" rating. The analyst said that ROKU stock was down 70% in the past year, caused by a wicked impact of the market correction on high beta stocks and ROKU's missed guidance and rising costs. However, the analyst noted that Roku holds a "powerful gatekeeper position at the nexus of TV's transition from legacy platforms to streaming," thus establishing a $188 price target on ROKU stock.
On April 2nd, FuboTV announced that it had stopped offering its Starter plan for $64.99/month for any users. The Starter plan had 118 channels, three simultaneous streams, and 250 hours of cloud DVR storage. The company said that all Starter users would be switched to the $69.99 a month Pro Plan on May 1st. So, Pro users will be able to access the same channel setup but record up to 1,000 hours of content (instead of 250 hours for the Starter plan) and stream on up to 10 devices (vs. three simultaneous streams for the Starter Plan) for just a $5 price hike. This development was welcomed by investors, who pushed fuboTV stock up about 15% after the announcement.
Recent Quarterly Performance & Analysts Estimates
Roku last issued its earnings results on February 17th. In Q4, the company's revenue rose 33.1% year-over-year to $865.3 million, however, the company missed the Wall Street consensus by $28.77 million. The increase in revenue was mainly caused by a 49% YoY increase in Platform revenue. Also, ROKU’s fourth-quarter GAAP EPS has been reported at $0.17, beating consensus by $0.13.
It is also important to note that the number of active accounts grew 17% year-over-year to 60.1 million, reflecting an increase of 8.9 million active accounts in Q4. At the same time, the Average Revenue Per User (ARPU) stood at $41.03, up 43% from a year-ago quarter.
Wall Street analysts expect ROKU's earnings to be ($0.19) per share in the first fiscal quarter of 2022. Besides, the $719.90 million average revenue projection for the next quarter implies a 25.38% increase year-over-year.
On February 23rd, fuboTV reported earnings for the fourth fiscal quarter of 2021. In Q4, the company’s revenue grew by 118.6% year-over-year to $229.67 million, primarily driven by a 124.12% year-over-year increase in subscription revenue to $204.8 million. Its fourth-quarter advertising revenue was also up 99.8% YoY to $26.11 million Moreover, the company topped Wall Street consensus revenue estimates by $16.4 million. However, the company reported Non-GAAP earnings per share of ($0.57), slightly missing estimates by $0.01.
It is also worth mentioning that fuboTV ended 2021 with 1.13 million total paid subscribers, showing a 106% YoY increase. Besides, the company added 185,000 new subscribers in Q4.
For the first quarter, Wall Street expects FUBO's EPS to rise 10.83% year-over-year to $0.53. Besides, its revenue is estimated to soar 102.86% YoY to $242.86 million in FQ1.
Comparing Valuations
In terms of Forward EV/Sales, ROKU is currently trading at 3.61x, which is substantially higher than FUBO, whose multiple is presently 0.75x. When it comes to the FWD Price/Book multiple, ROKU's P/B multiple of 5.16x is 173% higher than FUBO's 1.89x.
Bullish Options Bet Placed on FUBO
The $12.50 puts, which expire on January 20th, 2023, have seen increased open interest levels by 10,908 to about 11,000 (source: barchart.com). However, what’s most interesting is that the puts were traded on a bid side, suggesting that the contracts were sold. Having said that, it’s a large long-term bullish bet with a total dollar value of $8.12 million. Consider that FUBO stock should stay above $12.50 to earn a profit for the holder of the options.
Conclusion
While both Roku and fuboTV should benefit from the online entertainment industry growth in the long term, I think that FUBO is a better investment at the moment based on its superior financials, higher forward growth rates, lower valuation, and favorable options market sentiment.
ROKU shares fell $9.26 (-7.93%) in premarket trading Wednesday. Year-to-date, ROKU has declined -48.83%, versus a -6.01% rise in the benchmark S&P 500 index during the same period.
About the Author: Oleksandr Pylypenko
Oleksandr Pylypenko has more than 5 years of experience as an investment analyst and financial journalist. He has previously been a contributing writer for Seeking Alpha, Talks Market, and Market Realist.
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