Investment Thesis

fuboTV Inc. (NYSE:FUBO) delivers a mixed Q2 set of results. On the one hand, the business continues to acquire paying customers at a very rapid rate. This consideration is the bright element in the bull case.

This allows fuboTV to continue to lay claim to its growth ambitions of being the ”go-to” sports-centric streaming platform.

On the other hand, once we look beyond its narrative and toward its underlying cash burn, there’s not enough at play to convince and entice long-term investors to this stock.

Rapid Recall

In my previous analysis, I said,

In essence, the crown jewel of the business is its advertising business. And that’s barely growing. Furthermore, regarding the kind of profit margins its core streaming business might eventually fetch, I am still unsure. […] The main reason why I keep my hold rating on this name and do not put a sell rating on this stock is that fuboTV continues to very rapidly acquire new customers. That is, new paying customers. And any time a business is rapidly acquiring paying customers, this describes a healthy business. And that is clearly bullish.

That summarizes my stance today. I clearly recognize there’s a strong bull case, but at the same time, a lot of heroics are needed for fuboTV to turn its narrative into a profitable business.

fuboTV’s Near-Term Prospects

I’ve followed fuboTV for a long period of time. And yet I’m still amazed that fuboTV continues to acquire paying customers at such a rapid rate. These viewers are not just eyeballs. These are households that are willing to open up their wallet and put down their credit card details. Every single month.

Indeed, there’s no other reason why a customer would pay for content online unless they are seeing clear and compelling value.

Nevertheless, the question remains, can fuboTV adequately monetize its user base? And the answer to this critical question remains in doubt.

Revenue Growth Rates Remain Interesting

There’s no denying that the bull case for fuboTV is its revenue growth rates. Even now, more than 2-years since the start of the work-from-home movement, fuboTV is one of the only streaming companies that is still growing at very fast growth rates.

That being said, these growth rates are not worth much, if the cost of these revenues, leaves fuboTV’s streaming operations with an unprofitable business starting with its gross profit margins. And not even thinking about its underlying running costs, asides from its streaming costs.

Simply put, for fuboTV to work, its advertising business needs to gain traction. And not only does its advertising business have to grow very quickly, but the profit margins from its advertising segment need to be particularly impressive.

And while fuboTV no longer provides insights into its advertising profit margins, it does offer a glimmer into its advertising revenue growth rates. And for Q2 2023, fuboTV’s advertising business in North America was up 5% y/y. Meaning that, with these sorts of growth rates, the ad business doesn’t meaningfully compel bulls strongly attached to fuboTV’s story.

Bears Thesis Focuses on fuboTV’s Profitability

In my previous analysis, as we headed into Q2 earnings I said,

At the present run rate, I suspect that fuboTV will burn approximately $200 million in free cash flow this year.

Another quarter goes past, and this estimate of mine turns out to be woefully inaccurate. In fact, for the first 6 months of 2023 alone, fuboTV has already burned through $150 million in free cash flow.

Therefore, fuboTV now appears likely to burn through more than $200 million in free cash flow this year. Perhaps closer to $250 million.

Accordingly, with approximately $400 million worth of convertible notes, and less than $400 million of cash on its balance sheet, this doesn’t bode well for this business’ medium-term health.

That being said, fuboTV has on numerous occasions succeeded in raising capital from shareholders. For instance, raising more than $100 million earlier this year. Hence, I believe there continues to be plenty of investor appetite to further support this business.

The Bottom Line

In the latest Q2 results, fuboTV presents a mixed picture.

On the positive side, the company is rapidly acquiring paying customers, solidifying its position as a sports-centric streaming platform.

The revenue growth rates remain impressive, making fuboTV one of the few streaming companies still experiencing rapid expansion.

However, despite these bright spots, concerns arise when looking at the underlying cash burn and profitability. While the subscriber growth is encouraging, doubts persist about fuboTV’s ability to effectively monetize its user base.

The advertising business, crucial for profitability, needs to gain traction and show robust profit margins, but its growth remains modest at a 5% y/y increase in Q2 2023.

Moreover, the company’s ongoing cash burn, estimated at over $200 million in free cash flow for the year, raises medium-term health concerns, although fuboTV has historically managed to raise capital from shareholders to support its growth.

As an investor, it’s essential to weigh these contrasting factors before making a decision on fuboTV’s prospects.