fuboTV: A Seriously Flawed Business Model

fuboTV (FUBO) is operating as a sports-focused live TV streaming service, offering access to over 100 live TV channels, including many of Nielsen’s top-ranked networks.

Shares of fuboTV have been underperforming in 2021 with losses of about 21% year-to-date. I am bearish on FUBO stock, as the company has a seriously flawed business model. (See Analysts’ Top Stocks on TipRanks)

FUBO stock is a highly volatile stock, having a five-year Beta of 3.10 and a 52-week range of $14.64-$62.29. A stock with a high beta means high risk, and potentially high returns, taking into consideration that the true risk associated with a company should always be the result of its business fundamentals and financial performance.

fuboTV Recent Business Highlights

fuboTV announced its international expansion plans on November 9, with the acquisition of France’s No. 1 live TV streaming company, Molotov SAS, for a combination of cash and equity worth $190 million.

A second milestone achieved was the announcement of reaching one million subscribers.

Edgar Bronfman Jr., executive chairman, fuboTV, stated “The one million subscriber milestone represents an exciting inflection point in our business, with tremendous implications for revenue growth and profitability, particularly given the continued strength of our advertising business.”

The official launch of Fubo Sportsbook in Iowa also occurred in November.

Fubo Sportsbook is an app that, paired with fuboTV, aims to deliver a personalized sports interactive viewing and betting experience. There are plans to expand to other states within 2022. It is another source of revenue for fuboTV, with high expectations.

These high expectations of revenue generation though failed to create enthusiasm for investors when fuboTV reported its Q3 2021 earnings report.

Q3 2021 Earnings

The positive news is that fuboTV reported triple-digit year-over-year growth during the third quarter in total paid subscribers (an increase of 108% to 944,605), total revenue (an increase of 156% to $156.7 million), and advertising revenue (an increase of 147% to $18.6 million).

The advertising ARPU (average revenue per user) increased 10% for Q3 2021 to $8.23 compared to $7.52 for Q3 2020.

Poor Fundamentals

fuboTV reported a net loss of $105.9 million in Q3 2021. Adjusted EBITDA was a loss of $81.3 million. The GAAP EPS reported were a loss of $0.74.

Shareholders have been substantially diluted in the past year, with total shares outstanding having grown by 114%. Net losses have widened from $34.36 million in 2019 to $570.33 million in 2020. Of the past five years, fuboTV has been unprofitable in four of them and has also burned cash again in four of them, turning a positive free cash flow of $1.76 million in 2019 to a negative one of $148.52 million in 2020.

fuboTV also has a history of negative cash flows from operating activities. From 2016-20, only in 2019, was a positive operating cash flow (of $1.93 million) reported. Not being able to make a profit out of its core operations is an important red flag for any company.

Data from Simply Wall Street shows that FUBO stock is overvalued based on its PB Ratio (4.7x) compared to the U.S. Interactive Media and Services industry average (3.3x).

Wall Street’s Take

fuboTV has a Moderate Buy consensus based on five Buys and three Holds. The average fuboTV price target of $46.33 represents a 140.2% upside potential.

Disclosure: At the time of publication, Stavros Georgiadis, CFA did not have a position in any of the securities mentioned in this article.