Share Dilution

FUBO Stock: Here’s the Good, Bad, and Ugly to Consider Before Buying fuboTV

  • fuboTV (FUBO) Inventory has good news, bad news and bad news, which is dominant for the stock price trajectory?
  • Fundamental key issues remain with expectations that the business will not be profitable in the next three years
  • Watch for Q1 2022 financial results on May 5

Source: Lori Butcher/ShutterStock.com

fuboTV (NASDAQ:FUBO) stock, a leading sports live TV platform flirted with becoming a penny stock, hitting a new 52-week low of $5.10 per share on April 18, 2022. I sympathize with the pain of investors who bought FUBO shares a year ago at its 52-week high of $35.10 and not selling shares after the prolonged decline suffering 85% holding losses.

Technically, using the strict definition of a penny stock, fuboTV shares as long as they remain above $5 will avoid the mentioned classification. FUBO stock has been very low not only every year, but also in the last month and the last 3 months. This weak stock market performance is indicative of a company in difficulty.

FuboTV has been out of favor for quite some time now. Can this change? I will discuss it below after a quick reference to two previous articles and a bearish view of this live TV streaming platform.

At the end of February 2022, I was skeptical about the preliminary results and a catalyst to stop the continuous selling of the share price.

My analysis then stated, “If fuboTV does not show substantial improvement in profitability and free cash flow, don’t be surprised to see revenue growth that cannot support the share price at the current price near $8.” What follows is very interesting. The stock hit highs above $8 a share for a few days, then gradually lost almost 36% until today..

In September 2021, my bearish thesis was based on three main reasons. Unsustainable revenue growth, stock dilution and weak fundamentals. What has changed today to consider FUBO shares as an investment? Let’s start with the positive news first.

The good news for FUBO Stock

The company announced a record first quarter of 2021 in several key measures like global subscribers, hours of content streamed, and ARPU (average revenue per user).

Year-over-year subscribers in Q4 2021 increased 106%, hours of content streamed increased 96%, and ARPU increased 8% to $74.52. Additionally, year-over-year revenue increased 120% and the company announced an optimistic outlook on long-term revenue and margin targets.

After an explosive sales growth of 4,998.24% for 2020, fuboTV for the year 2021 recorded an impressive growth of 193.16% to $638.35 million.

The bad news

In economics, there is a principle called elasticity of demand, which measures the sensitivity of demand for a good to changes in economic factors, such as price or income. It is a simple calculation to do by dividing the given change in quantity by a change in price. In theory, the demand for certain goods is not greatly affected by price increases, such as basic products, bread or milk. However, other goods may experience a huge shift and drop in demand if their price increases. I argue that fuboTV’s services fall into the latter category.

fuboTV has increased its base price by $5 to $69.99 and the company should experiment with different tariffs and plans.

A $5 raise may not seem to make much difference, but my arguments are that there are several competitors to fuboTV like Net Insight, Sling TV, AT&T, Endeavor Streaming, MLG, and Thuuz. (https://craft.co/fubotv/competitors).

And at a time when inflation is historically very high and oil and energy prices persist, paying for a live TV streaming platform is a cost that may not be necessary. Simply put, life can go on without paying for fuboTV. You can also switch to a competitor that has a lower price. Neither of these scenarios is optimistic for fuboTV.

The bad news

Despite sales growth of 193.16% in 2021, fuboTV is no longer profitable as of 2018.

In 2021, fuboTV recorded a net loss of -$382.84 million, and negative free cash flow of -$197.2 million. The cash burn problem has been persistent over the past five years, as it was only in 2019 that the company reported positive free cash flow of $1.76 million.

Should we worry about the fact that shareholders have been diluted over the past yearwith a total number of outstanding shares up 10%?

You should, because 10% stock dilution is significant. What is equally worrying is estimate that the company will remain unprofitable until 2024.

Does it make sense to invest in a business that may not reach profitability until 2024? Especially since sales growth is also expected to decline, this combination of fundamentals is not ideal.

In 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 FUBO stock, but until then bad and bad news is more important. than the good ones, so I stay with my bearish view.

As of the date of publication, Stavros Georgiadis, CFA had (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.

Stavros Georgiadis is a CFA charter holder, equity research analyst and economist. He focuses on US stocks and has his own stock market blog. laborsesoninternet.com. He has written various articles for other publications in the past and can be contacted at Twitter and on LinkedIn.