fuboTV (NYSE:FUBO) is a streaming substitute for a cable TV bundle, albeit with a sports focus. The company is gaining traction with consumers and growing revenue and users rapidly. Folks who prefer the broad selection cable offers but want the convenience of streaming are gravitating to fuboTV.
If that's the case, why is its stock price crashing? Let me try to answer that question and determine whether the crash creates an opportunity for long-term investors to buy fuboTV stock.
fuboTV is losing money on the bottom line
Interestingly, when fuboTV announced fiscal third-quarter results on Nov. 9, it revealed impressive growth. Total revenue came in at $156.7 million, a 156% increase from last year's Q3. And it reached 944,605 paying subscribers, a 108% increase from the same time the previous year.
The performance was so good that management raised its expectations for fiscal 2021. It now expects total revenue of $615 million and 1.065 million paying subscribers, both at midpoints.
That's all great, so why is the fuboTV's stock price crashing? The negative sentiment from the market is coming from fuboTV's cost structure. In its Q3, operating expenses as a percentage of revenue were 165%. It's spending way more serving customers than it is getting back in revenue. Of course, that is generating massive losses on the bottom line. fuboTV lost $106 million on revenue of $156.7 million in Q3.
However, fuboTV's increasing revenue is helping leverage costs and improve margins. Operating expenses as a percentage of revenue were 234% in Q3 of 2019, 207% in 2020, and 165% in the most recent quarter. Still, the market is not confident in fuboTV's ability to scale into profitability, and the stock is down 45% in the last month.
Is fuboTV's crash an opportunity for long-term investors?
fuboTV is riding a long-run secular tailwind. A streaming live TV subscription is superior to a traditional cable TV connection. A streaming service can be viewed on phones, tablets, and computers, in addition to your home TV. What's more, depending on your region and cable company, a streaming substitute often costs less. Finally, signing up for a streaming service is far less complicated. You can start watching your favorite program after a few clicks. Compare that to signing up for cable TV, which requires the company to send out a professional installer who may be at your home for hours.
fuboTV is not the only one offering a streaming substitute to cable TV, but since the third quarter of 2020, it has added subscribers at three times the pace of that market. Considering that there are 72.6 million traditional pay-TV households in the U.S., it leaves fuboTV plenty of runway for growth.
fuboTV is undoubtedly a risky stock with massive losses on the bottom line. However, it's growing revenue and subscribers rapidly and improving profit margins with scale. fuboTV stock's crash has it trading at a price-to-sales ratio of 4.4, near its lowest in the last two years. That all points to an opportunity for long-term investors to buy fuboTV stock.