Meme stocks may be making a comeback. Yes, I am writing this in the summer of 2023. Shares of fuboTV (FUBO 1.46%) have soared 78% so far this year and are up 58% in the past month. Yet, the stock is still at just $3, off 95% from all-time highs set during the meme stock run in 2021. The virtual cable provider has put up strong revenue growth in recent quarters but is still burning tons of cash, meaning that traders are likely bidding up the stock in correlation with the 2023 artificial intelligence (AI)-driven bull market.
Is now the time to hop back on the fuboTV stock train? Let's investigate.
Virtual cable -- at a steep price
The business model of fuboTV is to offer broadcast and cable TV bundles virtually through an internet-connected service. Plans cost around $75 to $100 a month before taxes, which is much more expensive than what one pays for a typical streaming service but can actually be much cheaper than the traditional cable bundle. Last quarter, its average revenue per user (ARPU) in North America was $76.79 a month, up from $71.43 in 2022.
Its key differentiator from other streaming services or virtual cable providers such as YouTube TV is a focus on niche sports content. For example, fuboTV subscribers are able to watch local sports networks that exclusively show your local baseball team, which typically aren't available on any other streaming service. Targeting the avid fans of these sports leagues has led fuboTV to put up consistent growth in its subscriber base in the past few years. In the first quarter of 2023, the service hit 1.29 million subscribers in North America, which is up 22% year over year and more than four times the 287,000 subscribers it had in Q1 2020.
The company also has a Rest of World segment for its international operations, which hit 379,000 subs at the end of Q1, growing 24% year over year. However, these subs have significantly lower ARPUs of just $6.57, making them much less valuable to fuboTV's business.
Can it reach profitability by 2025?
Even though fuboTV charges customers a pretty penny each month for its virtual cable packages, the business is still struggling to generate a profit. This is due to the large fees that channels like Walt Disney's ESPN charge cable providers to put them in their TV packages. Last quarter, fuboTV generated $324 million in revenue, mainly from subscription fees. However, if you subtract its content costs, its gross profit came out to a measly $3.2 million, or a minuscule margin of 1%. This is better than the negative 10% gross margin it posted in Q1 2022, but it still paints a bleak financial situation for the company.
Add back in overhead costs like technology and marketing, and fuboTV hasn't come close to generating an operating profit in the last five years. Management seems to think it can achieve positive cash flow by 2025 as it reaches more scale and gets better deals from content distributors. It could also try to raise prices, but that would be a risky proposition. It would create a wide price disparity versus competitors like YouTubeTV, which are already cheaper than fuboTV and offer close to the same cable packages except for some niche sports channels.
FUBO Operating Income (TTM) data by YCharts
Don't overthink it
fuboTV has a tough business model with competitors like YouTubeTV that don't care about generating a profit. This is a fine strategy if you are the dominant search engine provider worldwide (Alphabet, YouTubeTV's parent company), but it puts you in an extremely difficult position if you need to generate positive cash flow from your virtual cable service.
It seems unlikely that fuboTV will be able to thread the needle and start generating a profit anytime soon. Even if the stock continues to soar this summer, fuboTV is a bad bet for your investment portfolio over the long term. Buy some steady blue chip stocks that generate a consistent profit instead.
