Subscribers are flocking to fuboTV (NYSE:FUBO), a subscription TV service like Disney’s (NYSE:DIS) Hulu, Dish Network’s (NASDAQ:DISH) Sling, or Roku (NASDAQ:ROKU). Its performance is beating expectations, and its value is rising as a result. I estimate that FUBO stock is now worth at least $33.35.
When I wrote about fuboTV last month, I forecast that it was worth $30.68 based on an analysis of its comps. However, in the company’s shareholder letter on March 2, management talked about “a sequential decline of 2-4% quarter-over-quarter” in first-quarter 2021 revenue. This is based on a $101 million to $103 million forecast for Q1 compared to $105 million booked in Q4.
Surprise Cord Cutting
But surprisingly, on May 11, fuboTV reported a huge gain in subscribers and a sequential quarterly gain in revenue. Subscribers grew 105% year-over-year (YOY) to 590,430, with 43,000 net additions in Q1 2021. Moreover, total revenue rose 135% YOY to $119.7 million, and advertising revenue climbed 206% YOY to $12.6 million.
But here is the interesting thing: revenue was up from $105 million in Q4 to $119.7 million, or +14%. This comes as an apparent surprise to the company, as they forecasted not only a sequential decline, but also a seasonal quarter-over-quarter decline.
Management concluded that people are “cutting the cord” from legacy TV at an increasing rate. Here is what co-founder and CEO David Gander and Executive Chairman Edgar Bronfman Jr. said in their Q1 shareholder letter:
“…they are choosing fuboTV, enticed by superior value, our year-round content offerings and a customer-centric, innovative product experience relative to legacy pay TV (cable/satellite/telco). We see this trend continuing to accelerate as more consumers discover they can cut the cord without losing access to the sports teams, live channels and content they love.”
The company released guidance that reflects how consumers are quickly moving to streaming TV services like fuboTV. It now expects Q2 revenue of $120 million to $122 million — up slightly from $119 million in Q1 — and annual revenue of $520 million to $530 million. This is 12.8% higher than the $470 million forecasted last quarter by the company.
What fuboTV Is Now Worth
Analysts covered by Seeking Alpha now foresee $531.7 million in 2021 and $852.17 million for 2022. Using the same multiple that I used in my previous article, at 5.5 times revenue, FUBO stock will reach a market value of $4.686 billion sometime before the end of 2022.
Comparing that value to fuboTV’s June 4 market value of $3.79 billion implies that its target price will be 23.64% higher. That puts the target price for FUBO stock at $33.35 as of June 4 (i.e., 1.2364 x $26.97.)
As the company’s subscriber base grows, expect to see the value of the company spike even higher. In fact, TipRanks.com reports that 7 analysts have a higher average price target of $38.86, or about 25% above today’s price. Marketbeat.com says the average of eight analysts is $40, which is about 29% higher.
What To Do With FUBO Stock
In my last article, I used a probability analysis to estimate that the expected return for FUBO stock would be 25% higher. At the time, the stock was at $20.66, so my prediction was that FUBO stock would hit $25.83. As of June 4, the stock was above this at $26.97.
I don’t think I need to do a probability analysis anymore. Clearly, FUBO stock is on an uptrend.
However, I do want to point out one potential issue. So far, the company is not profitable. Last quarter it lost $65 million on an operating basis and $46.5 million in adjusted EBITDA. Free cash flow was also negative $54.5 million for the quarter.
So far, the company will have no problem affording these losses. It has $459.5 million in cash in the bank as of March 31. However, over the next two years, the higher revenue growth should eventually lead to positive free cash flow or positive adjusted EBITDA. Otherwise, the company will have to raise further capital, which could act as a dilutive drag on the stock.
Nevertheless, expect to see FUBO stock move higher over the next year to at least $33.35 as its subscriber base boosts its growth.
On the date of publication, Mark R. Hake did not hold a position in any security mentioned in the article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.
