Sports-focused streaming service fuboTV (FUBO 1.46%) went public in 2020, when people stuck at home had little else to do but entertain themselves. Predictably, the company's shares soared in the months following its IPO, but it's been pretty much downhill since. fuboTV has lost nearly 80% of its value in the past three years.
As of this writing, fuboTV's shares are changing hands for just $2.37 apiece. However, that doesn't mean it is worth investing in the stock at current levels. Here's the question that should be on investors' minds: Can fuboTV bounce back? Let's find out.
What's wrong with fuboTV?
The streaming industry has become highly competitive. Still, fuboTV has managed to attract a respectable number of subscribers for a relatively small player in this field. In the second quarter, the company had 1.17 million subscribers in North America, an increase of 23% year over year. And in the rest of the world, fuboTV's total subscribers grew by 14% year over year to 394,000.
However, there are some issues with the company. First, fuboTV focuses primarily on sports-related content, which can be a highly cyclical environment. Viewers interested only in the National Football League don't need to subscribe to the platform for the whole year. About six months out of the year will do.
Second, fuboTV's margins are incredibly low. In Q2, the company's gross margins came in at a paltry 7%. This is due to its high subscriber-related expenses -- the costs it pays for the rights to show the content it carries. This metric often eats up most (sometimes even all) of the company's top line. In the second quarter, fuboTV increased revenue by 41% year over year to $312.7 million. The company's subscriber-related expenses increased by nearly 24% to $271 million.
The fact that it increased more slowly than the top line is a good sign. Still, fuboTV remains unprofitable as a result -- although it also improved on that front in Q2. The company's net loss of $54.2 million was much better than the loss of almost $95 million recorded in the prior-year quarter. fuboTV's low margins and red ink on the bottom line explain much of the market's skepticism regarding the company's future.
What does the path ahead look like?
Like other streaming services, fuboTV is betting on the decline of cable television. While the shift is ongoing, there is arguably still miles of growth left ahead, as cable continues to account for a substantial amount of television viewing time. That's good news for fuboTV. If the company can continue growing its subscribers while keeping its content-related expenses in check, margins will expand and net losses will shrink.
In Q2 2023, subscriber-related expenses accounted for 87% of the company's total revenue versus 99% in Q2 2022. Of course, 87% is still a lot, but the company is showing progress. And fuboTV also expects its ecosystem to continue getting larger. For its fiscal 2023, the company expects total North America subscribers to be between 1.565 million and 1.585 million, representing a 9% year-over-year increase at the midpoint.
This is an improvement over its previous guidance of 1.550 million to 1.570 million subscribers. Plus, fuboTV also expects rest-of-the-world subscribers to number between 380,000 to 400,000, or an increase of 7% compared to FY 2022 at the midpoint. Even with fuboTV's continued projected growth, it could take some time before it can turn a profit.
True, the company is on the right track, and at well under $5 per share, it might be worth considering adding shares of the stock. But only those comfortable with a good amount of risk and volatility should do so. fuboTV could turn out to be an excellent investment -- or a decent acquisition target -- if it continues to make improvements to its business. But there is also the very real possibility that its shares will be worthless in a few years. Invest accordingly.
