FuboTV (NASDAQ:FUBO), the TV streaming and wagering company, is still burning through cash, losing money even on an adjusted EBITDA basis (earnings before interest, taxes, depreciation, and amortization). This is despite its sales rising. At this point, it looks like FUBO stock won’t rebound until the company produces profits.
The fact is that the 91% decline in the stock price from its peak is an indication that the market thinks the company is going out of business. Or else, it believes that the company will have to raise more capital. At this point, any common stock capital raise would significantly dilute existing shareholders’ stakes.
For example, last quarter FuboTV’s sales rose 102% to $242 million from a year ago first quarter. But the net earnings loss doubled to $141 million, up from a negative $70 million in the prior year. This means the company’s net loss margin stayed at the same miserable level of -58%.
In the first quarter, the company spent $245.7 million on “subscriber related expenses.” That line alone is greater than the $242 million in revenue the company produced. So there is no way that cash burn can decline without a reduction in marketing spending.
The problem with this is that with less marketing, its competitors could take away market share, and the company may not be able to spend money on content or subscriber acquisition to generate growth.
| FUBO | FuboTV | $2.96 |
Burning Through the Cash
No wonder the stock is still falling. Moreover, the company’s free cash flow (FCF) loss worsened from $54.3 million to a negative $127.5 million. That is well more than double the prior year’s loss (i.e., actually a 134% worsening).
Moreover, on an annualized basis, this means the company could burn over $510 million in the next 12 months. That assumes its sales keep rising at the same rate and the cash burn margin stays as bad as it is. Even at three-quarters of that rate, the cash burn will be $382 million.
The bottom line here is that despite what the company reports about its growing subscriber base and revenue gains, the cash burn is getting excessive. The company’s cash is just $456 million as of March 31. This means its cash burn of $382 million to $510 million could eat up most of this cash pile in one year.
And so well before that happens, I think FUBO stock will fall below $1. That will happen if the market thinks that another highly dilutive common stock capital raise will soon be coming.
What Investors Should Do With FUBO Stock
This is why investors need to be very careful with FUBO stock. For example, management guided that Q2 revenue would be between $220 million and $225 million. That is lower than the Q1 revenue of $242 million, and it implies that the cash burn margin could rise to higher than 58%.
If that happens, FUBO stock will fall even further, since the markets will not be want to see its continuing and rising cash burn rate. As a result, the company will have to slow down its market spending and hope that subscriber growth does not fall dramatically.
However, it may be forced to do this very soon, especially if the U.S. enters into a steep recession, which seems more likely each day. Investors should pay careful attention to what management says in its Q2 earnings release. They claim to be aiming to be cash-flow positive by 2025, but investors need to see whether they are actually taking steps to become profitable or cash flow positive. If they continue to ignore the need to do this, then don’t even consider investing in FUBO stock.
However, if management gets serious about reducing its cash burn rate, this could make FUBO stock a turnaround stock. That will be quite a good opportunity for investors.
On the date of publication, Mark Hake did not hold (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.
