The last two times I’ve written about Fubo TV (NYSE:FUBO), I’ve made some outlandish predictions about FUBO stock. In mid August, I suggested it could jump to $40 before you knew it. Even crazier, I said in July that it would hit $200 by late 2023 or early 2024. And I still think that’s possible.
Unfortunately, on four occasions in 2021, FUBO stock has hit $30, stalled, and reversed course. It’s hard to get to $40 when you can’t find support at $30.
Well, I’m back writing about Fubo TV, 10 weeks after my last commentary, and once more, it’s knocking on $30’s door.
Will it walk in? Maybe.
What Needs to Happen to Stay Above $30
There’s one thing that scares me about Fubo TV. Absolutely no Investorplace contributors have said anything bearish about the live TV streaming service since Stavros Georgiadis gave readers three reasons to avoid it in mid-September.
Since then, there have been 13 bullish commentaries that constitutes a consensus. Speaking of consensus, the nine analysts who cover FUBO rate it a buy — seven buys, two holds — with a median target price of $43.50, over 30% higher than its current share price.
So, what’s my colleague looking at that the rest of us can’t see? Georgiadis believes the following three things about Fubo and Fubo Stock.
Fubo TV Losing Lots of Money
First, it’s losing a lot of money. In the first six months of 2021, it had an operating loss of $146.2 million, up from $85.4 million a year earlier. However, he doesn’t point out that the 2019 operating loss for the first six months of the year was $12.2 million.
So, its operating loss in 2020 was 600% higher than in 2019. In 2021, it was 71% higher than in 2020, indicating its losses were slowing.
Furthermore, in 2020, it lost $1.66 per dollar of sales. In 2021, it lost 58 cents per dollar of sales. So, again, it’s stemming the red ink, not adding to it.
Revenue Growth Unsustainable
My colleague believes that its current rate of revenue growth is unsustainable. Its revenues in 2020 increased by almost 5,000% to $217.8 million from $4.3 million a year earlier.
Well, through the first six months of the year, it has trailing-12-month revenue of $420 million, 93% higher than its 2020 sales. However, we’ve got two more quarters to go. Analysts estimate sales in 2022 will be $575.3 and $964.7 million in 2022.
So, it won’t grow sales by 5,000% going forward, but if it reaches the consensus for 2022, it will have increased sales by 343% over two years. I’m not sure anyone should have a problem with that kind of growth.
Stock Dilution Not Good
Lastly, Fubo TV is issuing lots of stock. As a result, shareholders are getting diluted. To make matters worse, Georgiadis believes the sales agents for the share offering are biased in their stock recommendation. While there’s supposed to be a separation between investment banking and research, my colleague wouldn’t be the first person to suggest a bias exists. And, you know what, he’s probably right.
However, the bigger question here is whether issuing stock to pay for its expansion plans makes sense based on its cost of capital. In February, Fubo TV issued $402.5 million in 3.25% convertible notes maturing on Feb. 15, 2026. The notes have an effective conversion price of $57.78. Investors can convert them any time on or after Nov. 15, 2025.
So, it would be fair to say that issuing stock when you could add more debt at reasonable interest rates doesn’t make sense. However, by issuing stock, the company’s capitalization will be weighted in favor of equity over debt. In the long term, that doesn’t seem like a bad idea.
Should FUBO run to $40 and beyond, I doubt too many existing shareholders will have a gripe about the dilution.
The Bottom Line
Fubo TV will announce Q3 2021 results on Nov. 9. Analysts expect top-line sales of $143 million, 134% higher than a year earlier. However, they expect a 63-cent loss, down considerably from a loss of $1.65 a year ago on the bottom line.
In my August article, I got a little ahead of myself.
“Anyone who’s followed the sports betting industry ought to find this to be a very attractive part of investing around $31,” I wrote on Aug. 17. “While I say it will hit $40 by the end of the year, I believe a few more pieces of good news and FUBO stock could get there by the end of September, maybe sooner.”
We know in hindsight that I was spectacularly wrong.
As money losers go, I continue to like Fubo TV’s chances. If you can afford a little fun-money bet, buying half a position before and after earnings ought to do you well in the long term.
Lastly, executive chairman Edgar Bronfman Jr. owns 5.8% of the company’s stock. This bet could be another move in reviving his reputation after nearly destroying his family’s enormous fortune by selling Seagram.
FUBO stock remains an excellent bet for aggressive investors.
On the date of publication, Will Ashworth 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.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.