Some stocks occasionally experience significant price drops due to short-sighted reasons. When that happens, it presents an excellent opportunity for careful and patient investors to buy the dip.
Other times, company shares move in the wrong direction for good reasons. In those cases, it’s generally best to stay away unless there are good reasons to think the company in question can overcome the headwinds it faces.
That generates leads fuboTV(NYSE: FUBO) And Chegg(NYSE: CHGG)which have significantly lagged the market over the past two years. Both are now penny stocks, but even though they look cheap, these stocks are not worth investing in. Here’s why.
FuboTV is a leading streaming specialist focused on sports. While it has been somewhat successful in this niche, it has encountered several problems.
FuboTV remains unprofitable. At the same time, the company’s revenue and subscriber growth have fallen sharply in recent periods. In the third quarter, fuboTV revenues rose 20.3% year over year (less than half the revenue growth rate in Q3 2023) to $386.2 million.
FuboTV’s current situation is bad enough, although some might point to the situation eventually improving. In the third quarter, the company’s net loss per share came to $0.17, much better than the $0.29 reported in the year-ago period. That’s all well and good. However, fuboTV faces other significant issues, including stiff competition.
Netflix is increasingly trying to enter the sports streaming niche. Recently there was a live, highly anticipated boxing match. It will stream professional football matches on Christmas Day.
These initiatives do not yet pose a significant threat to FuboTV. However, Netflix could continue to dip its toes into sports streaming. And if it does, it could take market share away from fuboTV.
That’s not all. FuboTV is currently fighting a legal battle to prevent Venu from launching. Venu is a potential competitor to fuboTV, backed by three media giants: Disney, FoxAnd Warner BrosDiscovery. If Venu ever sees the light of day, it will be catastrophic for fuboTV.
FuboTV might win this legal battle, but if it’s already struggling to turn a profit — and absolutely needs a potential competitor to stay out of the market — that doesn’t speak well for the strength of its underlying business. So investors would be better off staying away from fuboTV, despite the fact that its shares have significantly underperformed the market in recent years.
Chegg is an online learning platform. It offers a subscription service that gives students access to expert help with textbook or homework problems.
Undoubtedly, many students can benefit from this, and many have done so. However, Chegg now faces a serious, seemingly insurmountable problem: the rise of artificial intelligence (AI). Useful generative AI chatbots like ChatGPT can help students write essays and solve problems in a wide range of disciplines. After all, GPT-4 passed a bar exam.
The result is that Chegg is outdated in the eyes of many students. Chegg’s financial performance and subscription growth have been abysmal in recent years.
To be fair, this trend predates the launch of ChatGPT. Chegg is struggling to keep up the torrid pace of the early years of the pandemic. Yet the AI ​​revolution has made matters worse. In the third quarter, Chegg’s revenue fell 13% year over year to $136.6 million. The company had 3.8 million subscribers, a decline of 13% compared to the same period last year. Chegg’s net loss per share of $2.05 was much worse than the $0.16 recorded in the previous year’s quarter.
Is there a way back for the company? Chegg has been trying to introduce AI-enabled services. Students prefer AI assistance when it is augmented by the knowledge of human experts, the company says.
Chegg’s AI-related initiatives may be successful, but given the current state of the company, it’s hard to bet on a comeback. And until Chegg’s AI options prove their worth, investors should keep a safe distance. There is a reasonable chance that those who take a position in the stock today will end up with worthless stock in a few years.
Consider the following before purchasing shares in fuboTV:
The Motley Fool stock advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and fuboTV wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.
Think about when Nvidia created this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $808,966!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates, and two new stock picks per month. TheStock Advisoris on duty more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns December 16, 2024
Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Netflix, Walt Disney, Warner Bros. Discovery and fuboTV on. The Motley Fool recommends Chegg. The Motley Fool has a disclosure policy.
2 Beaten Stocks to Avoid in 2025 & Beyond was originally published by The Motley Fool
