FuboTV (NYSE:FUBO), a sports SVOD (subscription video on demand) service stock, is currently trading at $2.49, a remarkable 97% increase from its 52-week low of $0.96. Despite this rally, I see room for further upside moving forward. The company has consistently demonstrated robust growth and has set its sights on achieving positive cash flow by Fiscal Year 2025. While there may be volatility ahead due to concerns over the company’s ability to deliver on its targets, I remain bullish due to FUBO’s prospects.
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Strong Growth, Ambitious Targets to Fuel the Stock’s Performance
FuboTV’s explosive rally is being fueled by the company sustaining very strong growth, as well as setting an ambitious future target. Let’s talk about these two factors separately.
Strong Growth Despite Saturation in Streaming
FuboTV’s most recent Q2 results showcased the company’s ability to maintain growth despite streaming companies suffering from industry saturation. Everyone in the streaming space, from Netflix (NASDAQ:NFLX) to Disney (NYSE:DIS) to Amazon (NASDAQ:AMZN) to AT&T (NYSE:T), among others, has been posting inspiring metrics. This is due to the industry becoming saturated as a result of intense competition. In turn, this has resulted in higher churn rates and a lack of pricing power.
Conversely, FuboTV’s unique sports-oriented live SVOD model has risen above this problem. In its most recent Q2 results, fuboTV posted excellent revenue growth of 41% to reach $312.7 million. This result actually implies an acceleration from the previous quarter’s growth of 34%. Notably, it contrasts quite well with virtually all other major SVOD platforms, which, as I mentioned, have not performed well lately.
The company’s unique focus on live sports has allowed it to set itself apart among consumers, even in challenging market conditions. Evidently, fuboTV’s subscribers grew by 23% to 1.167 million. Besides a larger number of subscribers, revenue growth was powered by a 13% boost in average revenue per user (ARPU) to $81.62 – a new record for the company. Both metrics clearly illustrate robust consumer demand for the company’s service.
Another encouraging highlight in the company’s Q2 results was the company posting $305 million in revenues in its North American segment, beating management’s previous guidance for revenues of $295 million. Accordingly, management confidently reassured investors regarding its profitability target.
Ambitious Target to be Cash-Flow Positive by Fiscal 2025
The second catalyst currently fueling fuboTV stock is the company’s ambitious ability to be cash-flow positive by Fiscal 2025. The fact that the company has struggled to reach profitability so far has been the primary reason behind the stock’s post-pandemic plunge. With management confident that losses should come to an end sooner rather than later, investors’ confidence in the stock has strengthened significantly.
With FUBO implementing rigid cost control while growing its top line, its margins have managed to rise, in line with management’s goal. Specifically, in Q2 2023, the company’s adjusted EBITDA margin improved from -31.6% to -9.8%. This is a very significant improvement, clearly showing that fuboTV’s business model is scalable, contrary to past concerns over such a claim.
One argument bears could still raise is that the company is still posting losses. Indeed, operating losses came in at $52.5 million for the quarter. However, this makes for a massive improvement over last year’s operating loss of $91.4 million. The point in focus here is whether the company can actually sustain these losses. Fortunately, it can. That’s at least what fuboTV’s management believes.
In particular, during the Q2 earnings call, FUBO’s management stated, “[We]… ended the quarter with $300 million in cash, cash equivalents and restricted cash. We are confident that this provides us with sufficient liquidity to fund our operating plan as we target positive free cash flow in 2025.” This suggests that the company likely won’t have to raise more money. Thus, further dilution/balance sheet damage appears improbable.
Is FUBO Stock a Buy, According to Analysts?
Turning to Wall Street, FUBO features a Hold consensus rating based on one Buy and three Holds assigned in the past three months. At $4.00, the average FUBO stock forecast implies 60.6% upside potential.
The Takeaway
In closing, fuboTV’s stock surge in recent months underscores its impressive growth and ambitious future goals. In the midst of a fiercely competitive streaming industry, fuboTV’s unique sports-oriented live SVOD model has enabled it to thrive. Its Q2 results were a testament to that.
Crucially, fuboTV’s aim to achieve positive cash flow by Fiscal 2025 has bolstered investor confidence. Despite lingering concerns about operating losses, their substantial reduction and a healthy cash reserve of $300 million suggest the company is on track without the need for additional fundraising.
Meanwhile, fuboTV’s stock is currently trading at a mere 0.6 times the midpoint of management’s projected revenues for the current year. In light of this, I am confident that once the company achieves profitability, its shares are poised for a substantial valuation expansion. Consequently, I believe the potential for further upside remains promising.
However, it’s worth noting that investors should brace for a degree of share price volatility during this journey, as there is always the possibility that the company may not meet its targets.
