FuboTV(NYSE: FUBO) stock has been on a tear this month. The virtual cable provider with a focus on sports content has had a rough time in the last few years with its stock down 97% from all-time highs, but it just got positive news about a court ruling regarding the launch of a competing product from some of its content providers. The stock is up around 20% over the past 30 days to $1.68. At one point in 2021, it traded at over $60 a share.
With a tiny market cap, improving financials, and fast-growing revenue, is now the time to finally buy shares of Fubo stock before it explodes higher? Let's take a deeper look at this streaming TV disruptor and find out.
A court ruling in its favor
This summer, media conglomerates Disney, Fox, and Warner Brothers Discovery tried to launch a direct-to-consumer (DTC) sports streaming application called Venu. The app would cost $43 a month, and would give sports fans a chance to cut the cord but still have access to the sports leagues that the media companies have rights to.
Venu is a potential competitor to FuboTV. The company is what's known as a virtual cable provider, which allows someone to subscribe to a cable TV package but access it directly through an internet connection. It is cable, but the internet-streaming version. Fubo has focused on gaining sports content and wants to be the go-to sports package for customers looking to switch to a modern TV solution. Disney, Fox, and Warner Brothers Discovery all sell channels to Fubo, so seeing them teaming up to circumvent it probably led to panic among its executives.
In fact, they are taking the companies to court, alleging that the Venu application would be anti-competitive and a consolidation of monopoly power in sports content. Earlier this month, Fubo was awarded a preliminary injunction from the courts to stop the Venu application from launching. This is only an initial stoppage, and the whole case needs to go through the judicial process, but it will help FuboTV fend off some potential competitors for now. Investors took it as a win. The announcement was a catalyst for the stock rising this month.
Tough margins and large competitors
As an aggregator of video content, FuboTV essentially has to pass on the costs charged by TV channels like ESPN and then charge its customers a slightly higher rate. This will show up in a company's gross margin figure. Previously, Fubo actually posted negative gross margins, meaning it was selling its virtual cable package below the price it cost to get the channels from content providers. Today, it has fixed this, but margins are still low at just 9%.
Improving margins have helped improve Fubo's cash burn. At its lowest level, the company was burning $360 million in free cash flow a year. Over the last 12 months, it burned less than $150 million. There is still a lot of improvement left before it can reach positive cash flow, but Fubo is in a much better spot than it was a few years ago; still, the stock is much lower.
Another concern for Fubo is its direct competitor -- YouTubeTV. Owned by Alphabet, YouTubeTV has a near-infinite war chest to try and get to scale with subscribers. This is why it has a much larger market share. Alphabet can make money indirectly by getting more people to watch YouTube ads and acquiring data for its advertising business. Fubo has been nimble so far in acquiring sports rights, such as regional sports networks, but from a thousand-foot view, it is disadvantaged mightily compared to YouTubeTV.
FUBO Free Cash Flow data by YCharts
Should you buy the stock?
As of this writing, Fubo stock has a market cap of barely over $500 million. It generated $1.5 billion in revenue over the last 12 months and grew revenue 26% year over year last quarter. If gross margins keep improving and the company can reach positive cash flow, there may still be some value yet in Fubo's stock. It has $150 million in cash on the balance sheet and around $300 million in convertible debt not due until 2026 or later, so near-term liquidity is not a huge concern if cash flow keeps improving.
This does not mean you should rush in to buy shares, though. I think Fubo is a risky stock because of the huge competitors like YouTubeTV. It is also unclear whether Venu will be allowed to operate. The outcome of the court case is not predetermined, even though the company got an initial injunction. For these reasons, FuboTV stock is best left outside of your portfolio for the time being.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Brett Schafer has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Walt Disney, Warner Bros. Discovery, and fuboTV. The Motley Fool has a disclosure policy.
