FuboTV (NYSE:FUBO) is making moves in the sports betting arena and continues to grow its subscriber base. I suspect that FUBO stock, although fairly valued right now, will continue to do well over the next year.
I came up with a value per share earlier this month using a market capitalization-to-subscriber method. For example, Netflix (NASDAQ:NFLX), has a much lower market cap-to-membership valuation.
Updated Valuation Comparison With Netflix
I estimated that FUBO stock has a value of $6,552 per subscriber (assuming a market cap of $3.571 billion and 545,000 subscribers at the end of the year). This was based on FUBO stock at $27.31 and a share count of 130.805 million.
However, since then FUBO stock has risen to $42.25 (as of the end of January), up 54.7% in the space of a few weeks. Therefore, the market cap is now at least $5.52 billion. As I pointed out, it could actually be higher, depending on how many of its preferred shares convert into common stock.
That raises its price per subscriber to $10,136, as of the end of the year. However, to be fair, we probably need to raise the number of subscribers to an estimate for 2021. For example, if fuboTV continues to grow its subscriber base by 80% or so. That increases the base to 981,000 by the end of this year and lowers the price per subscriber to $5,626.
Now compare this to Netflix. The company just reported that it had 203.66 million global streaming paid memberships at the end of Q4. It expects to be at 209.66 million by the end of Q1.
At this rate, Netflix will grow by 2.95% each quarter this year, or 12.3% by the end of the year. That would get it to 228.74 million by the end of the year. Since Netflix has a market cap of $235.79 billion, this puts its price per membership at $1,030.82.
So fuboTV’s price is $5,326 per subscriber vs. Netflix’s value at $1,030 per member. This implies that FUBO stock is 5.1x the valuation of Netflix. As I pointed out before, the market is not stupid. It takes into account fuboTV’s higher growth rate (80% vs. 12.3%) in streaming client growth.
What Makes FUBO Stock Worth More
The reality is that if fuboTV can grow its membership for five years at 80% per year, it will grow its base by 18.89x its present membership base. That would increase it to 10.29 million subscribers.
Therefore, its $5.52 billion market cap today works out to a price of just $536.44 per subscriber. By comparison, if Netflix grows at just 12.3% for five years, its base grows by 1.786 times to 363.75 million. Therefore, its $235.79 billion market cap compared to memberships in five years is valued at $648.22 per member.
In other words, in five years, FUBO stock will be cheaper per subscriber or member than Netflix. Moreover, this implies that FUBO stock could rise another 20.8% (i.e., $648.22 / $536.44 per subscriber).
Therefore, FUBO stock is worth about $51 per share (i.e., 20.8% higher than its price today of $42.25). Moreover, this does not add any value to the company’s new sports betting operation.
On Jan. 12, the company signed a binding letter of intent (not a definitive agreement) to buy an existing sports betting company called Vigtory. The total cost was not announced but by the end of January, fuboTV raised $350 million in convertible notes.
I suspect that money will be used to pay for the acquisition. However, until we learn more details, including whether the acquisition will be earnings accretive, we cannot add in its value yet to the total.
What To Do With fuboTV
I will be the first to say there is some doubt about the accuracy of my calculations. For example, I may be totally off about the exact market cap for fuboTV. In addition, I could be way off about the relative growth rates for the membership bases for both fuboTV and Netflix.
But the methodology is what is important. I believe the market is fairly rational about these two companies. Even though fuboTV clearly has a higher “sub” valuation, its higher growth rate implies that it will catch up to Netflix basically within about five years, plus or minus. That is why the stock has moved up and likely will continue to move up.
Moreover, once the market gets more information about the sports betting operation, it can value on more precisely.
For example, we can then compare the stats from Vigtory with DraftKings (NASDAQ:DKNG) and Golden Nugget Online Gaming (NASDAQ:GNOG) and adjust for the market cap addition. To some extent, for example, FUBO stock is rising in anticipation of this.
Therefore, look for FUBO stock to gain at least 21% to $51 per share in the next few months, if not earlier.
On the date of publication, Mark R. Hake did not hold a long or short position (either directly or indirectly) in any of the stocks in this article.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.
