FuboTV Isn’t Growing Fast Enough and Its Competition Is Revving Up
With most investors focused on buying the stocks of profitable companies, the short-term outlook of FuboTV (NYSE:FUBO) stock is negative. Adding to the stock’s short-term issues, Netflix’s (NASDAQ:NFLX) disappointing fourth-quarter subscription gains and weak first-quarter guidance are making the Street pessimistic about streaming TV companies.
Meanwhile, likely to weigh on the stock in the longer term are Fubo’s profitability issues, its decelerating revenue growth, and the problems that it will probably have effectively competing with cable and other streaming services.
Fubo’s Short-Term Issues
Fubo’s bottom line remains deeply in the red, and that’s unlikely to change anytime soon. In the third quarter, for example, the company’s net loss came in at $106 million. While that was 61% better than its net loss of $274 million during the same period a year earlier, the company does not seem very close to generating significant profits; even if its net loss improves another 61% in Q3 of 2022, for instance, it would still lose $41 million that quarter.
Also worth noting is that its EBITDA (earnings before interest, taxation, depreciation and amortization), excluding certain items, actually fell 71% year over year to -$81.3 million in Q3 versus -$47.5 million during the same period a year earlier. The decline suggests that the YoY decrease in its net loss in Q3 of 2021 was spurred by noncash and nonoperational items. Indeed, the company’s depreciation and amortization both noncash accounting items, fell by a total of over $5 million YoY in Q3 of last year. And its impairment of intangible assets and goodwill, another noncash item, came in at $236.7 million in Q3 of 2020, versus $0 in Q3 of 2021.
Put another way, excluding noncash items, Fubo’s Q3 revenue subtracted by its cash operating expenses came in at about -$94 million in Q3, versus roughly -$51 million during the same period a year earlier. So from a cash flow standpoint, Fubo’s profitability actually seems to be going rapidly in the wrong direction.
On Jan. 21, Netflix reported 8.28 million net new subscribers for Q4, below its guidance of 8.5 million. More importantly, the company’s Q1 revenue guidance of $7.9 billion was less than analysts’ average estimate of $8.2 billion.
The data appears to have made investors less upbeat on streaming services, as Netflix’s shares sank 22% on Jan. 21, while Disney (NYSE:DIS) stock gave back 7% and FUBO stock tumbled 9.4%.
Longer-Term Issues for FUBO Stock
Unfortunately for Fubo and the owners of FUBO stock, the company’s growth, although still very rapid, appears to already be meaningfully slowing.
In Q3, its revenue jumped 156% YoY, down from 196% during the previous quarter. While it’s natural for sales growth to slow when it is at such high levels, Fubo’s revenue growth deceleration is dramatic. What’s more, Fubo’s sales in Q3 were still well below an annual run rate of $1 billion, so it’s not a large company yet.
Given these points, the deceleration makes me believe that Fubo, in-line with my initial thesis on the company, may ultimately have trouble gaining enough subscribers to become profitable and successful. More specifically, I think that the company’s content could primarily appeal to relatively small subsets of American consumers: avid soccer fans and those who dislike cable primarily for reasons other than its high price.
Also worth pointing out is that Fubo may have trouble competing with the rising number of powerful streaming services on the one hand and the proliferation of gambling apps on the other.
The Bottom Line on FUBO Stock
Disliked by investors now due to worries about the streaming sector and its lack of profitability, FUBO stock will probably not do well in the short-term. Meanwhile, the company’s declining cash flow in Q3, its decelerating growth, and its intense competition bode badly for the shares’ long-term outlook.
In light of these points, I continue to recommend that investors sell the shares.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Larry Ramer has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, Ford, solar stocks, and Exxon. You can reach him on StockTwits at @larryramer.
