FuboTV’s current share price is a compelling entry point for investors, according to Wedbush Securities analysts, who maintained their ‘Outperform’ rating and price target of US$5 on the stock.
Shares of fuboTV, a sports-focused live TV streaming service, are currently trading at about US$2.29.
Ahead of fuboTV’s fourth quarter results which are set to be released on Monday, February 27 before the market open, the analysts wrote in a note to clients that the company’s latest results are likely to inch toward profitability.
READ: FuboTV says sales and subscriber growth in Q3 likely to exceed prior guidance but expects EBITDA loss
“After years of losses, fuboTV is targeting positive free cash flow and 15% adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin by 2025,” they wrote.
They noted that the company’s near-term focus was on reducing cash burn and raising capital to extend its cash runway.
“We are confident that fuboTV can do both, but at the current share price, the capital raise is likely to be dilutive, and cash burn must improve dramatically or further capital raises could be required,” the analysts wrote. “We believe our $5 price target fully prices in that uncertainty.”
They pointed out that the company’s decision to shut down its costly sports wagering business should improve its near-term cash burn.
“We maintain our $5 price target, which reflects an EV/sales multiple of 0.7x, an admittedly subjective valuation given no clear line of sight to free cash flow generation,” they wrote.
Fourth quarter expectations
The analysts wrote that they expect fuboTV to report 4Q revenue of $287 million, compared to the consensus expectation of $286 million and guidance of $283 million to $289 million.
They expect a loss per share of $0.54, compared to the consensus expectation of a loss per share of $0.71.
They noted that their 4Q estimates assume fuboTV paid subscribers at 1.365 million, compared to guidance of 1.355 to 1.375 million, ad average revenue per user (ARPU) of $7.88, subscription ARPU of $63.77, and total ARPU of $71.54.
The analysts pointed out that ad ARPU continues to be under pressure as the overall ad-spending trend continued to worsen throughout 4Q; however, they wrote that fuboTV likely benefitted from political advertising and advertising around the World Cup, as well as some general insulation driven by its live-TV and sports-focused programming as seen in recent quarters.
Further, the analysts noted that fuboTV’s decision to shutter its sports wagering business would lessen the company’s burden to fund the growth of that business and potentially save roughly $20 million annually.
“While we are big believers in the appeal of marrying sports viewing to sports wagering, we think that fuboTV has expertise only in the former and view its divestiture as a clear positive on its path toward profitability, with some potential for a partnership in the future,” the analysts wrote.
“We think management will update investors on its cash runway expectations for 2023 when it reports 4Q results next Monday,” they concluded.
Contact the author at emily.jarvie@proactiveinvestors.com
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