Streaming services that focus on sports attract subscribers but at a high price.
Cord-cutting has propelled FuboTV’s subscriber count at lightning speed in recent years. With a 31% increase in subscribers in North America over last year, the company just beat Wall Street’s expectations in the third quarter.
Stock prices rebounded from $2.32 to $3.50 after hitting a 52-week low earlier this year. In contrast to a fast-growing streaming business primed for massive growth, the company’s market cap (shares outstanding times stock price) is quite low at $688 million.
The stock might be worth buying, but should you? Both sides of the argument are compelling when it comes to buying stock. Now that we have reviewed the pros and cons of investing in FuboTV, let’s look at what it offers.
The Game Is Starting
YouTube, Hulu, and DirecTV Stream are among the major content providers competing in the live TV streaming market. FuboTV’s primary business model is streaming live sporting events: it makes money from subscriptions and advertising.
Besides sports shows, where FuboTV is widely regarded as a leader, the company aims to retain subscribers by offering news and movies that can be watched in real-time or on demand.
FuboTV’s advertising revenue has recently grown, indicating it is winning the battle. According to FuboTV, North American revenue for the third quarter reached $219 million, with ad revenue reaching $22.5 million, an increase of 21% year-over-year.
While ESPN’s ad revenue fell 23% year over year, FuboTV significantly outperformed Walt Disney’s cable networks in advertising. In addition to Hulu, Disney+ Hotstar, the international arm of Disney+, also saw lower advertising revenue.
As a result, Roku, the leading TV streaming aggregator, reported that its platform revenue grew only 15% year over year last quarter. Compared to FuboTV, where growth has been 43%, there has been much slower growth.
Strong subscriber engagement and a competitive offering are largely responsible for FuboTV’s rapid growth, particularly in advertising.
The FuboTV company reported a net loss of $410 million for the first three quarters of 2022, a larger loss than the $271 million it reported a year ago. By 2025, management wants the company to achieve positive free cash flow. FuboTV closed its Sportsbook business recently, which management hoped would help increase engagement and profits by integrating it with live-streaming sports.
The competitive landscape can, however, change significantly in three years. Can FuboTV achieve its profit goals if it loses market share to well-financed competitors? There is a possibility that the business will be in trouble in such a scenario. As the largest company in the world, Alphabet has billions of dollars to invest in YouTube TV, a service with a strong brand and a built-in user base to give it a strong competitive edge.
The company could become a competitor to FuboTV even if it had an operating profit of over $5 billion. In the wake of slow subscriber growth this year, Netflix is seeking ways to stimulate growth. It was reported recently in the Wall Street Journal that Netflix is interested in acquiring the rights to stream live sports.
The Referee Added Some Time
Compared to these companies, FuboTV loses money, and that’s one thing it has to offer itself. Investing in sports programming could wipe out Netflix’s operating margins, which built clout with investors. FuboTV’s willingness to absorb huge losses is a strong deterrent for new entrants.
Still, FuboTV’s operating loss is not much of a reason to invest in FuboTV. Over the last year, the stock price fell nearly 90% due to a lack of profitability. It is unlikely for the stock to sustain a rally until investors see sequential improvements to the bottom line. The stock should therefore be kept on a watchlist, and perhaps other streaming stocks should be considered now.