fuboTV (FUBO 6.72%) has been one of the bigger busts of the pandemic era.
The sports-focused streaming stock surged through 2020 as the streaming sector boomed and investors saw it as a beneficiary of online sports betting, another industry that boomed during the pandemic before fading in the reopening.
Since that surge, the stock has collapsed. It's part of a broader retreat in streaming stocks as growth has slowed, losses have mounted, and the path to success has narrowed significantly.
The stock is now down more than 95%, and while that sell-off could look like a buying opportunity, the company's recent fourth-quarter earnings report was a reminder that the stock is best avoided. Here are three reasons why.
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1. Subscriber growth is disappearing
fuboTV got a jolt from the FIFA World Cup in the fourth quarter. That makes sense, as sports have long been a driver of sign-ups in cable TV. The company reported a 29% increase in North American subscribers to 1.445 million. The World Cup had an even larger effect on growth in the Rest of World segment, as subscribers outside of North America jumped 117% to 420,000.
However, the company's guidance indicates it's having trouble convincing those new subscribers to stick around.
For 2023, the company expects North American subscribers to grow to 1.51 million to 1.53 million this year, representing just a 5.2% increase. In the Rest of World segment, it expects subscribers to decline to 395 million to 415 million, or nearly 4% at the midpoint. In total, then, it expects just 2.7% growth in its subscriber base.
For a more mature streaming company, such slow growth might be acceptable, but fuboTV is still losing money. And even without the roll-off effect of the World Cup, subscriber growth would be less than 10%.
2. Losses are mounting
fuboTV is still unprofitable, and the company's slowing subscriber growth makes future profitability even less likely.
fubo doesn't report a gross margin, but if it did, it would almost certainly be negative. Nearly all of its revenue comes from subscriptions. In 2022, it brought in $905.9 million but spent $976.4 million on subscriber-related expenses, which is essentially its cost of content.
That means that the price of fubo's subscriptions isn't enough to cover the cost of sports rights and the other content it provides. Until that changes, the business will probably never be profitable. The company is building out an advertising business, but it still contributes a fraction of the revenue that subscriptions do.
fubo is also spending aggressively on overhead costs like sales and marketing. The company posted a loss from continuing operations of $425 million for the full year on just over $1 billion in revenue. In other words, profitability is still a long way away.
3. Share dilution likely won't stop
fuboTV continues to sell new shares to fund its operations as the business is losing money.
Over the last year, its share count increased by a third to 200 million. The company just sold another round of stock in an at-the-market offering, which it reported on Feb. 27, the same day its earnings report came out.
It sold another 36.7 million shares for $68.1 million, offering them at a discount to the stock's closing price on Feb. 24. In fact, the stock had actually traded higher on its earnings report but then fell double digits on the share dilution news. Investors were concerned that demand for the stock had fallen so far that the company had to offer it at a discount to raise funds.
For the full year, the company reported a $316.7 million operating cash loss, and its current assets are slightly lower than its current liabilities, a sign it could have trouble paying its bills.
Given those circumstances, the company is likely to continue diluting shareholders with further stock sales.
Overall, fubo is struggling to attract new subscribers, it continues to lose money, and it has little choice but to sell new shares to keep the business running.
Even after the stock fell 95% since its peak two years, the stock is likely to fall further.
