Shares of fuboTV (FUBO) have gained 75% year-to-date, valuing the company at a market cap of about $900 million. Despite its recent gains, FUBO is still down 95% from all-time highs.
Let’s see if it makes sense to buy fuboTV stock at its current valuation.
How FUBO Performed in Q1 of 2023?
fuboTV is a live-streaming platform that has increased sales from $217.7 million in 2020 to $1 billion in 2022. But it remains unprofitable as the company reported an operating loss of $412 million in 2022 compared to a loss of $231 million in 2020.
The primary differentiator for fuboTV is its focus on niche sports content. Here, you can gain access to a local sports network, which is unavailable on most other streaming platforms. The company’s focus on sports-based streaming has allowed it to end Q1 of 2023 with 1.285 million subscribers in North America, an increase of 22% year over year. Comparatively, its subscribers stood at less than 300,000 in Q1 of 2020.
fuboTV reported revenue of $324.4 million, an increase of 34% year over year in Q1 of 2023. As operating expenses increased 11% to $406 million, its EBITDA (earnings before interest, tax, depreciation, and amortization) loss stood at $59 million in the March quarter.
fuboTV stated that top-line growth was due to an uptick in U.S. sales which grew 37% year over year due to expansion in subscriber count and higher ARPU (average revenue per user). Its subscriber growth was higher than estimates due to lower-than-expected churn, showcasing the company’s pricing power and strong appeal of its sports-first offering.
While ad revenue from North America was flat, fuboTV expects the metric to accelerate in Q2. Fubo further explained its growth in Q1 was achieved efficiently as sales and marketing expenses as a percentage of revenue fell to 13% in Q1, compared to 18% in the year-ago quarter.
The Bull Case for FUBO
fuboTV reduced its adjusted EBITDA loss by $36 million while free cash flow improved by $40 million in Q1, which was its largest absolute dollar improvement profitability metric as a publicly listed company.
It continues to focus on efficiently using capital and ended Q1 with a cash balance of $365 million. This liquidity should be enough to fund operations until fuboTV turns cash flow positive in 2025. fuboTV also raised $117.2 million in Q1 in net proceeds from an at-the-market program, boosting its liquidity position.
fuboTV believes its subscribers continue to demonstrate strong demand for the company’s content aggregation model. With its growing market share coupled with the average monthly user spend of 100 hours, fuboTV is among the most popular streaming providers in North America. For instance, it is the streaming leader in professional baseball coverage, strengthened by its expanded partnership with Major League Baseball.
During its Q1 earnings call, Fubo CEO David Gandler stated, “Fubo's proprietary tech stack has enabled us to continuously push the boundaries of live TV streaming. We were the first virtual MVPD to launch 4K and MultiView, and we did both years ahead of our peers. Continuing to set the standard for innovation in our industry, we are harnessing our proprietary AI and computer vision technology acquired through the 2021 purchase of Edisn.ai.”
The Bear Case for FUBO
Though fuboTV charges a premium to subscribers, it reported a gross profit of just $3.2 million after adjusting for content costs, indicating a margin of just 1%. Though it was better than the prior-year gross margin loss of 10%, fuboTV’s financials remain under pressure due to its consistent losses, especially if you consider costs associated with technology and marketing.
fuboTV expects to turn cash flow positive by 2025 as it achieves scale and benefits from better content distribution deals. Alternatively, it may also increase prices to boost profit margins, but this strategy may result in a lower subscription count given the bleak macro situation.
fuboTV operates in a tough environment as it competes with giants such as YouTube TV. Compared to Fubotv, which typically relies on subscription sales to drive revenue, YouTube is owned by Alphabet, one of the largest tech companies in the world that can afford to burn money to gain traction over time.
The Final Takeaway
fuboTV has lost over $500 million in the last four quarters and has to report consistent profits within the next 12 months. While sales continue to grow at an enviable pace, its operating expenses have flattened, which suggests the company is close to profitability.
Priced at 0.8x forward sales, I believe FUBO is currently fairly valued, given its stellar growth estimates. Out of the seven analysts tracking Fubotv, one recommends a “strong buy”, one recommends a “moderate buy”, four recommend a “hold” and one recommends a “strong sell”. They have an average price target of $3.26, which is 5% above its current target price.
On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
