NFLX - fuboTV: Netflix Earnings Make fuboTV A Tough Bet

2023-10-19 16:27:09 ET

Summary

• fuboTV Inc. aims to provide personalized and interactive features as an alternative to traditional cable TV.
• Netflix's recent earnings call highlighted its increasing emphasis on advertising alongside its content offerings.
• Despite promising prospects, Netflix faces challenges in scaling its advertising business effectively. We discuss key lessons for fuboTV.

Investment Thesis

fuboTV Inc. ( FUBO ) lets you watch live TV and on-demand content, focusing on sports. It's a streaming platform that attempts to offer personalized features and is considered an alternative to traditional cable TV.

On the back of Netflix's ( NFLX ) earnings call , I make the case that Netflix results teach us key important lessons about advertising. Yes, advertising can clearly work alongside top content, but also, making advertising highly profitable isn't without challenges.

Furthermore, it naturally goes without saying that Netflix has the scale and top talented executives at its helm. Can the same be said about FuboTV? I don't think so.

Altogether, I find it too difficult to make a positive call on fuboTV. That's not to say the business is uninvestable. Rather, FUBO is one tough bet.

FuboTV's Near-Term Prospects

fuboTV is a global live TV streaming platform catering to sports enthusiasts. Offering a diverse range of content through various devices, fuboTV strives to disrupt traditional pay TV models.

fuboTV declares that its focus on personalization and interactivity is key to its value proposition, where customizable features create a compelling alternative to traditional pay TV services. Accordingly, fuboTV argues that it's a beneficiary of natural cord-cutting that's underway.

Furthermore, its acquisitions of Edison and Molotov have strengthened its data science and engineering capabilities, propelling top technological advancements for the company.

Furthermore, lest we forget, fuboTV is probably going to see 1.3 million paying North American subscribers in Q3 2023 and may even exit 2023 with close to 1.4 million subscribers. And these subscribers are unlikely to churn out in mass. After all, they are already well accustomed to paying around $75 per month to stream their favorite sporting teams.

What Netflix's Earnings Taught Us

Netflix's advertising revenues have been a topic of interest, as the company yesterday announced that it has been steadily expanding its offerings in this area. While the focus has primarily been on providing an outstanding content slate and enhancing the member experience, Netflix has also been strategizing on the advertising front.

The company has been actively working on improving its ad-related features and products, including the introduction of new advertising products.

Despite its promising prospects, Netflix's advertising opportunities are not without challenges, especially in the near term. One key challenge the company faces is the need to attain scale in its advertising business.

While the recent growth in advertising revenue has been very encouraging, Netflix is striving to achieve a higher scale, which is crucial for competing effectively in the highly competitive advertising landscape and this will also apply to fuboTV.

Additionally, Netflix is working on refining its advertising strategy, including developing targeted and addressable advertising capabilities, something that fuboTV has for a long time strived to accomplish.

Now, Let's Move Further Down fuboTV's Income Statement

fuboTV is likely to report its Q3 balance sheet with approximately $130 million of net debt. This isn't necessarily a deal breaker for the bulls, but when the company is still clearly unprofitable, even on a non-GAAP basis, one has to wonder how much longer until fuboTV will have to raise capital, once again?

And more importantly, on what terms? As it stands right now, fuboTV's is on a cash burn run-rate of around $180 million of free cash flow. This means that fuboTV will have used the bulk of the cash on its balance sheet, which amounts to $300 million within 18 months.

Previously, when interest rates were close to 0%, raising capital was not a problem. And today? What's more, fuboTV's convertible debt comes due in under two and a half years.

Hence, putting aside any further needed capital raise, just focusing for the moment on the refinancing of its convertible debt. Will fuboTV succeed in raising free capital on anything but the most cumbersome terms?

The Bottom Line

After analyzing fuboTV Inc.'s current state, I find that there are numerous unanswered questions surrounding the company's prospects. While it positions itself as a disruptor in the live TV streaming market, its scale and leadership capabilities appear less robust compared to industry giants like Netflix, which is also facing its own headwinds. With substantial net debt, persistent cash burn, and upcoming debt obligations, the sustainability of fuboTV's financial standing remains uncertain. Given these challenges, I am inclined to suggest caution and believe that investing in fuboTV may be too complex and risky at this juncture.

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