It is hard to believe that on Dec. 22, 2020, the stock of fuboTV (FUBO +0.00%) hit its all-time high of $62. Nevertheless, at the time, many investors bought into the hype that it could achieve profitability by becoming the first company to combine sports TV with an online gambling operation.
Unfortunately for shareholders, fuboTV became a loser in the post-pandemic economy. The first hit came as the world began reopening in 2021, and the attractiveness of sitting at home watching TV faded. Next, many investors lost interest in this unprofitable company in the high inflation, rising interest rate environment. Finally, the coup de grâce was when fuboTV recently shut down its online gambling operation, leaving investors with a business many Wall Street analysts consider unattractive. As a result, its share price sits at $1.70, 97% below its all-time high.
Should you consider selling the stock at this point or continue holding?
Let's investigate.
NYSE: FUBO
Key Data Points
The worst may be over
Since fuboTV came public in October 2020, its worst nemesis has been an insane cash burn during a period when investors became increasingly concerned about companies spending too much cash.
FUBO Free Cash Flow data by YCharts
Fortunately for the business, management believes it has passed an inflection point for free cash flow (FCF) burn. The fourth quarter of 2022 represented its lowest level of quarterly cash usage in its time as a publicly traded company, and executives believe it is on track to achieve its goal of generating positive free cash flow in 2025. In addition, CFO John Janedis declared 2022 as the year of peak losses and that adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) will improve on a year-over-year basis from here on out. Should those prognostications be accurate and investors see progress toward positive FCF and continued profitability improvement, don't be surprised to see fuboTV's stock price move sharply upward.
Image source: fuboTV.
For fuboTV to achieve its profitability and FCF goals, it must add revenue faster than it adds new costs. By tracking expenses as a percentage of income, you can determine how quickly the company moves toward profitability.
The above chart shows that it is making significant progress in cutting costs relative to revenue. For example, the discontinued gaming segment accounted for 18% lower costs. And the most substantial chunk of costs, the subscriber-related expenses (SRE), dropped 1% from last year.
The good news is that management expects a meaningful acceleration in reducing the relative percentage of SRE to revenue in 2023, in addition to the company fixing the rest of its cost structure.
The risks of continuing to hold fuboTV
fuboTV is a virtual multichannel video programming distributor (vMVPD) providing multiple television channels to viewers via the internet. Unfortunately, the vMVPD business has a history of being structurally unprofitable due to the high annual escalation of the fees vMVPDs pay to air news, sports, and other live content. These costs are called SRE on fuboTV's income statement.
The vMPVD industry is highly competitive, which limits the ability of fuboTV to raise subscription prices. In addition, the increasing costs of airing the most popular sports and entertainment content have, up until now, been challenging to control. As a result, fuboTV has spent much of its history with a negative or low gross margin.
In its fourth-quarter 2022 report, the company achieved a measly 1% gross margin. Unfortunately, this leaves little room for it to pay other expenses to operate the business and produce a profit.
FUBO Gross Profit Margin (Quarterly) data by YCharts
In addition to the business model facing an uphill battle to achieve profitability and positive cash flow, fuboTV has little room for error to turn everything around. At the rate it burned cash over the last year, it would run out of money in 2024.
If you have yet to sell by now, why sell?
The stock sports a price-to-sales ratio of 0.33, which is the market implying this company may not survive. However, in August 2022, fuboTV held its first investor day, highlighting plausible ways of using free, ad-supported television to help slow SRE costs. It also discussed how it would use a robust advertising business to supplement subscription fees and help increase revenue faster than SRE. It bodes well for fuboTV that its advertising business outperformed the overall industry in a challenging environment, growing fourth-quarter 2022 revenue by 30% over the previous year's comparable period.
If you bought shares anytime in 2021 when the stock was at peak hype, you have already taken 90%-plus losses. However, at this point, holding fuboTV is a valid option now that the business could be moving toward profitability and a turnaround.
