This is a difficult macroeconomic environment — especially for debt-ridden and bankrupt tech companies in this inflationary climate. Sports-the first streaming platform fuboTV (FUBO 1.71%) It is one of these companies. As the growth stock’s 80% slide this year suggests, investors have decided the stock is riskier than they thought.
But fuboTV has some plans to help drive profitability into overdrive, including a strategic review of its new betting business: fubo sportsbook.
Big loss
Underscoring why investors are unhappy about Fubo TV in this market, the company reported a loss of about $116 million in the second quarter of 2022. This is an impressive sum considering that the total revenue for the season was only $222 million. Of course, the management points to the improved operational capacity of the company; While revenue grew 70 percent year-over-year, fuboTV’s net loss as a percentage of revenue improved more than 2,000 basis points.
Of particular concern is the cash flow of streaming services. During Q2, fuboTV’s operating cash flow was negative $91.3 million. That’s some serious cash burn when it accounts for around $379 million of the company’s cash flow.
Lean years may lie ahead.
Given the market’s growing need for profit and increased capital spending, Fubo TV said it plans to “refine and adjust our business to reflect changes in today’s macroeconomic environment.” These changes, management said, will ultimately lead to profitability.
But investors should have some patience. fuboTV’s time frame for positive free cash flow? 2025.
His plans to move closer to positive free cash flow include reducing internal costs, streamlining content costs, efforts to improve unit economics and consideration of strategic opportunities for the business, where the company has live applications in Arizona and Iowa. Allowing users to integrate live sports viewing and betting into one integrated ecosystem.
While it’s unclear what fuboTV plans to do with Fubo Sportsbook, management made one thing clear in its second-quarter shareholder letter: its main goal is to “de-risk” the business. And so he said.
While our disciplined sportsbook growth continues, we believe it is important to be more capital efficient than our initial scope, given the rapidly evolving macroeconomic environment. We are taking steps that put our business at risk and we have decided not to go the private auction route any longer. As a result, we are evaluating strategic opportunities for divestitures.
Whatever Fubo TV can do with its Wagang business to help mitigate risk, investors should keep two things in mind. First, management’s plans to prioritize profits may take years to produce meaningful results.
On a more positive note, fuboTV has one thing going very well for it: The popularity of streaming — especially streaming live sports — is on the rise. That’s evident from the company’s 41 percent year-over-year increase in subscribers in the quarter and 32 percent increase in ad revenue over the same period.
For fuboTV shareholders, we hope that such rapid growth rates will be sufficient to help the company continue to attract sufficient capital to support its operations as it works towards self-financing (funding its growth plans with its own cash from operations).
Daniel Sparks has no position in the shares mentioned. The clients may own shares of the mentioned companies. The Motley Fool has positions and recommends fuboTV, Inc. Motley Fool has a full disclosure policy.
