FuboTV (NYSE:FUBO) The stock has been on a tear this month. The virtual cable provider focused on sports content has had a rough time in recent years, with its stock falling 97% from its all-time high, but just received positive news about a court ruling regarding the launch of a competing product by some of its content providers. The stock is up about 20% in the past 30 days to $1.68. At one point in 2021, it traded for over $60 per share.
With a small market cap, improving financials, and rapidly increasing revenues, now is the time to finally buy Fubo stock before the price explodes. Let’s take a closer look at this streaming TV disruptor and find out.
A court ruling in his favor
This summer DisneyFox and Warner Brothers Discovery attempted to launch a direct-to-consumer sports streaming application called Venu. The app would cost $43 a month and give sports fans a way to break away from cable TV but still have access to the sports leagues to which the media companies own the rights.
Venu is a potential competitor to FuboTV. The company is what’s known as a virtual cable provider, which allows someone to subscribe to a cable TV package but access it directly through an internet connection. It’s cable, but the internet streaming version. Fubo has focused on sports content and wants to be the sports package of choice for customers looking to upgrade to a modern TV solution. Disney, Fox, and Warner Brothers Discovery all sell channels to Fubo, so the fact that they were teaming up to bypass Fubo likely caused panic among executives.
In fact, they are suing the companies on the grounds that the Venu app is anti-competitive and consolidates its monopoly on sports content. Earlier this month, Fubo received a preliminary injunction from the court to prevent the launch of the Venu app. This is only an initial stoppage and the entire case still has to go through the courts, but it will help FuboTV fend off some potential competitors for now. Investors viewed this as a victory. The announcement was a catalyst for the stock’s price increase this month.
Weak margins and large competitors
As a video content aggregator, FuboTV essentially has to pass on the costs charged by TV networks like ESPN and then charge its customers a slightly higher price. This will eat into a company’s gross margin. Previously, Fubo had actually Negative Gross margins, meaning the company was selling its virtual cable package below the price it paid to receive the channels from the content providers. Today, the company has fixed this problem, but margins are still low at just 9%.
Improved margins have helped reduce Fubo’s cash burn. At its lowest point, the company was burning $360 million in free cash flow per year. Over the last 12 months, it’s burned less than $150 million. There’s still a lot of improvement to be done before it can become cash flow positive, but Fubo is in a much better position than it was a few years ago; yet the stock is much lower.
Another problem for Fubo is its direct competitor – YouTubeTV. Owned by alphabetYouTubeTV has a nearly unlimited war chest to try to increase subscribers, and because of this, it has a much larger market share. Alphabet can make money indirectly by getting more people to watch YouTube ads and acquiring data for its advertising business. Fubo has been nimble at acquiring sports rights, such as regional sports networks, but from a thousand-perspective, it is at a massive disadvantage compared to YouTubeTV.
Should you buy the stock?
At the time of this writing, Fubo stock has a market cap of just over $500 million. Over the past 12 months, the company has generated $1.5 billion in revenue and posted a 26% year-over-year revenue increase in the most recent quarter. If gross margins continue to improve and the company can become cash flow positive, Fubo stock could still have some value. The company has $150 million in cash on the balance sheet and around $300 million in convertible notes that don’t mature until 2026 or later, so short-term liquidity isn’t a major concern if cash flow continues to improve.
However, that doesn’t mean you should rush into buying shares. I think Fubo is a risky stock because of its big competitors like YouTubeTV. It’s also unclear whether Venu will be allowed to start operations. The outcome of the court case is unpredictable, although the company has obtained a temporary restraining order. For these reasons, it’s best to keep an eye on FuboTV stock. outside of your portfolio for now.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Brett Schafer has positions at Alphabet. The Motley Fool has positions in and recommends Alphabet, Walt Disney, Warner Bros. Discovery, and fuboTV. The Motley Fool has a disclosure policy.
Fubo Stock Soars: Should You Buy? was originally published by The Motley Fool
