A year ago, I placed a small wager on FuboTV (NYSE:FUBO) after deciding its plan for a sports-oriented cable replacement backed by gambling looked like a winner. I lost the bet. FUBO stock is down more than 90% over the past 12 months and is now in penny stock territory.
Trading around $2.70 a share, the company’s market cap is now less than $500 million. Fubo looks FUBAR.
All the growth that made FUBO stock appear attractive a year ago is still there. Revenue was up 144% in 2021, excluding the acquisition of streaming platform Molotov. FuboTV even managed to nearly double its revenue in the first quarter of 2022, compared with the year-ago quarter, despite economic headwinds.
The company has ample cash to sustain its current losses through 2022. And CEO David Gandler is buying the stock, professing the utmost confidence in the company.
Yet, I’d bet that investors who take a position in FUBO stock now will have little to no profit to show for it by the end of the year.
| FUBO | FuboTV | $2.69 |
The FuboTV Supply Chain
The problem with FuboTV is that it controls neither its supply chain nor its sales channel.
The supply chain is programming, specifically sports programing. Fubo has national channels, like Fox and ESPN. What it lacks are the local channels, known as regional sports networks (RSNs), which are mostly controlled by Sinclair Broadcasting Group (NASDAQ:SBGI) and Bally’s Corporation (NYSE:BALY) under the name Bally Sports.
Sinclair badly overpaid for the Fox Sports channels it bought from Walt Disney (NYSE:DIS). To make up for it, it has raised prices like a TV “Pharma Bro.”
Cable operators have resisted. They don’t want to charge their customers $7.50 a month for bad live broadcasts and filler. DirecTV has put the RSNs in its streaming cable packages, but on a tier that charges $20 a month extra, since few will take them.
RSNs have reacted by trying to go direct. The first to do so is NESN in New England, partly owned by the Boston Red Sox. They’re charging $30 a month, almost half what FuboTV charges for its entire lineup.
Bally is going the same route, under a former Hulu executive. But cable rights aren’t streaming rights. Bally’s $20 a month charge for local games is more than whole leagues charge for their streaming packages.
Cable today is basically news and sports, Bally’s supporters believe, and distributors will be forced to pay. It’s a game Fubo has been priced out of.
The FuboTV Sales Channel
The sales channel for FuboTV is sports betting. That’s in even worse shape.
Despite having the legal right to go forward, and despite the money to be made on it, states have been tiptoeing into the field. Texas is just one of the states that declined to act this year.
Fubo’s sportsbook is only legal in 10 states, and live in just two, mainly acting as a re-seller for Caesars Entertainment (NASDAQ:CZR), which holds the licenses.
Even where online sports gambling is legal, the number of licenses is often limited, and FuboTV is a small player. Customer acquisition costs, mainly through advertising, are high. Even Caesars backed off its high-cost TV ad campaign. For most gamblers, Fubo’s sportsbook can only offer to let them know when they can get in.
The Bottom Line on FUBO Stock
FuboTV can sustain another three quarters of losses, at its present rate, before it runs out of cash. Right now, I don’t see how it can fix its problems by then.
The most likely outcome seems to be a sale, either to a gambling giant like Caesars or to a cable programmer like Disney, which could pay up for the RSN rights and then use the sportsbook to help spin out ESPN.
But even that deal likely wouldn’t be done at a price that yields a profit to anyone who bought FUBO stock last year, like me. Fortunately, I can afford it. Still hurts. Suggesting others follow me into this loser would hurt more.
On the date of publication, Dana Blankenhorn held a long position in FUBO. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
