Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies fuboTV Inc. (NYSE:FUBO) makes use of debt. But the more important question is: how much risk is that debt creating?
When Is Debt A Problem?
Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.
How Much Debt Does fuboTV Carry?
The image below, which you can click on for greater detail, shows that at September 2021 fuboTV had debt of US$317.1m, up from US$41.5m in one year. However, its balance sheet shows it holds US$393.1m in cash, so it actually has US$76.0m net cash.
How Healthy Is fuboTV's Balance Sheet?
According to the last reported balance sheet, fuboTV had liabilities of US$251.4m due within 12 months, and liabilities of US$321.5m due beyond 12 months. On the other hand, it had cash of US$393.1m and US$26.1m worth of receivables due within a year. So its liabilities total US$153.7m more than the combination of its cash and short-term receivables.
Of course, fuboTV has a market capitalization of US$2.96b, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, fuboTV boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine fuboTV's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
In the last year fuboTV wasn't profitable at an EBIT level, but managed to grow its revenue by 361%, to US$512m. That's virtually the hole-in-one of revenue growth!
So How Risky Is fuboTV?
We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months fuboTV lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$254m and booked a US$439m accounting loss. With only US$76.0m on the balance sheet, it would appear that its going to need to raise capital again soon. The good news for shareholders is that fuboTV has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. High growth pre-profit companies may well be risky, but they can also offer great rewards. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 3 warning signs for fuboTV (1 is potentially serious) you should be aware of.
If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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