fuboTV Inc. (NYSE: FUBO) started trading publicly via an IPO in October 2020. Since then, the stock has had a wild ride. It became a retail trader favorite, skyrocketing parabolically from $10 to $65 at its peak. Since then, it’s been mostly pain for investors as the stock has now crashed a whopping 95% of its all-time highs. However, I think the doom and gloom surrounding the stock, is overdone. Investors with a high-risk tolerance, as well as those who are still holding, could at the very least experience gains of 3X from the lows.
This article explains the reason for the decline, the risks associated with this stock, as well as why I think it will bounce within the year. I warn investors that do not have the patience or a high-risk tolerance to avoid this stock, as the ride will be bumpy and difficult. Making money is never easy.
The Rise And Fall Of FuboTV
FuboTV caught the eyes of many retail traders and hedge funds during the COVID Pandemic of 2020 due to its exponential growth in subscribers. Investors loved what they saw, as a result the stock parabolically rose from $10 to $65 in a matter of months. Then the short reports came flowing in, with the likes of Kerrisdale Capital, causing the stock to pull back and stopping its parabolic movement.
Since the short report, the stock has been on a decline, with the problem exacerbated by the market losing its appetite for growth stocks. The negativity around FuboTV stems from their cash burns and the difficulties that surround vMVPD businesses. Where there is very little room for profit margins, regardless of scalability as well as no distinguishing features to stand out versus content owners. Basically, skeptics believe FuboTV is at the mercy of the content creators.
However, despite the turbulence of the stock price, the core product has been great, catering to Sports Fans, as the underlying thesis of FuboTV is that “sports are not fungible”. Unlike regular TV, live sports doesn’t have much of an alternative, many want to watch it live, and many don’t have a choice as to where they see it. From that aspect, FuboTV has an edge, compared to its competitors such as YouTube TV (GOOGL) (GOOG).
The Dangers Of FuboTV
Investing does not come without its risks, especially when it comes to a stock that has declined over 95%. It’s important to always understand the risks that come with purchasing stock in a company. In this section, I will go over many issues that persist with FuboTV.
FuboTV has a cash burn problem, that is no secret, due to costs of acquiring content, operational costs, as well as marketing. The cash burn issue has been discussed in great detail in previous research. In Q1 Earnings, they recently announced they have raised enough cash to last them until 2023, and then need to raise a modest amount for 2024. I believe this move buys them enough time to get their act together and for investors to see some sort of stock appreciation during this time period.
FuboTV is not the only alternative in the cable cord-cutting business. YouTube TV is dominant in the space, however, for those wanting Sports related content (especially in soccer), FuboTV is the significantly cheaper option (where it offers more international sports channels at a cheaper cost).
In Q1 earnings, FuboTV reported stagnant growth in subscriptions, saying that their business is cyclic, where once certain sports seasons end (such as NFL, Basketball, etc.), they experience a decline in subs. However, the stagnant growth experienced is also due to the fact that they dropped Turner Sports, over a year ago and never added it back into their lineup. I believe for FuboTV to truly turn around, Turner Sports is a must for them to carry. Hopefully, that can be resolved soon.
Turner is not the only content creator they have faced issues with. In the early Summer of 2022, Univision made its contract negotiations with FuboTV very public. Where FuboTV claimed that Univision was trying to renew their contract for an unreasonable amount, that would make it impossible for them to carry their channel lineup. Eventually, they made an agreement (which the terms have yet been made public, other than the price was reasonable). However, during the public spat David Gandler, CEO of FuboTV made some interesting accusations, claiming Google and Univision were colluding. I believe his assessment was incorrect, and the real reason why Univision became difficult because of their rival streaming service Vix, which was recently launched in March 2022.
Shaky fundamentals, along with issues with content providers, the high cost of operations, as well as the macroeconomic issues facing the entire stock market, have pummeled FuboTV’s stock price. FuboTV path to profitability is not going to be easy, however, the current stock price reflects the uncertainties and dangers they face, where I think it’s to the point where it’s beyond overdone.
I believe FuboTV will likely pull it off to where their end game is to be bought out. I will discuss reasons as to why I think it’s likely the stock will appreciate nicely from here in the next section.
First and foremost, I have been a very satisfied customer of FuboTV for the last year, as I am an avid sports fan (focus on international soccer). I am the exact target audience for FuboTV. The product works flawlessly with its content options for international soccer, as well as its fantastic digital DVR which allows me to catch up with games when they are not shown at convenient times. This is what separates the product from YouTubeTV, as it does not have a great DVR, nor is it sports-focused.
On the topic of DVRs, one interesting aspect I believe not many consider is the fact that physical DVRs cost so much money. Prior to the huge surge in energy prices, DVRs cost over $100 a year in electricity. Depending on your power grid, that price is likely doubled as energy prices surge. FuboTV removes the need for a physical DVR, thus saving significant money from the electric bill. So, for many, switching from traditional cable companies and moving to FuboTV will save money, period. Despite its fundamental financial issues, FuboTV is a great product, which is reflected by its exponential customer growth over the last few years.
