Can a streaming media company like fuboTV Inc. (NYSE:FUBO) become a meme stock, a hot stock, and a highly speculative, short-squeeze play? I believe so, and in this article, I will show the three top reasons why FUBO stock is a growth stock but a name to avoid if you place fundamentals and valuation as top investment priorities.
As an early spoiler alert, I consider FUBO stock a very risky bet fueled by growth expectations at what is now an irrational price. Do I like the stock or not? The article is self-explanatory, and the answer is straightforward: I do not like it. Not on emotions, not on high hopes, not on too outrageous expectations, but on facts, financials and valuation.
The fuboTV profile on Yahoo! Finance describes the company as operating “a live TV streaming platform for live sports events, news, and entertainment content in the United States and Europe.” Easy enough to understand. As is the firm’s recently announced plan to offer a sports-betting app with its streaming service and release its sportsbook in the fourth quarter of 2021.
This business model supports the idea that stats, free games and a live sports-betting app will be something unique and that innovation will make it a top media stock. After all the goal is to increase customer engagement, advertising revenues and hopefully deliver value to the FUBO stock shareholders.
Results Belie FUBO Stock Risk
At first, it seems easy to get excited and think FUBO stock is delivering impressive results now, as the Q2 2021 earning report was very strong. At least for some key metrics.
Some of the quarter’s highlights were:
- Record $130.9 million in revenue and 681,721 total subscribers
- Ad revenue grew 281% year-on-year to $16.5 million
- Engagement increased 148% YoY to 245 million hours
- Fubo raised its full-year subscriber guidance to a range of 910,000 to 920,000, from a previous projection of 830,000 to 850,000.
David Gandler, co-founder and CEO, seemed pleased in his press release quote: “fuboTV delivered a strong second quarter of 2021 across all of our key financial and operational metrics: subscribers, total revenue and advertising revenue.”
Now, of course, this was the press release that only focused on the good results, as management often presents mostly the positive news, hoping to boost the stock price higher. Another story is evident though when you check the actual 10-K form for Q2 2021.
Dig Deeper for Details
For the six months ended June 30, 2021, there was an operating loss of $146.15 million, a net loss of $165.03 million attributable to common shareholders, or a net loss per share $1.27.
Now, here is my argument. Look at the same numbers from a year earlier. For the six months ended June 30, 2020, the operating loss was $85.42 million, the net loss was $128.56 million and the per share loss was $3.97.
Do you see any improvement in fuboTV’s losing money? I do not. If you answered the net loss per share decreased and that is a good thing. And it would be, all things being equal.
But what wasn’t equal was the number of weighted average shares outstanding, which stood at more than four times the number this year from last, or 129,591,310 shares on June 30, 2020 from or 32,390,829 a year earlier. So, it’s a simple math calculation and a result that distorts the true financial performance. A stock dilution reduced the reported net loss per share. More shares now can “absorb” the net losses.
Do not fall for that game, the true picture is widening net losses. Not good at all in a quarter with those strong results in engagement, subscribers and revenue.
Unsustainable Revenue Growth
Another piece of the puzzle is fuboTV’s revenue growth rate. Reported revenue clocked in $4.27 million in 2019 and was $217.75 million in 2020. Do the math and you get a growth rate of 4,998%.
This growth rate is unsustainable to my financial analysis and lower revenue growth will not be supportive for an improvement in key financial metrics such as operating income, and net income which are both negative. In fact, in 2020 both the net income loss and operating loss worsened a lot compared to 2019.
And free cash flow is also highly volatile, as in 2020 the figure reported was negative $148.52 million, or free cash flow growth of negative 8,557.92% compared to the number of just $1.76 million for 2019.
Stock Dilution Redux
Sometimes a few words can make a huge difference. Reading the TradingView headline “fuboTV Slumps on Plans for $500 Million Share Offering” is no surprise but at the same time very negative for the FUBO stock valuation. I find very interesting the fact that “Evercore Group, Needham & Company and Oppenheimer are the sales agents for the offering, according to the filing.”
All these companies are covering the FUBO stock and I have a wild guess that their recommendation should be probably a buy. Is this unbiased? I do not believe so. Wall Street has a long history of not being unbiased.
I believe that further stock offerings are on the horizon, not good for the stock valuation.
According to Gurufocus, FUBO stock as of Sept. 6, 2021, has a Beneish M-Score of 4.36. What does this mean? “An M-Score of equal or less than -1.78 suggests that the company is unlikely to be a manipulator,” notes the website. “An M-Score of greater than -1.78 signals that the company is likely to be a manipulator.”
Now it is also mentioned that “Beneish M-Score 4.36 higher than -1.78, which implies that the company might have manipulated its financial results.”
The key word is might. It is not certain, of course. But it is a red flag for fuboTV stock.
Consider the three reasons that I’ve laid out for avoiding FUBO stock. I am not excited by its fundamentals and its stock dilution. And this revenue growth is highly unsustainable. The warning signs just seal the deal.
On the date of publication, Stavros Georgiadis, CFA did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Stavros Georgiadis is a CFA charter holder, an equity research analyst, and an economist. He focuses on U.S. stocks and has his own stock market blog. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.