fuboTV (FUBO -5.71%) has impressed me by rapidly increasing subscribers and revenue. The cable TV alternative is not the only streaming provider of live TV, but it's competing well against giants in the field.
The aforementioned positives were enough for me to buy a few shares of fuboTV. However, before I add to my position and make it a more considerable holding in my portfolio, I will need to see fuboTV do this one thing.
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Revenue minus expenses needs to return a positive number
The company is generating massive losses on the bottom line. Revenue and subscriber growth are easier to achieve if you are pricing your services below your cost of production. Any of my readers could go to an Apple Store today, buy a brand-new iPhone 13 for $700, and proceed to sell it for $500. In fact, you might be able to generate millions or billions in sales following that strategy. That's an exaggerated example, but it highlights the point: fuboTV is offering too much service at too little a price.
It needs to pay content providers for the rights to stream programming for its customers. Subscriber-related expenses are fuboTV's most considerable costs. In its most recent quarter, they made up 93.5% of revenue. Overall, fuboTV has reported a net loss on the bottom line for four consecutive years.
So what's the one thing I want to see fuboTV achieve before I buy more shares? Raise pricing on its services without experiencing substantial deceleration in subscriber growth. Not just for one quarter, but I want to see this play out for four to six quarters.
In the year ended Dec. 31, fuboTV had 1.3 million subscribers, an increase of 140% from the year before. I would be thrilled if fuboTV could raise prices sufficiently to stem losses on the bottom line and still grow subscribers by 50% year over year.
FUBO net income (quarterly). Data by YCharts.
The company operates in a growing market that benefits from the tailwind of consumers cutting the cord and switching to streaming. On top of that, fuboTV grew 2.75 times faster than its market in the quarter ended Dec. 31. That suggests it could increase prices meaningfully yet still achieve solid customer growth.
The stock is cheap for a reason
Getting the company on a more sustainable footing will do more to induce me to purchase additional shares than a stock price that keeps falling. Many investors might share that opinion considering that the stock is down a whopping 83% from its high reached in late 2021. Incredibly, fuboTV is trading at a price-to-sales ratio of 1.2, down from its peak of nearly 20. The business model has not changed much since then; the company is still growing fast and losing money on the bottom line. Instead, the market has quickly shunned unprofitable growth stocks as inflation rears its head and the Federal Reserve raises interest rates.
FUBO P/S ratio. Data by YCharts.
Regardless, the proliferation of consumers switching to streaming services is one of my favorite long-term trends to invest in. And fuboTV has what the viewing public wants; it would be reasonable to ask consumers to pay a little more for its services. If the company can do that, it can count me as a more significant shareholder in the future.
