Streaming stock fuboTV (NYSE: FUBO) has been struggling mightily in recent years as competitors have been locking up streaming deals, making it difficult for its more modestly sized operations to a turn a profit.
Lately, however, there's been some increased optimism around the stock as the courts have blocked a deal involving a few companies that would have further leveled fuboTV's growth prospects. Shares are now up more than 35% in just the past three months. Will this prove to be just a temporary reprieve for the stock, or could this be the start of a much bigger rally?
A judge blocks a sports streaming platform
Last month, fuboTV got a big win when a judge temporarily blocked a sports streaming service that involved three major companies in the industry: Walt Disney, Fox, and Warner Bros. Discovery. FuboTV argued that if the platform, called Venu, were to go ahead, that would result in it having to pay higher prices for content.
The judge sided with fuboTV, saying that the platform would hurt competition. However, the three companies involved with Venu have appealed the decision.
For sports fans, Venu might have provided them with a more attractive option by offering a broad range of content through a single subscription, for $42.99 per month. FuboTV's main subscriptions cost between $80 to $100 a month. A big frustration for many sports fans these days is how fragmented the market has become, even for cord-cutters.
A broken business model?
The NFL season has recently begun, and according to an analysis from MarketWatch, to watch every game this season without cable would cost consumers approximately $1,758 and would include multiple subscriptions. And consumers with cable could expect to pay close to $2,500.
This assumes that they would want to watch every single game, including games on Christmas, which Netflix has bought the rights to. But it highlights just how broken the streaming model has become, especially with sports and so many streaming services fighting over content. Even with Venu, consumers would still not be able to get every NFL game under a single subscription.
And this recent injunction doesn't save fuboTV, either. If the only way the company can compete is through high prices, then that's not going to be sustainable.
Even now, fuboTV's prices might not be high enough since the company still struggles with profitability; in the trailing 12 months, it has incurred losses totaling more than $235 million. The irony of the recent injunction against Venu is that while it might temporarily help fuboTV, it hurts consumers.
And it might be necessary for streaming companies for them to have a hope of running a profitable operation. By banding together and sharing the costs related to a streaming platform, that could result in a much more sustainable operation.
Even while fuboTV has been growing its operations over the years, there's little reason to be bullish on its prospects for profitability at this point. It's encouraging that the business is growing, but that might not be enough to convince investors that the stock is worth taking a chance on.
The business still isn't in a great position. In just the past six months, fuboTV has burned through nearly $100 million in cash from its day-to-day operations. And as of the end of June, it reported cash and cash equivalents of only $155 million. If it continues on its current path, its operations don't look sustainable, and frequent stock offerings could be necessary to keep the business afloat.
fuboTV stock is too risky
The judge's move to block Venu might only give fuboTV stock a short-term boost because that still doesn't solve the core problem around its lack of profitability. Disney, Fox, and Warner Bros. could come up with a solution that the courts look upon more favorably.
The stock is still down around 50% this year, even with this recent rally in its share price. But without a drastically stronger business model, odds are it is still going to go lower in the weeks and months ahead. Investors are better off pursing better and safer growth stocks than fuboTV.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix, Walt Disney, Warner Bros. Discovery, and fuboTV. The Motley Fool has a disclosure policy.
