In the streaming market, fuboTV (FUBO -22.71%) has carved out a not-so-lucrative niche for itself. The company focuses on live sports, making its platform a go-to service for cord-cutters looking to watch their favorite teams.
On Wednesday, fuboTV stock tanked following news that Disney, Fox, and Warner Bros. Discovery were teaming up to create a joint venture that will marry the three companies’ sports-heavy channels into a new streaming service. While key details, like pricing, are still unknown, increased competition is profoundly bad news for fuboTV.
A tough business
The problem for fuboTV is simple: Its business model just doesn’t work, even without much direct competition. Some sports can be found on various streaming services, including Amazon Prime Video, YouTube, and Disney’s ESPN+, but there’s nothing as comprehensive as fuboTV’s platform.
The company has had little trouble attracting subscribers, and price hikes haven’t been a problem, given that there isn’t a viable streaming alternative for many subscribers. At the end of the third quarter, fuboTV had 1.48 million paid subscribers in North America, with each generating $83.51 of revenue each month, on average, through subscription fees and advertising. The company bumped up subscription pricing in January, tacking on $5 to each of its plans.
Even with a lack of competition, fuboTV continues to light cash on fire. In the third quarter, the company reported free cash flow of negative $29.5 million. That represents an improvement but puts the company on pace to burn through about $120 million annually. To put that in perspective, this is a company that now has a market capitalization below $600 million.
The game fuboTV has been playing for years to keep the lights on — selling additional shares of its stock to fund operations — becomes more difficult to pull off as the share price sinks. In the first nine months of 2023, the company raised $117 million through stock sales. That’s on top of the $292 million it raised in 2022 and the $140 million it raised in 2021. The company had $260 million in cash at the end of the third quarter, which won’t last long as cash flies out the door.
Because fuboTV’s content costs are generally tied to the number of subscribers on its platform, costs rise right along with revenue as the subscriber count grows. Since fuboTV’s distribution agreements sometimes feature minimum guaranteed payments, costs wouldn’t necessarily decrease if the company were to start losing subscribers.
A potentially fatal blow
Even before the joint venture news, raising cash to keep things going was going to be tricky for fuboTV. Shares of fuboTV are down 97% from their pandemic-era high. The amount of cash the company could realistically raise from selling additional stock without crashing the stock price further is likely limited.
When the new sports streaming service from the trio of traditional media companies goes live later this year, fuboTV may find subscriber growth much harder to come by, especially if pricing for the new service is significantly lower than what fuboTV charges. Subscribers will also have the option to bundle with existing streaming services from the three companies.
The company’s plan to produce positive cash flow in 2025 depends on continued subscriber count growth. If this new service stunts the company’s growth, fuboTV will run out of cash and be forced to raise more. With limited resources, securing expensive sports rights in competition with deep-pocketed rivals may prove impossible.
fuboTV has shown that there’s a sizable market for sports-centric streaming services and subscribers are willing to pay cable-like monthly fees. But it hasn’t figured out how to turn a profit. With competition looming, the company looks likely to run out of time.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Timothy Green has positions in Walt Disney and Warner Bros. Discovery. The Motley Fool has positions in and recommends Amazon, Walt Disney, Warner Bros. Discovery, and fuboTV. The Motley Fool has a disclosure policy.