I have covered fuboTV (NYSE: FUBO) twice before for Seeking Alpha, but it’s been several months since my last note and I think enough has changed since then to warrant revisiting the name. My fundamental opinion on fuboTV from March 2021 has been that the core business is doomed. Earlier this year, I saw the possibility of a short squeeze given the liquidation of highs and the large short position. While I did have a little loss on the short crunch trade thesis that never worked out, it was what I said at the end of that article that I now want to review:
FUBO might be worth a speculative bet if you’ve been on the sidelines and have a long-term vision for the company as a streaming/sports betting hybrid.
I wanted to provide an update on that final comment because the hybrid broadcast/sports betting thesis is no more. The company announced the end of its sports betting business segment earlier this month following a strategic review of the sports betting model:
While various parties expressed interest in the deal, none of these opportunities would have allowed Fubo to reduce its financing requirements and generate sufficient shareholder returns. As a result, FuboTV will close its Fubo Gaming subsidiary and cease operation of the owned-and-operated Fubo Sportsbook, effective immediately.
While stocks did rally a bit in response to that news, that surge was short-lived as FUBO shares are now down 9% since the preliminary Q3 earnings release on Oct. 17:
Although the company did not plan to record significant revenue from the sports betting segment until 2023, I do not think there is any doubt that sports betting will be an important part of the company’s future plans. Last year, CEO David Gandler had this to say about the synergies presented by the combined sports streaming and betting offering:
We believe that Fubo sits firmly at the intersection of three megatrends: the secular decline of traditional television; the shift of TV ad dollars to connected devices; and online sports betting, a market opportunity that we believe is complementary to our first sports live TV streaming platform
If legalized online sports betting is really a big trend, it’s really unfortunate that fubo can’t find a profitable way to profit from it. What remains is a vMVPD model that continues to lose money and a balance sheet that portends the need for a capital increase sometime in the next year.
Preliminary third quarter details
So far, what we know about fuboTV’s Q3 performance is limited. The company is projecting a total of at least $215.5 million in total revenue, $210 million of which will come from the North American segment. The company claims to have at least $300 million in cash and cash equivalents at the end of the quarter with approximately $100 million in negative Adjusted EBITDA. Given a total liability figure of $760 million at the end of the second quarter, the clock is ticking. The company will either have to dramatically increase margin in the streaming business through higher consumer prices or it will have to raise cash at a time when capital is not cheap.
While I’m not too excited about fuboTV’s future prospects, there are some positive signs from the company’s August investor platform.
For example, while I really don’t think the trend can hold, fuboTV is the growth story in the vMVPD space, having accounted for roughly half of vMVPD’s subscriber additions in the last 4 quarters. A better sign for fuboTV shareholders could be the combination of higher-priced elite packages among new subscribers:
From March to July, fubo saw an increase in higher priced elite packages as a percentage of total subscriber additions. This shows that there is some demand for the higher priced packages. Given what fuboTV faces from a liquidity standpoint in the coming quarters, one has to wonder if raising prices on all plans is something the company should consider.
After such a dramatic drop from highs, I cannot recommend shorting a stock that is already shorted as high as 25%. Also, stocks are expensive to borrow and there aren’t many stocks available to short at these depressed prices.
But, in my opinion, it makes very little sense to lengthen this name in anticipation of a short squeeze. The company has too many headwinds hindering prospects for higher prices. It’s running out of cash and could even, in theory, see revenue decline in the coming quarters if we are in fact entering (or already in) a global recession. In tough times, marketing budgets are cut and consumers cut costs; both are potentially harmful to fuboTV. Without a central bank spin on rate hikes and a return to easy money, I don’t think lengthy speculation is warranted here.
There have been indications that the vMVPD model is flawed for years. The PlayStation Vue service will cease to operate in 2020 with almost a million subscribers should have been a warning sign. I think that what has always been pretty self-evident is finally becoming more widely recognized; that is, the vMVPD is not a solution to cut the cord, it is the cord. The biggest winners in the streaming space will be the aVOD and sVOD names, not the vMVPDs.
Unfortunately, vMVPDs are too similar to traditional MVPDs that they are believed to be disrupting. One key difference is that most MVPD operators also sell broadband access as part of the package. fuboTV doesn’t have that luxury and is clearly running out of time. I have no doubt that fuboTV offers consumers a wonderful product. The problem is that if there is no market for that product at a price that allows the company to generate profit from operations, the company has to find significant revenue from complementary models. fuboTV just finished one of those complementary models because it turns out it’s not sustainable either. Don’t walk, run away from this one. The bears are not going to be squeezed here. They will probably just be right.