Shares of sports-centric streaming service fuboTV (FUBO +0.00%) performed abysmally in 2022. The year still has a couple of weeks to go. But the stock is down 84% year to date because of the alarming rate at which the business burned through cash.
But while shareholders undoubtedly will want to put this year in the rear-view mirror, I'd caution against getting too excited about fuboTV's prospects in 2023. Management is excitedly talking about its targets for 2025.
Next year could be a difficult one, and it's why I don't expect fuboTV stock to recover in the next 12 months.
Get ready for more cash burn in 2023
The company offers streaming subscription packages for sports fans of all flavors.
It had over 1.2 million subscribers at the end of the third quarter, up an impressive 31% year over year. However, fuboTV stock has been crushed, in part, because it used over $294 million in net cash on operating activities through the first three quarters of 2022.
NYSE: FUBO
Key Data Points
Management says it has plotted a course that will get fuboTV to profitability in 2025 -- a path that will require it to grow revenue and slash operating expenses. Let's consider the operating expenses side of the equation first.
fuboTV has a negative operating margin. The primary culprit driving the company's bottom-line losses is the cost of acquiring the rights to sports content.
Consider, for example, that it generated $621 million in subscription revenue through the first three quarters of 2022. However, its subscriber-related expenses (the vast majority of which are from acquiring sports content) were $679 million over that time.
Management's theory that it can turn fuboTV cash-flow positive by 2025 is based in part on a pair of assumptions: that it will be able to cut its content-acquisition prices and increase its revenue per user. According to CFO John Janedis, the company reworked some sports content deals in 2022 to make them more attractive.
However, the attractiveness of these new contracts won't be seen until existing fuboTV subscribers renew at higher rates. Indeed, management is counting on about $100 in monthly average revenue per user (ARPU) in 2025 compared to $71.52 as of Q3.
fuboTV increased its prices for most of its subscribers by $5 per month in the second quarter and management is happy with customer retention so far. This helped the company inch closer to its $100 ARPU goal. However, the company likely won't come close to reaching it in 2023.
Therefore, investors can expect the steep losses to continue next year. And the market isn't likely to reward the stock for that red ink.
fuboTV's future revenue drivers
As already mentioned, fuboTV can drive revenue growth in coming years by raising prices, which should improve its profit margins. But the company has other opportunities as well.
First, fuboTV's management hopes to double its subscriber base through 2025. Given the number of sports fans around the world and its relatively small base of 1.2 million subscribers right now, this goal certainly seems achievable.
To hit that goal in that amount of time, fuboTV will need roughly 26% annualized subscriber growth. That's something investors can and should monitor -- if its growth rate dips below that, it could impact future cash-flow assumptions.
Second, fuboTV's management hopes to double its advertising revenue per user over the next three years. Live sports typically command high ad rates and fuboTV has grown advertising revenue rapidly in recent years. So, let's give it the benefit of the doubt here.
If fuboTV doubles its subscriber base and doubles its ad revenue per user, then it will quadruple its ad revenue.
However, even if this happens, subscription revenue would still be its primary revenue stream.
In the first three quarters of 2022, it generated $621 million in subscription revenue compared to $68 million in ad revenue. If ad revenue quadruples while subscription revenue doubles, subscription revenue will still account for roughly three-quarters of the top line, meaning it will remain the most important element for fuboTV.
And this is why I'm still not a buyer of fuboTV stock today.
Yes, it can grow its subscriber base and grow its ad revenue in the coming years. And it can raise prices. But in the end, sports content is expensive to secure, and I doubt this expense will drop meaningfully.
Indeed, in the risk section of fuboTV's filings with the Securities and Exchange Commission, regarding sports content, it says: "We expect further increases in the future. Moreover, the renewal of long-term contracts may be on less favorable pricing terms in the future."
In summary, fuboTV will keep burning cash in 2023 even if it grows. And if it makes substantial progress on cash flow, future contract renewals could knock it back to square one on its path to profitability, which is a risk that ultimately keeps me on the sidelines here.
