Investors in fuboTV (FUBO -2.63%) have taken a shellacking in 2022. The stock is down 79% year to date as the bottom has fallen out of this sports-centered streaming alternative to cable TV. Interestingly, fuboTV has sustained explosive revenue growth, but it hasn't been enough to assuage wary investors.
Let's consider fuboTV's prospects, weigh them against the lower valuation after the price crash, and determine if long-term investors should buy the stock now.
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Revenue at fuboTV is soaring
Sports-streaming service fuboTV is riding the back of a powerful tailwind attracting sports fans who want the benefits of a cable TV bundle with the convenience of a streaming connection. With fuboTV, folks can get all the channels they would get through cable, but since it's delivered through a streaming connection, it can be taken anywhere there's internet. That has propelled fuboTV's revenue from $218 million in 2020 to $638 million in 2021.
In the quarter ended March 31, fuboTV's revenue jumped by 102% year over year to $242 million. The company boasts over 1.35 million subscribers who pay a subscription fee to access the service. fuboTV's upward trajectory could continue as it benefits from the structural advantages of streaming over cable. The more significant challenge for fuboTV is sustainability, not growth.
FUBO Revenue (Annual) data by YCharts
In its most recent quarter ended in March, it lost $140.8 million on the bottom line, more than double the loss of $70.6 million in the same quarter of the prior year. fuboTV's most oversized expense item is subscriber-related costs -- in other words, the fees it pays for content rights.
Of course, this is what motivates folks to sign up. Without the content, fuboTV would not have subscribers. But it cannot sustain the business by paying 102% of revenue for content as it did in its most recent quarter. That's similar to buying a new iPhone from the Apple store at $700 and then reselling it for $675. Sure, sales will be brisk because you are offering a lower price, but it's not a sustainable business model. To make matters worse, this was an increase from 95% of the revenue it paid for content rights in the same quarter of the prior year.
What fuboTV needs to demonstrate is that it can grow the business sustainably. That could mean increasing the prices of its service, which could slow revenue and subscriber growth. It could also mean negotiating better terms with content providers, which would reduce costs.
fuboTV stock is down, but not enough
FUBO PS Ratio data by YCharts
The stock price crash has fuboTV selling at a price-to-sales ratio of 0.6, near the lowest in its young history as a public company. Regardless, it's challenging to say the stock is cheap because of the unsustainable business model. Investors would be prudent to wait for fuboTV to demonstrate it can reduce losses on the bottom line.
One of the questions that needs to be answered is: What would revenue and subscribers look like if it raised prices enough to break even? Thankfully, management indicated it had implemented changes that would make the company cash-flow positive. The catch -- it's not expected to hit that inflection point until 2025. So even though the stock is down 79% in 2022, fuboTV is still not a buy right now.
