Shareholders of fuboTV would probably like to forget the past six months even happened. The stock dropped 31.5% and now trades at $8.28. This might have investors contemplating their next move.
Is there a buying opportunity in fuboTV, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is fuboTV Not Exciting?
Despite the more favorable entry price, we’re sitting this one out for now. Here are three reasons we avoid FUBO, plus one stock we’d rather own.
1. Weak Growth in Domestic Subscribers Points to Soft Demand
Revenue growth can be broken down into changes in price and volume (for companies like fuboTV, our preferred volume metric is domestic subscribers). While both are important, the latter is the most critical to analyze because prices have a ceiling.
fuboTV’s domestic subscribers came in at 5.75 million in the latest quarter, and over the last two years, averaged 122% year-on-year growth. This performance slightly lagged the sector and suggests it might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability. 
2. Operating Losses Sound the Alarm
Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
fuboTV’s operating margin has been trending up over the last 12 months, but it still averaged negative 2.5% over the last two years. This is due to its large expense base and inefficient cost structure.
3. Cash Burn Ignites Concerns
Free cash flow isn’t a prominently featured metric in company financials and earnings releases, but we think it’s telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
While fuboTV’s free cash flow broke even this quarter, the broader story hasn’t been so clean. Over the last two years, fuboTV’s demanding reinvestments to stay relevant have drained its resources, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 6.5%, meaning it lit $6.53 of cash on fire for every $100 in revenue.
Final Judgment
fuboTV isn’t a terrible business, but it doesn’t pass our quality test. Following the recent decline, the stock trades at 36.5× forward P/E (or $8.28 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We’re fairly confident there are better stocks to buy right now. Let us point you toward an all-weather company that owns household favorite Taco Bell.
Stocks We Like More Than fuboTV
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