fuboTV's (FUBO -0.72%) stock has been on fire in the past couple of weeks, more than doubling as it updated investors on its operating results. The sports-centric, livestreaming alternative to cable TV faced pressure to bring costs under control after it reported mounting losses on the bottom line.
Part of the reason the stock has soared in recent weeks is the strategic changes announced during the earnings release on Aug. 4. Let's look at the details from that announcement.
Increasing its focus on profits and cash flow
In its letter to shareholders on Aug. 4, management started by acknowledging the market's desire for fuboTV to achieve profitable growth. The company has expanded over the last few years at the cost of incurring significant losses on the bottom line. fuboTV needs to pay owners for the rights to show content to its subscribers. Currently, those expenses are too high for fuboTV to generate profits.
In the letter, it announced its goal to achieve positive free cash flow in 2025. The focus on cash flow apparently assuaged investor concern about fuboTV's liquidity. Already, the company has increased pricing on its services, which could hurt growth or cause some subscribers to cancel. The content costs are on a per-subscriber basis, so if fuboTV charges higher service fees, the incremental customers will contribute more to profitability.
FUBO cash from operations (quarterly). Data by YCharts.
In the six months ended June 30, fuboTV lost $217.8 million in cash from operations. That was more than double the loss of $87.4 million during the same time the previous year. That loss rate is problematic for a company with $372.7 million in cash and short-term investments on its balance sheet.
If fuboTV does not moderate its losses, it will soon need to raise more capital through selling equity or debt. Neither is desirable for shareholders as it will either dilute their holdings through an equity sale or increase risk and add expenses by borrowing.
In one key move to lower its expenses, fuboTV said it would no longer pursue its mobile sports-betting business on its own. One of its long-term ambitions has been to roll out an integrated mobile sports book.
The strategy makes sense on the surface. The company offers a sports-centered slate of content, and many of its subscribers are sports fans. But the endeavor is proving costly. With an increasing focus on profitability, the company said it was taking steps to de-risk the business and that it is open to strategic partnerships in mobile gaming.
fuboTV's stock is relatively cheap
FUBO price-to-sales ratio. Data by YCharts.
Together, these announcements pleased investors, and the stock has soared in recent weeks. While the changes might do little to enhance top-line growth, lowering risk is arguably just as important -- especially if the primary risk is liquidity.
Looking back further, fuboTV's stock is still down 92% off its highs. It's relatively cheap, trading at a price-to-sales ratio of 0.9.
