grinvalds
Investment Thesis
fuboTV (NYSE:FUBO) was a stock that I was incredibly bullish on until the start of 2022. This was a massive failure on my part.
However, despite my horrendous call, I now attempt to look beyond that and appraise the situation dispassionately.
fuboTV preannounces its Q3 earnings and the stock soars by 9%. Today, FUBO is significantly off its summer lows of approximately $2.40.
Arguably the most significant takeaway from its Q3 earnings preannouncement is that fuboTV has decided that its Sportsbook should immediately cease operations.
Is that enough to win investors to the bull side? I don’t believe it is.
Preannounced Q3 Earnings, Sportsbook Closed Down
FuboTV sought to get ahead of any bad news by preannouncing its Q3 earnings. The bull case here was focused on fuboTV’s sports wagering premise, Fubo Sportsbook, fuboTV’s business unit gets pushed aside and closed.
Remember all those stories of how fuboTV was seeing a significant amount of cross-selling into its Sportsbook? And how the Sportsbook was going to drive down fuboTV’s customer acquisition cost?
It turns out that fuboTV didn’t manage to make that business viable enough. And despite multiple parties interested in that business, none would have led to FuboTV’s lowering its funding requirements.
Yet, investors clearly didn’t lament the company coming clean as the stock jumped more than +9% after hours.
fuboTV to Reach Profitability by 2025
fuboTV remarks that consistent with its prior message, it expects to reach profitability by 2025. Given that we are on the cusp of a global recession today, I have to question fuboTV’s ability to forecast into 2025.
After all, just a few months ago fuboTV was still actively describing its revolutionary sports wagering opportunity, only to a few months later fully wind up this business unit.
Funding Requirement?
The big question that has investors on the edge of their seats is how much will fuboTV need to raise to stave off bankruptcy.
We know that fuboTV has at least $300 million of cash left on its balance sheet. But we also know that in the quarter, its adjusted EBITDA figures were negative $100 million.
Consequently, this means that realistically, fuboTV has less than 12 months left before it must raise capital. This is an unavoidable reality. And with interest rates rapidly rising, I have to question what sort of rates will an unprofitable company today manage to raise debt at.
Furthermore, with the winding up of its Sportsbook unit, we should expect to see executive severance packages plus cash restructuring.
On the plus side, fuboTV doesn’t carry a material amount of debt as of right now. That’s clearly a positive for investors which shouldn’t be too quickly dismissed.
FUBO Stock Valuation – Difficult to Find Fair Value
Back in 2020, it made a lot of sense at the time to think about companies on a P/Sales ratio. Today, even though there are still some pockets of the market where that makes sense to think from an investment perspective, for the most part, that consideration makes no sense.
Indeed, as noted throughout, fuboTV is substantially unprofitable. And what may have made sense when rates were at 0%, clearly no longer makes sense with rates at 4%.
fuboTV is going to have to raise significant amounts of capital. Thus, investors would do well to wait for that capital raise before getting more constructive on fuboTV.
The Bottom Line
fuboTV is 26% shorted. Any news one way or another was always going to let off fireworks. The news that fuboTV closed down one of its main strategic drivers, its Sportsbook segment, saw the stock soaring after hours.
But even as we look beyond this news item, questions remain over whether this unprofitable business will succeed in reaching profitability by 2025.
And most crucially, how much capital will fuboTV manage to raise and on what terms?
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