Sports-first live television streaming platform fuboTV Inc. (FUBO - Get Rating), which is headquartered in New York City, made its stock market debut through a traditional IPO offering on October 7, 2020. The company raised $183 million through the initial public offering. The stock has since gained 70.9% in price. 

However, its shares have been declining over the past year, reflecting concerns surrounding the company’s negative profit margins in a highly competitive industry. 

FUBO’s bleak growth prospects have driven many institutional investors and banks to short its stock heavily. FUBO has declined 38.5% in price year-to-date and 29.9% over the past month to close yesterday’s trading session at $17.21.

Here is what could shape FUBO’s performance in the near term:

High Short Interest

As of November 30, 2021, 15.2% or 18.39 million of FUBO’s total floating shares were sold short. Generally, a short interest as a percentage of a total float of higher than 10% indicates bearish market sentiment.

Several hedge funds and financial institutions, including Two Sigma LP, Goldman Sachs Group Inc., and Wolverine Asset Management LLC, increased their short position in FUBO last month. The stock has a short interest ratio of 2.8.

Bleak Financials

For its fiscal third quarter, ended September 30, 2021, FUBO’s revenues increased 156% year-over-year to $156.70 million. Also, the company’s operating expenses declined 28% from the same period last year to $259.90 million. But despite its improving revenue margin and decreasing operating costs, FUBO’s adjusted EBITDA loss widened 71% from its year-ago value to $81.30 million. Its net loss and loss per share amounted to $105.85 million and $0.74, respectively.

Acquisitions and Liquidity Concerns

Over the past few months, FUBO has acquired several entertainment and live streaming companies to facilitate its international expansion plans. On December 8, FUBO acquired France’s number one live TV streaming company Molotov SAS for $190 million. The merger is expected to be finalized in the first quarter of 2022.

On December 1, the company entered an agreement to acquire AI-powered computer vision platform Edisn.ai, which is based in India. This acquisition is expected to boost FUBO’s technological  capabilities and improve its targeted contextual advertising.

However, these acquisitions are expected to worsen the company’s cash balance and liquidity in the near term. Moreover, FUBO stated that it would finance its Molotov SAS acquisition through a combination of cash and equity. With the potential dilution of shareholder’s equity, FUBO’s ROE might decline further.

FUBO’s operating cash outflow was $55.70 million in its fiscal third quarter (ended September 30, 2020) due to adverse impacts of its non-recurring payments, wagering business, and semi-annual interest payments on convertible senior notes. Its trailing-12-month net operating cash outflow and levered free cash outflow stood at $219.60 million and $135.61 million, respectively.

Negative Profit Margins

FUBO’s trailing-12-month gross profit margin is negative 0.44%. Its return on sales and return on equity stand at negative 85.62% and 167.233%, respectively. Though the company’s 0.52% asset turnover ratio is slightly higher than the 0.47% industry average, its trailing-12-month return on total capital is negative 28.07%. Also, FUBO’s trailing-12-month ROA and EBITDA margin are negative 37.81% and 59.9%, respectively.

POWR Ratings Reflect Bleak Prospects

FUBO has an overall F rating, which equates to a Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

FUBO has an F grade for Quality and a D for Value and Stability. The company’s negative trailing-12-month ROE is in sync with the Quality grade. In addition, the stock’s negative 7.17x forward non-GAAP P/E justifies the Value grade. Also, FUBO’s relatively high 3.05 beta accounts for the Stability grade.

Of the 14 stocks in the F-rated Entertainment – Sports & Theme Parks industry, FUBO is ranked #13.

In total, we rate FUBO on eight distinct levels. Beyond what we have stated above, we have rated FUBO for Growth, Momentum, and Sentiment. View all FUBO ratings here.

Bottom Line

Analysts expect FUBO’s EPS to remain negative until at least 2022. And the company’s weak cash flows and operational inefficiencies are a cause for concern, especially in a volatile market backdrop. Thus, we think the stock is best avoided now.

FUBO shares were trading at $16.42 per share on Thursday morning, down $0.79 (-4.59%). Year-to-date, FUBO has declined -41.36%, versus a 26.95% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...

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