- fuboTV (FUBO) stock has good, bad, and ugly news, which ones are dominant for the path of stock price?
- Fundamental key issues remain with expectations of the company remaining unprofitable in the next three years
- Watch out for Q1 2022 financial results on May 5
fuboTV (NASDAQ:FUBO) stock, a leading sports-first live TV streaming platform has been flirting with becoming a penny stock making a new 52-week low of $5.10 a share on April 18, 2022. I sympathize with the pain of investors buying FUBO stock one year ago at its 52-week high of $35.10 and not selling shares after the prolonged decline suffering from holding losses of 85%.
Technically, using the strict definition of a penny stock, shares of fuboTV as long as they remain over $5 will avoid the mentioned classification. The FUBO stock has been very weak not only yearly but also during the past 1-month and past 3-month period. This weak stock performance is indicative of a troubled company.
FuboTV has been out of favor for quite some time now. Can this change? I will discuss this shortly below after a quick reference to two previous articles and a bearish view of this live TV streaming platform.
In late February 2022, I was skeptical about the preliminary results and a catalyst for stopping the continued stock price selloff.
| FUBO | fuboTV | $4.8550 |
My analysis then stated, “If fuboTV does not show a substantial improvement in profitability and free cash flow, do not be surprised to see revenue growth that cannot support the stock price at the current price near $8.” What followed is very interesting. The stock made for a couple of days some highs above $8 per share and then gradually lost nearly 36% until today.
Back in September 2021, my bearish thesis was based on three main reasons. An unsustainable revenue growth, stock dilution, and weak fundamentals. What has changed today to consider FUBO stock as an investment? Let’s start with the positive news first.
The Good News for FUBO Stock
The company reported a record first-quarter 2021 in several key metrics like global subscribers, content hours streamed, and ARPU (average revenue per user).
Year-over-year subscribers in the fourth quarter of 2021 increased 106%, content hours streamed increased 96%, and ARPU grew 8% to $74.52. Also, year-over-year revenue increased 120% and the firm stated upbeat guidance on long-term revenue and margin goals.
After an explosive sales growth of 4,998.24% for 2020, fuboTV for the full-year 2021 reported an impressive growth of 193.16% to $638.35 million.
The Bad News
In economics, there is a principle named elasticity of demand, which measures the sensitivity of demand for a good compared to changes in economic factors, such as price or income. It is a simple calculation to make by dividing the given change in quantity by a change in price. In theory, the demand for some goods is not affected much by price hikes like let’s say basic goods, bread, or milk. Other goods however may witness a huge change and drop in their demand if their price is increased. I argue that fuboTV’s services fall in this latter category.
fuboTV raised its base price by $5 to $69.99 and the company is expected to experiment with different pricing and plans.
A $5 increase may not seem much to make a difference, but my arguments are that there are several competitors to fuboTV’s like Net Insight, Sling TV, AT&T, Endeavor Streaming, MLG, and Thuuz. (https://craft.co/fubotv/competitors).
And in an era with historical very high inflation, and persistent oil and energy prices, paying for a live TV streaming platform is a cost that may not be necessary. To put it simply, life can continue without paying for fuboTV. Alternatively switch to a competitor that has a lower price. Neither of these scenarios is optimistic for fuboTV.
The Ugly News
Despite a sales growth of 193.16% in 2021, fuboTV is unprofitable as of 2018.
In 2021, fuboTV reported a net loss of – $382.84 million, and a negative free cash flow of -$197.2 million. The cash burn problem is persistent in the past five years as only in 2019 the firm reported a positive free cash flow of $1.76 million.
Should you be worried about the fact that shareholders have been diluted in the past year, with total shares outstanding growing by 10%?
You should as 10% stock dilution is meaningful. What is equally worrisome is the estimate that the firm will remain unprofitable until 2024.
Does it make sense to invest in a company that may not reach profitability until 2024? Especially as the sales growth is also expected to decline this combination of fundamentals is not ideal.
In a conclusion, the company is expected to report its first-quarter in 2022 after the market closes on May 5, 2022. This is a catalyst for the FUBO stock but until then the bad and ugly news is more important than the good ones, so I remain with my bearish opinion.
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.
