Roku Inc (NASDAQ:ROKU) surprised everybody by pulling nearly 50 percent of the smart TV market by 2021. The company fought giants like Google, Apple, and Amazon to create a platform it can use to sell advertising time and space to brands. And it’s not the only video streaming service carving out a lane in a crowded market.
Fubotv Inc (NYSE:FUBO) is a sports-centric streaming service that noticed what Netflix was missing. Its support for global soccer (its name comes from futbol television) gave it a pivot point to pull into the broader sports market. This is a crucial element to pulling cable cutters from other streaming services.
But which is the better investment between fuboTV vs Roku stock?
The Bull Case for FuboTV
One word describes the bull case for fuboTV: cord-cutting. Although streaming services are great, they limit your ability to watch live sports. There are plenty of streaming services and cable replacements, but televised sports are the crown jewel.
FuboTV’s marketing pitch is as a sports-centric TV subscription replacement. With over three dozen sports channels, it does fulfill that promise for the moment. But professional sports leagues can be fickle, and the company is facing conglomerates with much deeper pockets.
Still, fuboTV continues growing its subscriber base. It ended 2020 with nearly 550,000 subscribers, a 73 percent year-over-year increase. Nearly 100,000 of those subscribers came in the fourth quarter, which helped the company end the year with $217.7 million in revenue. Almost half of that revenue ($105.1 million) came in Q4.
And subscriptions aren’t the only revenue source – it also generates $7.50 per month in advertising revenue on average for each account. This ad revenue will be a key factor in its growth ability moving forward, as it’s still competing with both streaming and cable providers.
That competitive marketplace is the foundation of the bear case, but it also has a possible pivot point. With the legalization of online gambling, the company acquired Balto Sports and Vigotry. These companies signal a move into fantasy sports and a sportsbook platform, which would give it some high-margin revenue.
Still, the bears have valid points.
The Bear Case for FuboTV
Although it has a growing subscriber base, fuboTV is tiny compared to the competition. Pluto TV, for example, has 43 million monthly active users. Sling TV reported nearly 2.5 million subscribers by the end of 2020 and Philo had over 800,000 subscribers.
Cord-cutting is becoming more popular, but these TV replacements pale in comparison to the big streaming companies. Netflix ended 2020 with over 200 million subscribers, about 2.5 times the number of cable TV subscribers. Indeed that number is rounded down by more subs than fuboTV has, to put things in perspective.
Disney Plus is near 100 million subscribers as of the first quarter of 201. The company also boasted 12.1 million ESPN Plus subscribers and 39.4 million paid Hulu subscribers. This is just one example of a sports-centric service already outperforming.
Comcast-owned Peacock (33 million subs) has an exclusive deal with the WWE for its full content library. And fuboTV lost access to Fox regional sports and Turner networks so it could depend on ESPN. While 4K sports are great, Disney’s bundle provides a deeper library of content beyond just sports.
Roku Has 3 Primary Revenue Streams
Unlike fuboTV, Roku is the market leader in its niche. With over 50 million monthly active users, it has three revenue streams. The company earns either a direct device or licensing sale. Then it earns money from any content purchased through its platform while also earning advertising revenue on top.
And the company is working to bypass streaming services with its own original content. It recently acquired the production studio for This Old House, along with its associated rights. This means it will gain licensing revenue from the competition for its content. And its Quibi acquisition provides access to even more original content.
The company is also investing in a multiyear alliance with Nielsen Holdings to create even more ad value. When combined with the pandemic’s cord-cutting acceleration, bears believe it’s a long-term hold.
Roku Share Price Eclipsing Fair Value?
The biggest problem with investing in Roku is future success could easily be priced into today’s value. And the uncertainty about its future in a more crowded marketplace is causing pricing volatility. Investors in the first quarter of 2021 already saw a lot of red, and there’s no telling how much more growth room the company has to capture.
Another unknown is whether its success in the U.S. can be replicated in overseas markets in perpetuity. It has deals signed in Latin America and has partnerships with popular Chinese TV manufacturer TCL. But international expansion is still in its early stages. The company needs to continue expanding globally, which is easier said than done.
Like fuboTV, Roku also needs to worry about the streaming competition. With companies like Amazon and Apple involved in both smart TV hardware and content, the market could shift. The legacy war between cable providers and broadcasting/production companies could shift to streaming.
FuboTV vs Roku Stock: Conclusion
Both Roku and fuboTV are rising investments in the streaming video sector. They have the attention of Wall Street for completely different but valid reasons.
Roku was initially seen as a device play and quickly unfolded as an advertising platform with the largest smart TV market share. FuboTV is a sports-centric streaming platform that’s leveraging its unique league and channel deals to deliver.
Each company has its own unique challenges to overcome, and there’s a possibility they could merge to compete with larger rivals. Besides legacy cable providers, the companies also need to keep an eye on Netflix (NFLX), Disney (DIS), Apple (AAPL), and Amazon (AMZN). Each has its own vision of the future of streaming video, even if we all cut the cord.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.