2023-08-07 18:48:02 ET
Summary
- fuboTV Inc. reported impressive Q2 2023 revenue and subscriber growth, but still reports large losses and low margins.
- The lack of proprietary shows or services limits fuboTV's ability to increase margins and generate higher profits.
- fuboTV's cash balance is low, raising concerns about liquidity if the company fails to meet financial targets or if the economy enters a recession.
fuboTV Inc. ( FUBO ) has made a ton of progress in cutting operating losses, but the global TV streaming platform still doesn't offer much in the way of proprietary offerings. The company has a solid streaming subscription base, but the margins remain very small. My investment thesis remains Neutral on the stock, with the company's plan to not reach positive free cash flows until 2025.
Huge Progress
fuboTV reported a solid Q2 , with revenues growing an impressive 41% and beating analyst estimates by nearly $11 million. Even with this huge growth and analyst beat, the TV streaming platform still reported a large loss with an adjusted EBITDA margin of -9.8%.
The company grew subscribers by 23% to reach 1.167 million. fuboTV Inc. has constantly added new sports related content to drive subs to the TV platform and expand existing subs ARPU, up 13% in the quarter.
The issue remains the lack of any proprietary shows or services to drive higher margins, such as the original concept of aligning the sports leaning streaming platform with gambling. Even with the improving results, fubo still only produced a 7% gross margin.
Again, these services are just fuboTV Inc. distributing sports programming to viewers with the company taking a small cut of the revenues. As sports rights rise, fuboTV is left having to hike prices to viewers over and over without any real financial benefit.
The company did discuss an improving ad market. Unfortunately, fubo only generates $23 million, or less than 10% of revenues, from the ad market.
On the Q2'23 earnings call , CEO David Gandler discussed the improving ad market into July:
fubo posted North America ad revenue of $22.8M in the second quarter; that's up 5% YoY despite a challenging ad market in the first half of 2023. We are very encouraged as green shoots in July indicate an advertising rebound and a sizable ad recovery for the back half of the year.
fuboTV Inc. has made great progress on cutting losses by stripping out costs. Over 50% of revenue growth dropped to the bottom line in the last quarter. The streaming platform reported both the net loss and adjusted EBITDA margins increased by over 2,100 basis points.
The problem here is that fubo has to further boost the margins by over 1,000 basis points to get anywhere close to breakeven on a cash flow basis. Unfortunately, a lot of companies in these situations have plans that only get the company to breakeven, and the progress stalls after such a difficult path.
fuboTV Inc. needs to reach 15% to 20% adjusted EBITDA margins for an attractive business model, which requires a massive boost beyond the 2025 free cash flow breakeven goal.
Limited Margin Of Safety
fuboTV ended the quarter with a cash balance of only $300 million. The company burned ~$71 million in cash from operations during the quarter and $148 million from operations during the 1H of the year.
Management remains confident the cash balance is enough liquidity for the business until reaching cash flow positive goals until 2025. The biggest issue is the level of safety, if the U.S. economy actually runs into a recession or fuboTV fails to hit internal financial targets.
The cash balance levels have to continue falling into 2025 whether or not CEO David Gandler remains positive on the liquidity levels as follows:
..ended the quarter with $300 million in cash, cash equivalents and restricted cash. We are confident that this provides us with sufficient liquidity to fund our operating plan as we target positive free cash flow in 2025.
The market cap has dipped back below $1 billion, while the business is on a path to top $1.3 billion in revenues this year. fuboTV Inc. just doesn't generate the gross profits to aggressively buy the stock here for the future.
Takeaway
The key investor takeaway is that fuboTV Inc. continues to not provide an appealing investment thesis without proprietary or premium services with high margins. The stock has the additional risk with the company headed towards low liquidity levels heading toward positive cash flows in 2025.
Investors should continue watching the stock from the sidelines.
For further details see:
fuboTV: Limited Margin Of Safety