FuboTV (FUBO +0.00%) just pulled off what can only be described as a coup. It will not only reshape the company's future, but also potentially the competitive landscape in the streaming industry. And it involves one of the most prominent names in the media industry, Disney. Here are three reasons some investors might want to buy FuboTV stock like there's no tomorrow (and some key issues to monitor if you do buy it).
1. FuboTV is super-charging its business
The big deal that has been agreed to is fairly simple in concept. Disney is going to combine its Hulu service with FuboTV's business. FuboTV will still operate its own streaming service, but it will now also operate Hulu. This is a massive deal for FuboTV, which ended 2024 with 1.676 million subscribers. Adding Hulu to the mix is expected to bring the subscriber count up to 6.2 million effectively overnight.
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That will take FuboTV from an also-ran and put it in contention with the big names in the streaming realm, including Disney. That said, this is a win for Disney too, because it removes what was likely a distraction and complication for its media business, given the involvement of other content partners at Hulu. So, in some ways, FuboTV is doing Disney a favor by taking on Hulu. But the big attraction is the step-up in scale.
2. Scale is important in the streaming industry
The benefits of being larger are many for FuboTV. It has to pay for content, the cost of which is spread across its subscriber base. Having more subscribers means that the costs can be spread more widely. That will help the company move toward sustainable profitability, something that it has yet to achieve.
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There is also a benefit on the advertising front. Advertising partners want to reach the widest possible audience. With Hulu in the fold, FuboTV will have a materially larger audience to boast when it is in discussions with advertisers. That should mean more advertising revenue as well. And, of course, more paying subscribers will lead to higher subscription revenues atop the company's income statement.
That said, these benefits are perhaps not a 100% done deal. FuboTV will need to keep the Hulu subscribers it inherits, which may not be as easy as hoped given the highly competitive streaming market. If FuboTV starts bleeding subscribers after the deal is consummated, it will get a quick business boost only to see the positives slowly slip away.
3. Lots of cash and a big backer
There are a couple of important features of the deal with Disney. First off, FuboTV will get off on a strong foot thanks to a $220 million cash infusion to its balance sheet from Disney, Fox, and Warner Bros. Discovery. Given that the company ended 2024 with around $160 million in cash, down from $245 at the end of 2023, this will be a big financial benefit. The extra cash will not only help FuboTV with the transition period, but it will also likely help to support its purchase of the content needed to keep Hulu customers around.
In addition to this cash, Disney will also be providing FuboTV with a $145 million loan. And, also notable here, Disney will own 70% of FuboTV's shares. Having Disney as the majority owner of FuboTV means that the company has a financially strong backer. Optimists will clearly see that as a major positive.
There is a risk, however, that Disney owning 70% of FuboTV will mean that it is simply a vassal of the media giant. That could lead to FuboTV having no choice but to do whatever Disney says, regardless of whether or not it is good for FuboTV's business. This is the pessimistic view, of course, but it is an outcome that all investors should be at least considering as they monitor FuboTV's progress.
The future could be very bright for FuboTV
If you are a glass-half-full type of person, FuboTV merging with Hulu is a massive positive. In fact, even if you are a bit of a pessimist you still have to admit there are good things going on here for FuboTV. The biggest are the huge growth of the subscriber base, the benefits that brings on the operations front, and the backing that FuboTV now has from media giant Disney. Just make sure you don't get so excited by the deal that you ignore potential negatives, if they happen to start popping up.
