Escalating Content Costs Will Squeeze Margins But Streaming Will Persist

Key Takeaways

• Reliance on costly sports content, rising competition, and loss of key partners pressure margins, hinder profitability, and threaten sustainable growth.
  
• Gains in interactive advertising and potential partnerships are undermined by declining ad revenue and limited addressable market due to subscriber fatigue.
  
• Persistent subscriber losses, rising content costs, and tougher competition threaten fuboTV's revenue and margins as its strategic shift sacrifices growth opportunities amid industry headwinds.

Catalysts

Operates a live TV streaming platform for live sports, news, and entertainment content in the United States and internationally.

• While fuboTV continues to benefit from the ongoing shift of consumers away from traditional cable towards live streaming platforms, which expands its addressable market and was evidenced by exceeding internal subscriber forecasts, the accelerating fragmentation of content and rising costs to secure must-have channels erode both subscriber growth and the ability to defend attractive revenue bundles. These challenges are expected to weigh on top-line growth and threaten the long-term scalability of margins.
  
• Although fuboTV's sports-centric portfolio aligns with increasing consumer demand for live sports and engagement tools, its dependence on expensive sports rights and inability to secure content at favorable terms-illustrated by the ongoing drop of TelevisaUnivision and Warner Bros. Discovery-suggests that operating expenses will continue to pressure net margins, making structural profitability elusive even as revenue from existing products may temporarily improve.
  
• While fuboTV is positioned to benefit from improvements in broadband and 5G infrastructure, supporting acquisition and retention, intensifying competition from larger technology companies with deeper resources puts ongoing downward pressure on fuboTV's pricing power and increases subscriber churn. This dynamic makes it difficult to translate these industry tailwinds into durable earnings growth.
  
• Despite the company's progress and innovations in interactive advertising and dynamic ad formats, as shown by 30%–41% year-over-year growth in those segments, the loss of key content partners with significant ad insertable hours is causing overall advertising revenue to decline and undercuts progress toward higher-margin revenue, which is critical for long-term improvements in net margin and cash flow.
  
• Although the potential combination with Hulu + Live TV could offer scale and improved operating leverage, persistent consumer subscription fatigue and falling international subscriber counts signal that fuboTV's addressable market may be chronically limited. This restricts meaningful revenue expansion and limits the upside of any future business combinations.

fuboTV Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on fuboTV compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming fuboTV's revenue will grow by 4.8% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 4.3% today to 0.4% in 3 years time.
• The bearish analysts expect earnings to reach $8.0 million (and earnings per share of $0.02) by about August 2028, down from $70.3 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 261.6x on those 2028 earnings, up from 18.0x today. This future PE is greater than the current PE for the US Interactive Media and Services industry at 16.3x.
• Analysts expect the number of shares outstanding to grow by 3.71% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.8%, as per the Simply Wall St company report.

fuboTV Future Earnings Per Share Growth

Risks

• fuboTV is experiencing persistent subscriber and revenue declines in both North America and Rest of World, with North America subscribers projected to fall by 14 percent and Rest of World by 17 percent year-over-year for Q2, which could substantially pressure top-line revenue growth and future earnings.
  
• The company is facing significant challenges around escalating content costs and increased content fragmentation, as highlighted by the ongoing need to renegotiate programming contracts at fair market price and the financial impact of losing TelevisaUnivision and Warner Bros. Discovery networks, threatening margins and content differentiation over the long run.
  
• Intensifying competition from larger streaming platforms and tech giants capable of subsidizing services or outbidding fuboTV for exclusive sports and entertainment rights may continue to erode fuboTV's pricing power, drive higher customer acquisition costs, and further compress net margins.
  
• The decline in ad revenue, down 17 percent year-over-year, reflects vulnerability to both tightened advertising budgets and the loss of key network partners, limiting short-term and potentially long-term revenue diversification until new ad formats and partnerships gain significant traction.
  
• The company's shift to focus on profitability over growth, especially internationally, suggests a lack of strategic investment in growth and user acquisition, which risks long-term revenue and scale advantages if broader pay-TV and vMVPD market penetration continues to decline or if consumer subscription fatigue worsens.

Valuation

• The assumed bearish price target for fuboTV is $4.25, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of fuboTV's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $6.0, and the most bearish reporting a price target of just $4.25.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $1.9 billion, earnings will come to $8.0 million, and it would be trading on a PE ratio of 261.6x, assuming you use a discount rate of 8.8%.
  
• Given the current share price of $3.7, the bearish analyst price target of $4.25 is 12.9% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.