How Low Can Fubo Stock Go?

It's hard to get excited about fuboTV (NYSE: FUBO) these days. Shares of the sports-centric streaming TV platform are trading 59% lower this year. The return gets even worse if you stretch the starting line back to when Fubo briefly traded above $60 near the end of 2020 when investors rallied around the service's ambitions to tap into the sports gambling market. Fubo has plummeted 98% from its all-time high.

Even bulls are losing their enthusiasm. Laura Martin at Needham slashed her price target on the shares from $3 to $2 on Friday. A serious competitive threat awaiting later this year finds the analyst lowering her bottom-line outlook on the expectation of higher marketing costs for Fubo to stand out in the future. She's sticking to her bullish buy rating, but there isn't a lot of wiggle room between where the stock is now and zero, as it trades for a little more than a buck these days.

A winning game plan

Let's start with the good news. Fubo's popularity is still growing. The 1.5 million North American subscribers it had on its books at the end of March may be a sequential dip from the 1.6 million it was entertaining when the year began, but this is a seasonal business. Subscriber counts typically slide sequentially in the first and second quarters before picking back up in the latter half of the year. The more popular sporting events tend to take place in the summer and fall quarters.

The best way to view Fubo's appeal is with year-over-year comparisons to sidestep the seasonal lumpiness. On that front, Fubo's North American audience has risen a hearty 18% over the past year. The news is even better on the top line, as North American revenue rose 24% to $394 million.

It's always great to see revenue growing faster than subscriber gains for a streaming service. This indicates that the platform is making more money off each user, and that is certainly the case here. Higher subscription rates and accelerating ad revenue growth have raised Fubo's average revenue per user in North America by 10% to $84.54 a month over the past year.

Fubo is trying to establish a presence outside of North America, but for now, it's a small business lacking meaningful revenue outside of its home turf. It's a low-paying audience growing slower than its flagship operations.

The way down the income statement is also encouraging. Gross margin is improving, which is not a surprise given the scalable nature of the business model and the year-over-year rise in subscribers and average revenue per user. Profitability isn't happening anytime soon, but losses from operations and the adjusted deficit are getting smaller.

Image source: Getty Images.

The potential agony of defeat

Now, let's turn to the pressure points. Most streaming services would love to generate nearly $85 a month from their subscribers, but streaming TV isn't the same as the premium platforms that command much larger audiences. Streaming TV is a substitute for cable or satellite TV, which also involves paying the lion's share of the revenue it collects to the networks it carries. The costs are particularly high for Fubo, given its sports bent. League contracts and sports channels tend to shoot higher at every renewal.

Some analysts believe Fubo can turn a profit -- at least on an adjusted basis -- by 2026, but a lot can happen between now and then. The biggest threat on the horizon is the partnership between Disney 's (NYSE: DIS) ESPN, Fox (NASDAQ: FOXA) , and Warner Bros. Discovery (NASDAQ: WBD) to join forces with their leading linear TV sporting channels to offer a "skinny bundle" of streaming programming for sports fans. This is the sweet spot of Fubo's audience, and you can be sure it will cost a lot less than stand-alone streaming TV services like Fubo.

Fubo is already competing with larger streaming TV services with greater financial resources. Now, it has a high-profile product expected to launch in the fourth quarter, which is going right for its sports base.

A couple of years ago, Fubo thought it had cracked the code. The stock peaked as it made deals to work on launching its own online sportsbook and offer real-time predictive gaming tweaks. It abandoned what would've been a costly pursuit, but that also finds investors wondering what the floor is now that the ceiling-blasting catalysts are gone.

The grim reality is that as low as Fubo shares are right now, the path to zero from any starting line represents a 100% loss. Fubo is still losing money and has a high net debt position, but this doesn't mean that it will end badly for investors.

The Disney-Fox-Warner skinny bundle might not be a monster hit. Fubo could also be acquired by a larger rival on the merit of its high-paying audience. However, the stock remains risky. If Fubo is around in three years, there's a good chance that it's trading higher, but there's also a strong chance that it's not trading at all. This is the riskiest of the streaming service stocks , and it will continue to trade that way.

Rick Munarriz has positions in Walt Disney. The Motley Fool has positions in and recommends Walt Disney, Warner Bros. Discovery, and fuboTV. The Motley Fool has a disclosure policy .