FuboTV's (FUBO -3.57%) share prices have fallen 81% over the last year. The sports-centric streaming service is still posting solid growth in revenue and subscribers, but in the first-quarter report, Fubo missed earnings estimates, and company guidance calls for a quarter-over-quarter decline in subscribers.
FuboTV is benefiting enormously from people cutting their cable bills. North American paid subscribers grew 81% year over year, topping 1 million in Q1. But that hasn't been enough to satisfy investors.
The stock was trading in the low $30s in October but now trades around the $3 level. It's always tempting to buy a fast-growing company at a low share price, thinking that it could easily rebound back to previous highs. However, there are a few issues that could keep this streaming stock down.
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Worsening losses on the bottom line
There are several problems facing Fubo in 2022, including a softening advertising market, which made up 9% of the company's revenue in Q1. But it's the mounting losses on the bottom line that are keeping investors away from the stock right now. In Q1, FuboTV's net loss widened from $70 million in the year-ago quarter to $141 million in Q1 2022.
Much of that loss can be blamed on subscriber-related expenses, which doubled to $245 million in Q1. This amount includes affiliate distribution rights and other distribution costs related to content streaming. This single expense completely dwarfed Fubo's global revenue of $242 million in Q1, so you can see why investors are concerned.
To firm up profit margins, FuboTV recently implemented new strategies to shift subscribers on lower-revenue-generating plans to higher-priced bundles. However, these higher-priced bundles are causing a small uptick in cancellations, or subscriber churn, heading into the second quarter, which could be a problem. Keep in mind that management described the level of churn related to the pricing changes as not material to the company's performance.
Still, management is guiding for second-quarter subscribers to come in between 965,000 to 975,000, which is down from the 1.05 million reported for Q1. Management credits the sequential drop to normal seasonal trends in the business.
Nonetheless, the lower outlook paints a different picture than the company's robust growth a year ago. In 2021, FuboTV added 92,000 subscribers between Q1 and Q2. Going from a massive jump in subscribers last year to a sequential decline this year suggests that Fubo might be running out of gas.
Wait for this before you buy
The weak outlook for subscriber growth only draws more attention to FuboTV's weak financial position. As of March 31, the company held $450 million of cash and equivalents, offset against $392 million of convertible notes held as long-term liabilities on the balance sheet.
This is not an ideal financial position, with the company burning cash to fund operations. Over the last four quarters, net cash from operating activities was negative $192 million. The weak advertising market, coupled with worsening net losses on the bottom line, are reasons that analysts from JPMorgan Chase and Roth Capital downgraded the stock in early May.
Stocks often fall for reasons that don't make a lot of sense, but FuboTV is a case where investors should wait for the company to improve its finances and profitability before buying shares. The streaming market is too competitive for investors to risk their hard-earned money on an unprofitable company in this bear market.
