Netflix Dominates Entertainment Market, But FuboTV Grows Stronger

The leader in the entertainment sector is Netflix (NASDAQ: NFLX). With a market cap exceeding $400 billion, it is nearly triple that of its closest competitor, Walt Disney, which sits at $152 billion as of this writing. However, other players, such as FuboTV (NYSE: FUBO), present promising long-term investment opportunities.

FuboTV’s Promising Developments

FuboTV specializes in streaming live sports events, setting itself apart from other video platforms. The recent partnership with Disney, which places Fubo in charge of Disney’s Hulu+ Live TV service and adds ESPN content to its lineup, could significantly enhance the company’s prospects. In exchange, Disney acquires a 70% ownership stake in FuboTV.

Before this deal, FuboTV was already showing positive signs. By the end of 2024, it boasted nearly 1.7 million North American subscribers, marking a 4% increase year-over-year, a record for the company. Notably, more than 80% of its subscribers are from North America.

FuboTV’s subscriber growth contributed to record-high revenue of $1.56 billion in North America and $64.95 million internationally in 2024, totaling $1.62 billion—an increase of 19% from the previous year.

Even with these gains, the company ended 2024 with a net loss of $176.1 million, though this is an improvement over the $287.9 million loss recorded in 2023.

Netflix’s Continued Dominance

First-quarter earnings show why Netflix remains the leader in entertainment. The company achieved a notable 13% year-over-year revenue growth resulting in $10.5 billion. Net income reached $2.9 billion, up from $2.3 billion the prior year.

Following an excellent 2024 that saw $39 billion in sales and a 16% increase year-over-year, Netflix’s net income also rose to $8.7 billion, representing a remarkable 61% increase compared to 2023.

This consistent performance has led to a series of strong increases in diluted earnings per share (EPS) in recent years. Analysts predict a diluted EPS of $7.03 for the second quarter, climbing from a prior $6.61. Management expects 2025 revenue to reach at least $43.5 billion, signaling another year of double-digit growth.

On April 1, Netflix launched its own advertising platform, which aims to enhance its advertising revenue. The company anticipates doubling this fledgling revenue stream by 2025.

Evaluating the Options: FuboTV vs. Netflix

While Netflix boasts strong business metrics and substantial market share, FuboTV’s growth potential could offer greater price appreciation. This is evident in their price-to-sales (P/S) ratios, indicating how much investors will pay for every dollar of revenue.

Data by YCharts.

FuboTV’s P/S ratio, which is under 1, suggests investors are purchasing shares for less than their revenue value, indicating the stock may be undervalued. Conversely, Netflix’s P/S ratio has been rising steadily, reflecting its premium valuation.

However, FuboTV’s low valuation stems from its challenges. The company’s return on equity significantly lags behind that of Netflix. Additionally, FuboTV incurred $1.4 billion in subscriber-related costs in 2024, which represented 84% of its sales. These expenses reflect the high costs associated with acquiring sports content.

In contrast, Netflix’s revenue costs accounted for only 54% of its total sales in 2024. This discrepancy is notable because FuboTV’s focus on expensive sports content continues to challenge its profitability. Netflix co-CEO Ted Sarandos acknowledged the difficulties of monetizing live sports, stating that while there is value in offering such content, it presents significant economic challenges.

The partnership with Disney provides FuboTV with necessary resources to secure desirable sports content, but the path to profitability remains uncertain. Therefore, investing in FuboTV is best suited for those who can tolerate higher risk.

On the other hand, Netflix’s strong financial performance and expanding advertising revenue make it a more appealing option for long-term investors. Given its high P/S ratio as of April 21, it may be wise to wait for a more favorable stock price before purchasing.

Should You Invest $1,000 in FuboTV Right Now?

Before purchasing shares in FuboTV, consider this:

Insights from investment analysts have identified the 10 best stocks for investors, and FuboTV is notably absent from this prestigious list. The stocks featured are believed to have substantial growth potential in the coming years.

If you had invested $1,000 in Netflix when it was first recommended on December 17, 2004, your investment would be worth approximately $561,046 today!*

Similarly, a $1,000 investment in Nvidia following its recommendation on April 15, 2005, would have grown to around $606,106!*

Note that the Stock Advisor’s total average return is 811%, significantly outperforming the S&P 500, which stands at 153%.

Robert Izquierdo has positions in Walt Disney. The Motley Fool has positions in and recommends Netflix, Walt Disney, and FuboTV. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.