fuboTV (FUBO -6.96%) is having no difficulty rapidly growing revenue and subscribers. The sports-centric streaming service is riding a powerful tailwind that's showing no signs of slowing. The underlying changes in consumer preferences for how they watch TV are likely to fuel robust growth in the industry where fuboTV operates.
As fuboTV prepares to report the fourth-quarter and fiscal year 2021 earnings results on Feb. 23, fuboTV's management is discovering that its biggest challenge is controlling losses.
fuboTV is proliferating, but can it grow sustainably?
In its most recent quarter, which ended Sept. 30, fuboTV lost $106 million on the bottom line. That's a large sum in proportion to its revenue of $157 million during the same quarter. The company's highest costs are subscriber-related expenses. These are premiums that fuboTV has agreed to pay third-party providers of content. For instance, fuboTV pays a carriage fee to Walt Disney for the rights to offer the various ESPN networks to fuboTV subscribers. Of course, fuboTV can choose not to offer specific channels, but that may cause subscribers to cancel and move to a provider that does offer popular channels.
The more likely path for fuboTV to balance its finances is to increase the prices it charges subscribers. In that regard, it may have more success. fuboTV reported preliminary fourth-quarter results on Jan. 10 that show revenue is likely to grow by 107% in Q4. Similarly, total subscribers are estimated to grow by more than 100% in Q4. The explosive growth in revenue and subscribers means that fuboTV could raise prices and still achieve healthier expansion with more minor losses on the bottom line.
There is undoubtedly plenty of runway for growth. Its most recently updated subscriber figure now exceeds 1.1 million. But that's just a fraction of the over 72 million households that subscribe to traditional cable. Furthermore, fuboTV is growing multiples faster than its streaming competition. It all points to fuboTV's potential to increase prices and sustain robust top-line and subscriber growth. I do say "potential," because too big of a price increase could backfire and cause new customers to choose competitors and existing customers to not renew.
The convenience advantage a streaming Live TV service offers over cable TV could also be a risk. Cable TV providers often ask customers to sign lengthy contracts, which hit consumers with hefty fees for canceling and switching companies. Streaming services can be started with a few clicks, no professional installation required, and no contracts. The downside is that they can be easily be canceled with a few clicks too.
Is fuboTV stock a buy?
The stock has taken a beating -- its price is down 77% in the last year and 33% since the start of 2022. The crash has it selling at a price-to-sales ratio of 2.5, near its lowest ever.
The massive losses on the bottom line are concerning, but it is getting results in the form of over 100% rates of revenue and subscriber growth. It can choose to raise prices, which might slow growth, to put itself on a sustainable path. Therein lies a significant risk -- how much will growth slow down if fuboTV raises prices?
Whether an investment decision is made before or after it reports Q4 earnings, fuboTV stock offers investors a reasonable risk versus reward. The opportunity -- over 72 million cable households -- is big enough to justify taking the risk with fuboTV.