There are many positive aspects to FuboTV, which will likely be catalysts for future stock appreciation. As mentioned prior the stock is down 95% at the moment, but the rest of the market has also taken a huge beating. In my previous article (I recommended reading for context for this article), the Fed’s action as of late has helped cause a market pullback, thus creating a really good buying opportunity. We are in the type of market where many people cry wishing the market would crash, but when it actually does, no one pulls the trigger and buys.
It’s important to understand in the context that FuboTV has pulled back 95%, it’s not like it’s been caught in a fraudulent controversy or something out of nowhere that caused their business model to break. They have always burned high amounts of cash (which in the Q1 earning reports they promised to slow down and focus on burn rather than growth). The market, in general, simply has punished the majority of growth stocks.
FuboTV’s revenue generation is not just based on subscriber fees, they are in part an ad business, where they roll out targeted ads between commercials and on-demand content. As such, they have taken a beating because digital advertising dollars have shrunk, as demonstrated by Snapchat’s (SNAP) warning. As a result, I don’t really expect revenue to surprise when they plan to report Q2 earnings in early August. Eventually, once the economy turns around, so will this revenue. As it’s important to understand, they are not just a vMVPD company.
FuboTV, I believe does have some magic up its sleeves. They were able to acquire South American 2022 World Cup Qualifiers, exclusively in the USA, as well as the Europe League Nation in the Summer of 2022. What was interesting about their Europe League Nation acquisition was they were able to package 4 games on PPV. Meaning, that you didn’t need to subscribe to FuboTV to watch them, just had to pay a flat fee per game. I think at these dire times, it’s important to think outside the box and find every which way to generate additional revenue, and I think that’s what they did by having a separate PPV package.
Recently they made a purchase on a streaming service based in France called Molotov. The initial reaction to this news was a steep sell-off, but it opens FuboTV to the European streaming market. In addition to the USA and Canada, they now have access to Spain and France for now. This is just another avenue in which they can achieve hypergrowth. Additionally, they expect to synergize all their platforms which will allow them to save around $75 million in the next 3 years, thus reducing cash burn further.
There are two exciting catalysts in terms of content that I see in the near future for FuboTV. The first is the very popular English Premier League will be exclusive to FuboTV in Canada. The second catalyst is the World Cup 2022 starting in November. Although not exclusive to FUBO, it will be streamed on various Fox channels (Fox, Fox Sports 1, Fox Sports 2), I believe many people interested in this huge sporting event will likely try it via FuboTV with its best-in-class DVR , and sports-focused user interface (multi-channel view). Twitter (TWTR) saw a jump in accounts and activities during the last 3 World Cups, I expect a bump when it comes to FuboTV (although not as big of a magnitude).
There are many other surprise avenues that can occur when it comes to FuboTV. For example, the ever slow-moving FuboBets, if they can get their act together, as the CEO said is moving slowly due to licensing issues (currently live in only 2 states). We can also expect some surprises, such as one of the ever-so-many streaming services that have opened closing down and FuboTV was able to work a deal acquiring their content. My bet is that PeacockTV would be the first to shut down, with FuboTV hopefully getting exclusive rights to the EPL in the USA.
Additionally, the CEO is well engaged on Twitter, well-spoken on TV (see an example here), and it seems very competent, he has charisma. FuboTV definitely has the potential to become a MEME stock, where retail traders band together, work on helping a stock go viral, do free marketing as well as support the company product, and become long-term shareholders as much as we saw in AMC Entertainment ( AMC) and GameStop (GME). Finally, the CEO as well as many other high-level employees purchased the stock recently (albeit a small portion relative to what they still own)
The endgame for FuboTV is likely a buyout from a bigger company. I don’t see them going into bankruptcy. They have a great product, and a cable company looking to diversify will likely look to buy them out at the end. The real question is at what price. I think that is the risk that many investors who are sitting with a loss currently face, being bought out at a much lower price than their average.
FuboTV is trading as if it’s pricing in bankruptcy, which is not the case. As we are highlighted in this article, they have cash for a few more years, and still, have the ability to raise for a few years to come. Although the fundamentals are not there at the moment, the core product is fantastic and continues to get better.
The company has the ability to surprise on many sides, as they have made avenues of generating income (subscribers, ad revenue, betting platform, content distributor, and so forth). I wouldn’t count out the company’s ability to pivot as well as the CEO seems very clever and savvy.
I consider FuboTV a speculative play, where the market is pricing in too much negativity. It is very similar to the play I laid out here on Virgin Galactic (SPCE) where I described how an inevitable bounce would eventually begin play out (it has with the stock, already 40% from its lows).
If one were to play FuboTV, I do not recommend options but rather purchasing a position in increments, as it seems the stock market still has not stopped correcting. I definitely would avoid playing options as well, as this play could take over a year to play out.