fuboTV: Contrarian Stock with Lots of Upside Potential

With an increasing number of consumers getting their content fix via streaming platforms, companies like fuboTV (FUBO) have seen rapid growth in their revenues and subscriber count.

However, after being a multi-bagger stock within a year, FUBO is finding it immensely difficult to curb its losses, and as a result, its shares have lost close to 82% of their value over the past year and 50% year-to-date.

In today’s competitive market, investors are risk-averse and are on the lookout for stable returns. However, we believe that the company could be a contrarian pick in current markets. We are bullish on the stock.

fuboTV is a New York-based live TV streaming company that streams live sports events, news, and entertainment content. Customers can access its content on their streaming devices like smart TVs, computers, mobile phones, and tablets as long as they pay for a subscription.

fuboTV has tons of potential, as the live streaming market is expected to reach the $4.26 billion mark by 2028, growing at a CAGR of 22.4% between 2021 to 2028.

Since the pandemic, cost-cutting measures have forced people to dump their costly cable and satellite connections. They have moved to platforms like fuboTV for access to all their favorite channels on a single digital platform. As a result, fuboTV has been one of the fastest-growing platforms that closed out 2021 with 1.1 million subscribers, crushing the market’s expectations regarding revenue and subscriber targets several times during the year.

The company has distinguished itself from its rivals by portraying a sports-first programming approach and offering subscribers access to over three dozen sports channels and hundreds of other networks. However, the current levels of volatility could become too much to handle for conservative investors.

Quick Customer Acquisition

One plus point for fuboTV stock is its accelerating rate of customer acquisition at a time when giants like Netflix are actually slowing down. The company has added 185,000 subscribers in the fourth quarter of 2021, thereby reaching 1.13 million subscribers in a short period.

Notably, this time the subscriber jump was almost twice compared to the growth of 92,800 subscribers it had seen in the earlier year. This makes the fuboTV stock quite attractive after its earnings release, as the company had proved that it is not a basic stay-at-home stock that can thrive only during the pandemic with no prospects thereafter.

Record Revenues, but Unprofitable

fuboTV has been growing its subscriber count and revenues extensively, but the piling up of losses in every quarter has turned into a matter of concern for the market. Its latest fourth-quarter financials released recently also received mixed responses despite smashing revenue targets. 

Due to the rapid increase in its subscriber base, the company was able to deliver record revenues of $638 million in 2021, indicating a massive 144% increase year-over-year. Whereas for the fourth quarter, the revenue came at $231 million, showing a 119% year-over-year improvement.

Moreover, the company’s average revenue per user also rose to $72.70 in the fourth quarter of 2021, up from $62.84 and $53.73 recorded in the fourth quarter of 2020 and 2019, respectively. fuboTV has attributed a significant portion of its gains to the inherent operating leverage that it received from the scaling of its customer base as well as the synergies that had arisen from its acquisition of Molotov.

Despite those developments, fuboTV is still burning a lot of cash. The company lost $112 million on the bottom line in the fourth quarter. However, the amount lost has shown a 43% improvement compared to the previous year.

Its adjusted EBITDA had also worsened to -$82.6 million, up from -$43.5 million and -$46.3 million recorded in the earlier two years. Besides, another matter of concern is that fuboTV’s subscriber-related expenses as a percentage of revenue have increased from 85.6% to 93.5% in the last year.

Wall Street’s Take

Turning to Wall Street, FUBO stock has a Moderate Buy consensus rating. That’s based on five Buys and four Holds assigned in the past three months. The average fuboTV price target of $14.57 implies 84% upside potential.

Analyst price targets range from a low of $9 per share to a high of $20 per share.

Multiple Revenue Sources

fuboTV is not completely dependent on the revenue generated from its streaming service. The company has been gradually trying to add complementary, higher-margin revenue sources to the business to earn the most from its users. 

At present, it is already generating advertising revenue, although it covers only a small portion of its earnings. However, the thing that is worth noticing is its advertising revenue has grown 18% year-over-year and 98% in the fourth quarter following its Molotov acquisition. Repeat advertiser’s spending grew by 170% in 2021, and a large number of advertisers have spent more than $1 million each.

All this indicates fuboTV can actually use its steaming business as a tool to earn more through advertising.

Moreover, in November, it launched an integrated sports-betting platform in Iowa that lets viewers interact with the streaming service in real-time and place bets on the games they are watching simultaneously. Sportsbook is still in its early stages, and fuboTV will try to bring it to new markets soon.

FUBO might be experiencing losses now, but its financials say the stock does have some serious potential. If the company’s advertising and sportsbook businesses succeed, it can use those funds to lower its customer acquisition costs, dramatically improving the financials.

There are indeed some far better stocks in the same industry, but the thing that gives FuboTV an edge over others is that the company only needs to outperform a particular segment of the streaming market and does not need to address the global streaming crowd that companies like Netflix (NFLX) do. Therefore, investors who have a big risk appetite can go for this stock.

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