It's not exactly a household name -- at least not yet. It could be years before most people have heard of the company, in fact.
Still, investors have to like the direction fuboTV (FUBO 2.61%) is heading. The streaming cable TV company added another 92,800 paying subscribers during the final quarter of 2020, bringing its customer headcount to 547,880. That's nearly double the size of its user base from just a couple quarters earlier. Consumers are digging its robust cable television package at an un-cable-like starting price of only $65 per month. It's not hyperbole to compare where fuboTV is now to where Netflix was a decade ago, or where Disney+ was a year ago, even though those platforms aren't quite head-to-head competitors with fuboTV. Their growth tracks are similar, so investors should take note as the potential is enormous.
But not every investor should be taking a shot on this start-up.
Image source: Getty Images.
The good news
Most investors would love to go back and make bigger bets on names like Facebook or Amazon in their early days. fuboTV looks just as compelling now as those other consumer-facing tech companies did then.
And perhaps it will end up dishing out similar gains.
While another 1.2 million people in the United States cut the cord during the fourth quarter, they don't hate cable. They just hate the ridiculously high cost of cable service. MoffettNathanson estimates virtual (streaming) cable TV services like fuboTV, Hulu + Live, and Alphabet's YouTube TV collectively added about half a million paying subscribers during the fourth quarter (on top of the 1.5 million subscribers picked up in the third quarter). Hulu's live-television platform and YouTube TV cost the same $65 per month, while move.org estimates the consumers are on average paying $85 a month for conventional cable service. fuboTV CEO David Gandler even remarked at a recent investor conference that most of the company's new customers were coming from the ranks of traditional, or linear, cable television.
Given there are still around 75 million conventional cable subscribers in the U.S. alone still paying a steep price for their service, fuboTV has a long growth runway ahead of it.
The bad news
It all sounds great, and analysts are calling for sales and profit growth that simply extends the fiscal trends now in place.
Data source: Thomson Reuters. Chart by author.
So why isn't fuboTV a great pick for everyone? In simplest terms, there's a whole lot of risk packed in with this stock's prospective reward.
There's nothing inherently wrong with the business model or the product, and fuboTV's subscriber growth isn't a fluke. It's been matched by respectable user growth from rival virtual multichannel video programming distributors (or vMVPD, for short) like the aforementioned YouTube TV and Hulu + Live. These platforms aren't priced like Netflix or Disney+, but given the breadth of content they offer including live sports, $65 per month is a palatable compromise.
Rather, the bulk of the risk lies in the fact that fuboTV is facing bigger and deeper-pocketed competition. It's also squaring off with competitors that can leverage an existing brand.
Alphabet-owned YouTube is already one of the world's busiest video viewing platforms, even if it's unlike any other, while Alphabet-owned Google is the world's most popular search engine. It's not difficult to nudge users of both in the direction of YouTube TV. Likewise, entertainment titan Walt Disney is the name behind Hulu, which is being packaged with Disney+ and ESPN+ at a deep discount to their a la carte prices. Once established, this relationship can then be massaged into something more fruitful.
Conversely, fuboTV is doing most everything on its own, setting the stage for a big problem: scale, or more specifically, a lack of it. The company is serving only a fraction of the four million Hulu + Live subscribers and a similarly small fraction of YouTube TV's headcount of three million. It's not clear how (or even if) it will ever be able to achieve much-needed scale, even if the shrinking linear cable market bodes well for the vMVPD industry.
It's all about your particular risk-reward balance
That's not to say it can't or won't happen. Indeed, there's little doubt that fuboTV will be bigger a year from now, and probably five years from now. It's likely to swing to a profit between those two points too, which will be a clear victory for the company and its shareholders. The integration of sports wagering apps into its technological platform should be a key growth driver as well.
As it stands right now, though, there's very little clarity as to when the company's efforts are going to really come together, and how well they'll gel once they do. The company's prediction that it will actually lose around 25,000 paying subscribers during the current quarter only underscores this stock's uncertainty. Also bear in mind that for every move fuboTV makes, Alphabet and Walt Disney will likely counter with their own moves -- none of which can be predicted.
If you feel compelled to own it, just know that nobody truly knows what lies ahead. It's all best guesses for the foreseeable future, making it a name for safety-minded investors to avoid.
