As someone who’s been very bearish on fuboTV (NYSE:FUBO) stock, I admit that Fubo’s first-quarter results came in way above my expectations.
Still, I remain doubtful about whether Fubo’s service will ever be appealing to the vast majority of consumers. And I think that the company’s extraordinarily high marketing and content costs, along with the tough competition it will continue to face could very well prevent it from ever becoming profitable.
Consequently, I continue to recommend selling the shares.
Q1 Revenue, Subscriber Gains Beat My Expectations
Fubo’s subscriber base jumped 105% year-over-year and 8% quarter-over-quarter, reaching 590,430. Its top line, meanwhile, jumped 135% YOY, coming in at nearly $120 million. And also encouragingly for FUBO stock, the firm’s advertising average revenue-per-user-per-month climbed 57% YOY, reaching $7.11.
In multiple past columns about Fubo, I’ve expressed my skepticism about the company’s ability to attract a large number of cord cutters. That’s largely because, with its service, households pay about the same amount for TV and internet as with cable.
The vast majority of cord cutters, I have reasoned, are primarily motivated by their ability to save money by getting rid of their cable TV subscriptions and switching to streaming services, such as Netflix (NASDAQ:NFLX) and Hulu.
So I was surprised by the large increase in the company’s revenue and subscriber base last quarter. Still, I remain very bearish on FUBO stock.
Sky-High Costs
Fubo’s sales and marketing costs came in at $22.14 million last quarter. The company reported that it had added a net total of 43,000 subscribers in Q1. According to my calculations, that adds up to $515 of sales and marketing spending per net new subscriber.
Although I understand that Q1 is a seasonally slow quarter, my research indicates that the $515 figure is extremely high, especially considering in the seasonally strong Q4, Fubo spent a much better, but still very high, $318 on sales and marketing per new subscriber.
For comparison’s sake, back in Q4 of 2012, when Netflix was still new for many if not most Americans, Netflix’s marketing costs and “additions to streaming content per new subscriber” came in at only $308. So in Q1, Fubo spent over 60% more for sales and marketing per new subscriber than what Netflix spent in 2012 for both marketing and additional content for each new subscriber.
Here’s another interesting data point. At $515 of marketing and sales spending per new subscriber, it would take Fubo nearly eight months of each new subscriber paying for its lowest-tiered plan just to get that $511 back.
And, not surprisingly, given Fubo’s heavy emphasis on sports, its content costs aren’t cheap either. The company’s subscriber-related expenses, which appears to refer mainly to content costs, came in at over $113 million last quarter. So its content costs alone were nearly as high as its entire revenue of almost $120 million.
And despite Fubo’s large YoY subscriber growth, its operating loss jumped to $65 million last quarter from just $18 million during the same period a year earlier, as its operating expenses soared to nearly $185 million from $25.4 million.
Analyzing Where Fubo Is and Where It’s Going
At this point, I believe that Fubo is likely spending a great deal of money to attract the relatively few cord cutters who are willing to pay its current prices for the added convenience of having one streaming service instead of several and/or for the company’s sports offerings.
I believe that, sooner rather than later (maybe in a year or so) there will no longer be many more people left in the U.S. who want to join the service that haven’t already done so.
Moreover, even if I’m wrong about that point, with Fubo’s losses mounting even as its subscriber base grows, it’s going to have to face some unattractive choices, as it only had $459 million of cash at the end of Q1.
Among those choices are offering fewer sporting events and meaningfully raising its prices. But in either of those scenarios, there’s a good chance that it will lose a significant number of its subscribers to cable and streaming services. Alternatively, it can sell many more shares of stock, but that will, of course, depress the price of its shares.
Those who are bullish on FUBO stock and the company itself will argue that its upcoming sports gambling offerings will change everything by radically raising the company’s subscriber base and its average revenue per user.
But as I’ve stated in previous articles, I believe that most consumers will be content with gambling on existing apps. And, to turn around Fubo’s finances, its gambling offerings will have to be extremely successful indeed.
The Bottom Line on FUBO Stock
Fubo’s subscriber base is growing quickly, but so are its losses. The company says that continued rapid subscriber growth and its gambling offerings will come to its rescue. But I think the chances of such a scenario playing out are about the same as the odds of a Major League Baseball team currently in third place in its division going to the World Series.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.