fuboTV (FUBO 0.72%) shareholders have been taking heavy losses since the highs of 2021. The stock is down a whopping 95.6% since then. It has been caught up in the growth stock sell-off, and it doesn't help that the business is not on stable footing.
The streaming alternative to cable TV is paying too much for content and not charging enough for subscriptions. That choice is causing massive losses in cash from operations. If fuboTV can correct these issues, the stock can bounce back.
1. Leverage subscriber-related expenses
In its most recent quarter, which ended on March 31, fuboTV's subscriber-related expenses (content costs) totaled 102% of revenue. That increased from 95% of revenue in the same quarter the year before. This is despite revenue growing by 102% in that time. Typically, investors like to see a company leverage expenses as sales increase so that over time they consist of a smaller share, thereby expanding profitability. It seems fuboTV is going in the opposite direction.
FUBO Total Operating Expenses (Quarterly) data by YCharts
One possible solution to this issue is for fuboTV to raise subscription prices. However, that could have the undesired effect of increasing churn (cancellations). Still, getting pricing on a more sustainable footing may be more vital than keeping it low to sustain customer growth. Management may have realized this when it noted in its first-quarter shareholder letter, "fuboTV has started to enact a series of approaches to increase monetization, accelerate our ad sales business, and further strengthen our unit economics."
If or when these moves start to bear fruit, it could boost the stock.
2. Stabilize losses in cash through operations
In any case, even if the above method does not work to bring revenue in balance with expenses, fuboTV must stop bleeding cash from operations. In the three months ended March 31, fuboTV lost $126.7 million in cash from operations. That was up from a loss of $53.9 million in the same quarter the year prior.
FUBO Cash from Operations (Quarterly) data by YCharts
As of the end of March, fuboTV had $451 million cash in the bank. Not an insignificant sum, but it will not last very long at the rate fuboTV is losing cash in operating the business. Even if the losses do not accelerate, which they appear to be doing, fuboTV can stretch its money out for four quarters at best. An option that could temporarily solve the issue, which of course investors would not like as much, would be for fuboTV to borrow or raise cash through an equity sale. However, that would do little to boost the stock, only buying the company more time to get on a more sustainable footing.
If fuboTV can show progress in stabilizing losses in cash, it would remove significant risk and could go a long way toward raising the stock price.
