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Investment Thesis
fuboTV (NYSE:FUBO) is a highly contentious stock. This business has very mixed prospects, which gives ammunition to both the bulls and the bears. The bulls can point to 2024 as being the year that fuboTV will at some point reach $2 billion in revenues as a forward run rate.
Meanwhile, the bears rapidly retort that this business is going to run out of cash in less than 18 months and will need to raise more capital on substantially burdensome terms.
Rapid Recap
Back in October, I said in a neutral analysis:
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.
Author’s work on FUBO
Since I penned those words, the stock has underperformed in a very strong bull market. More specifically, FUBO is up 2%, while the S&P 500 (SPY) is up more than 15%.
And over time, I’ve found that this bet has become even more difficult. Here’s why.
2024 Could Deliver 20% CAGR
FUBO revenue growth rates
FUBO’s 2023 growth rates have significantly moderated relative to 2022. But what this means in practical terms is that these lower revenue growth rates would mean that 2024 will be up against an easier comparable base.
Consequently, it’s entirely possible that in 2024, FUBO could deliver around 20% CAGR. And to be clear, my estimates are nothing outlandish, in fact, they pretty much align with what analysts are also expecting.
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However, what I believe this insight isn’t sufficiently highlighting is how investors in 2024 will look towards fuboTV as it continues to grow by 20% CAGR.
Essentially, rather than FUBO being perceived as a company with rapidly decelerating revenue growth rates, as was the case throughout 2023, it will be perceived as a business that has “found stability”.
And what do investors crave about all else? Certainty! It doesn’t even matter if bad news is expected and ultimately arrives. What investors dislike is uncertainty. And on that basis, I cannot issue fuboTV with an outright sell rating.
But that’s not where the story ends.
FUBO Stock Valuation – Too Challenging to Value
In my previous analysis, I said:
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.
After another set of quarterly results, its Q3 results, we must update these figures. FUBO holds approximately $260 million of cash, but once we factor in its debt, FUBO actually reaches approximately $140 million of net debt.
Therefore, I am inclined to believe that on a forward run-rate now, FUBO could reach negative $150 million of free cash flow, rather than the negative $180 million I previously estimated.
Nevertheless, it still seems reasonable to contend that in about 18 months, around early 2025, if not before, fuboTV will need to raise capital again. And this is where the plot thickens.
In January of this year, FUBO exchanged its 2026 senior notes which carried a 3.25% interest rate, with 2029 notes which carry a 7.5% interest rate. This means that creditors are increasingly stringent with lending capital to FUBO. And if creditors become nervous about lending more capital to fuboTV, fuboTV will be left in an extremely challenging situation.
The Bottom Line
In conclusion, fuboTV presents a divisive investment. While optimists envision a robust future with a projected $2 billion in revenues by 2024, skeptics raise red flags about the company’s cash position.
The company’s current cash burn rate, indicating a net debt of approximately $140 million, intensifies my concerns.
With a potential forward run-rate of negative $150 million in free cash flow within 18 months, the likelihood of FUBO needing to raise capital by early 2025 looms large.
Lastly, the recent shift to higher-interest notes signals a tightening lending environment, complicating the company’s financial outlook. This intricacy, marked by evolving growth rates and a challenging debt scenario, underscores the nuanced nature of FUBO’s investment proposition.
