FuboTV Is Growing Very Quickly, but Fubo Stock Is Having a Hard Time Coping

FuboTV (NYSE:FUBO) got off to a hot start at the beginning of 2021, but has since fallen off a bit. Nonetheless, sentiment appears to remain positive when it comes to FUBO stock.

The sports TV streaming subscription service just reported very strong growth for the third quarter 2021. It now is near 1 million subscribers, up from just 286,000 in Q2 of last year. In other words, the company’s base subscriber level has almost quadrupled in a little more than one year. However, FUBO stock has surprisingly not been reacting so positively to this news.

For example, year-to-date (YTD), FUBO stock is down almost 25% from $28 on Dec. 31, 2020, to $20.68 on Nov. 22. Moreover, in the last month, the stock has tumbled 26% from Oct. 22 when it was at $28.50.

So, what is going on here? Why would the stock go down even though it just reported really good growth? Something does not make sense here. Let’s dive in and take a closer look at FUBO stock.

What Is Up With FuboTV

First, let’s look carefully at the recent earnings and shareholder letter from FuboTV. The company posted $156.7 million in revenue for the quarter, up 156% year-over-year (YOY). It is also up 19.7% sequentially over Q2 total revenue of $130.9 million.

That puts FuboTV on a run rate growth rate of 105% annually over the next four quarters if this quarterly growth rate continues. That is a fantastic forecast growth rate. And even though it’s lower than the 156% YOY rate, it still means that revenue will more than double over the next year at this pace.

However, the problem seems to be that the company is still losing money. Last quarter its net loss was $105.9 million and adj. EBITDA (earnings before interest, taxes, depreciation, and amortization) was negative $81.3 million.

The reason this is disconcerting is that in Q2 its net loss was $94.9 million and adj. EBITDA was negative $47.4 million. In other words, the net loss worsened in Q3 over Q2, even though sales were higher in Q3.

That’s not good. It implies that the underlying business model has a problem. Maybe it’s the company’s foray into sports gambling, or maybe the company has to overspend on advertising just to make higher sales. Both of these might mean it’s not worth it, and the business model needs to change.

Where This Leaves FuboTV Stock

The bottom line is that the company is spending a lot of money, or what it calls “strategic investments” in “programming, team, technology, and infrastructure.”

The problem is that the company is bleeding cash now. Its operating cash flow for the quarter was negative $55.7 million. After capital expenditures, its free cash flow was negative $57.1 million for the quarter. This is not good, since FuboTV’s cash balance is now just $393 million.

That implies that the company might burn through $228 million over the next year at this pace. That will use up 58% of the cash on the company’s balance sheet without a further capital raise.

Moreover, it seems that the company spending really has no end in sight at least not yet. It is laying the “foundation,” in its own terms, with its own unique streaming and sports betting platform. It believes its “interactivity is a key product differentiator.”

What To Do With FUBO Stock

As it stands, eight analysts surveyed by Seeking Alpha have an average revenue target of $1.06 billion for 2022. This puts FUBO stock on a forward price-sales (P/S) target metric of 2.8 times. In addition, their average price target is $45.71 per share — or more than 117% higher than today’s price of $21 per share.

Moreover, other analysts tend to agree with this survey. For example, TipRanks reports that eight analysts who’ve written about FUBO stock in the last three months have an average target price of $46.33. That is 120% over the current price.

In other words, despite the company’s losses and the falling stock price, these analysts remain extremely bullish on the stock. Their view on FUBO stock will likely be borne out in the long run. However, in the near term, the company is still going through a period of foundational spending. That is going to drag its earnings and cash flow down for a good while, and the stock may not rise until that spending abates.

On the date of publication, Mark R. Hake did not hold any position (either directly or indirectly) in any of the securities mentioned in the article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.