Share prices of the sports-centric streaming platform fuboTV (FUBO -3.57%) are up 150% over the last three years. But after surging last year, share prices have been volatile throughout 2021. The platform has continued to report strong growth, with revenue up 261% year over year through the first three quarters of the year. Investors can blame a high valuation and fuboTV's lack of profitability for the stock's volatility.
JPMorgan Chase analyst Anna Lizzul, added another reason for the volatility when she recently initiated coverage of the stock, giving it a $28 price target. That's 67% higher than the current share price of $16.72 at the time of writing.
Image source: Getty Images.
Let's review a few reasons to be bullish on the shares before looking at reasons to avoid fuboTV for now.
Reasons to buy
fuboTV operates in the fast-growing virtual multichannel video programming distributor (vMVPD). This is a hot market that is expected to reach more than 23 million households by 2024, according to Park Associates. It's estimated that 19% of all broadband households in the U.S. are subscribed to a vMVPD service, but that percentage may rise over the next several years, and fuboTV is well-positioned to get its share of the market.
What distinguishes fuboTV from, say, Alphabet's YouTube TV is live sports programming. fuboTV offers thousands of live sporting events streamed on its platform every year, and its recent launch of Multiview allows sports fans to watch four live TV channels at the same time. It recently passed the 1 million subscriber mark, and management expects to finish the year with revenue up about 135% over 2020.
As management likes to say, viewers come for the sports and stay for the entertainment. This is the basic growth strategy. Most of fuboTV's revenue comes from subscriptions, where a wide selection of tens of thousands of live sporting events every year serves as the hook. But fuboTV is using news, entertainment channels, and the recent launch of a sports wagering offering (fubo Sportsbook) to retain and grow subscribers, which is clearly working.
| Revenue Category | Nine-Month Period Through Q3 2020 |
Nine-Month Period Through Q3 2021 |
YOY Growth |
|---|---|---|---|
| Subscription | $93.0 million | $359.6 million | 286% |
| Advertising | $11.8 million | $47.6 million | 302% |
| Other | $7.9 million | $0.05 million | (99%) |
| Overall | $112.7 million | $407.3 million | 261% |
Data source: fuboTV 10-Q. YoY = year-over-year. Note: Totals may not be precise due to rounding.
Subscriber growth has been explosive, but acquiring sports broadcasting rights is expensive, which is why Netflix is profitable and fuboTV is not. In the third quarter, fuboTV's operating loss narrowed from $302 million in the year-ago quarter to $103 million.
The cost to acquire content has been higher than the revenue fuboTV collects from subscription fees, although that margin is gradually narrowing.
| Metric | Nine-Month Period Through Q3 2020 |
Nine-Month Period Through Q3 2021 |
|---|---|---|
| Subscription revenue | $93 million | $360 million |
| Subscription-related expenses | $114 million | $377 million |
Data source: fuboTV 10-Q.
fuboTV may have a way out of this hole by growing advertising revenue, which is a profitable source of revenue. The streaming platform has a predominantly male viewership, which is desirable for advertisers that have difficulty reaching this demographic. Advertising revenue increased 147% year over year in the third quarter, and now makes up 12% of total revenue.
Beware of these long-term risks
The reason not to buy fuboTV is that the streaming landscape is still evolving, and fuboTV is at an inherent disadvantage since it doesn't own the rights to broadcast sports; the big TV networks do. It must license those rights, and that muddies the outlook on what profits will be in 10 years.
Moreover, fuboTV depends on cloud providers like Google Cloud and Amazon Web Services to run the computing infrastructure behind its service. These tech giants also operate their own streaming services and could use their in-house technology to their advantage over third-party services. Amazon Prime Video, for example, already has a deal with the NFL to stream Thursday Night Football.
Analysts currently don't expect fuboTV to report a profit anytime soon. The consensus earnings estimate has fuboTV reporting a per-share loss of $2.69 this year and a loss of $2.16 in 2022.
The lack of profitability and the uncertainty over the competitive landscape are two reasons that are likely contributing to the stock's rocky performance this year. I would keep fuboTV on a watch list and wait to buy shares once advertising revenue reaches a higher proportion of total revenue and brings the business closer to reporting a profit.
