FuboTV (FUBO +0.00%) stock has been a bit of a roller coaster ride for investors in 2023. If you're still holding the stock, it may be time to get off the ride.
While shares are up over 55% through the first nine months of the year, the stock is down nearly 100% from its all-time high set shortly after its IPO in 2020. Still in growth mode, the company is burning lots of cash to attract customers to its streaming pay-TV service. And while it's working toward positive free cash flow by 2025, there's a big hurdle standing in its way of getting there.
After improving results through 2023, FuboTV will remain challenged to keep improving because its competition has a lot more financial flexibility.
Fighting the trend
FuboTV is one of the top virtual multichannel video programming providers in the United States. But it's getting harder and harder to be a premium video provider.
Charter made that clear last month in its dispute with Disney. It actively sent customers to its competition, telling them to sign up for FuboTV during the channel blackout. Other cable companies have sent customers to Alphabet's YouTube TV. Frontier Communications, for example, stopped offering TV service altogether, sending new customers to YouTube TV for video service.
Charter outlined the dilemma for the pay-TV industry in an investor presentation at the start of last month. As more and more content moves to streaming, media companies have devalued their linear networks. At the same time, they're struggling to generate a profit from streaming, pushing the fees they demand for those devalued linear networks higher. Ultimately, this leads to an overpriced product for consumers.
Since FuboTV's only product is linear TV, it's facing an uphill battle in winning over consumers.
NYSE: FUBO
Key Data Points
The competition is thinking much broader
Fubo's competition -- YouTube TV and Hulu + Live TV -- are just segments of bigger companies' overall streaming strategies. Both see huge amounts of cash coming in from other parts of their business.
YouTube itself includes a $30 billion advertising business. It also has more subscribers than Fubo and Hulu + Live TV combined.
Disney, meanwhile, is attacking the media landscape from all angles. It maintains its linear networks, it has its direct-to-consumer streaming services, and it's a pay-TV distributor through Hulu + Live TV. The benefits are that it's hedging its position in the media landscape. Meanwhile, its parks business is another source of revenue and cash flow for investment in the media business as it transitions to the next stage of distribution.
These giant businesses can support the low or negative margins of the pay-TV distribution business. For YouTube, YouTube TV supports the rest of its business, driving ad revenue. For Disney, Hulu + Live TV supports its linear networks and its direct-to-consumer business. As such, they can absorb lower profits directly from pay-TV subscribers.
Fubo doesn't have that luxury.
Fubo needs to prove its service is worth the price
As Fubo pushes toward improving its free cash flow and profitability, it's going to struggle to continue raising prices. It pushed through a price hike at the start of the year and added regional sports networks, increasing the price further. It lost subscribers in each of the first two quarters of 2023.
While Fubo is showing progress in expanding gross margin, it's unclear if it can continue to expand it after seeing the impact of its new pricing on the subscriber base. Fubo's pricing power is curbed by its bigger competitors, which can keep pricing relatively low without impacting their bottom line nearly as much.
Importantly, Fubo needs to start making progress fast. It has just $293 million in cash on its balance sheet, and it's burning through it at a $300 million run rate. It'll likely need to raise cash somehow before 2025, which means either issuing high-interest debt or further diluting its shares.
Until Fubo can prove it has pricing power that could lead to profitability and positive free cash flow, investors should stay away from the stock.
